<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996 or
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________to________
Commission File No. 0-14120
Advanta Corp.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 23-1462070
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
organization)
Welsh & McKean Roads, P. O. Box 844, Spring House, Pennsylvania 19477
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 657-4000
---------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Class B Common Stock, $.01 par value
6-3/4% Convertible Class B Preferred Stock, Series 1995
Stock Appreciation Income Linked Securities (SAILS)(SM)
Class A Right
Class B Right
- --------------------------------------------------------------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
<PAGE> 2
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. (See definition of affiliate in Rule 405.)
$ 525,168,654.75 as of March 1, 1997 which amount excludes the value
of all shares beneficially owned (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) by officers and directors of the Company (however, this
does not constitute a representation or acknowledgment that any of such
individuals is an affiliate of the Registrant).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of March 1, 1997 there were 18,168,896 shares of the Registrant's
Class A Common Stock, $.01 par value, outstanding and 25,988,917 shares of the
Registrant's Class B Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference
and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (e) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980).
<TABLE>
<CAPTION>
Document Form 10-K Reference
- -------- -------------------
<S> <C>
Definitive Proxy Statement relating to the Part III, Items 10-13
Registrant's 1997 Annual Meeting of
Stockholders, to be filed pursuant to
Regulation 14A not later than 120 days
following the end of the Registrant's
last fiscal year, and referred
to herein as the "Proxy Statement".
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS.
OVERVIEW
Advanta Corp. (the "Company") serves consumers and small businesses through
innovative products and services primarily via direct, cost effective delivery
systems. The Company primarily originates and services credit cards and
mortgages. Other products include small-ticket equipment leasing, auto finance,
credit insurance and deposit products. The Company utilizes customer
information attributes including credit assessments, usage patterns, and other
characteristics enhanced by proprietary information to match customer profiles
with appropriate products. At year end 1996 assets under management totaled $19
billion.
Approximately 72% of total revenues are derived from credit cards
marketed through targeted direct mail campaigns. For the past several years,
the Company's strategy has been to market this product in the form of a no
annual fee, low variable-rate gold card. The Company has successfully grown to
one of the ten largest issuers of gold cards and ranks among the top 15
bankcard issuers worldwide. Personal Finance Services which include mortgages
and auto loans contribute 13% of total revenues with a managed loan portfolio
of $2.8 billion. Mortgage loans are originated directly with consumers, as well
as through conduit relationships and wholesale purchases from brokers and other
financial institutions.
The Company was incorporated in Delaware in 1974 as Teachers Service
Organization, Inc., the successor to a business originally founded in 1951. In
January 1988, the Company's name was changed from TSO Financial Corp. to
Advanta Corp. The Company's principal executive office is located at Welsh &
McKean Roads, P. O. Box 844, Spring House, Pennsylvania 19477-0844. The
Company's telephone number at its principal executive office is (215) 657-4000.
References to the Company in this Report include its consolidated subsidiaries
unless the context otherwise requires.
ADVANTA PERSONAL PAYMENT SERVICES
During 1995, the Company's consumer credit card unit adopted the name Advanta
Personal Payment Services, which more appropriately captures the unit's mission
and its goal of expansion into new delivery systems. The credit card, a vehicle
enabling the consumer to transact purchases and facilitate borrowing, offers
utility to the consumer that may move beyond its traditional platform. For
example, "smart" credit cards (credit cards containing a microchip processor)
and on-line payment delivery systems associated with a credit card account are
nascent technologies which may in the future be a part of Advanta Personal
Payment Services.
The Company, which has been in the credit card business since 1983,
issues gold (i.e., premium) and standard MasterCard(R)* and VISA(R)* credit
cards nationwide. The Company has built a substantial cardholder base which, as
of December 31, 1996, totaled 5.7 million accounts and $12.7 billion in managed
receivables. The gold card strategy has produced a portfolio with approximately
80% of balances from customers holding a gold card. This contrasts with the
bankcard industry as a whole, which is composed of 43% gold (versus standard)
cards. The Company believes its concentration of gold card balances to be the
highest among the top twenty domestic bankcard issuers. The top twenty bankcard
issuers, as of December 31, 1996, accounted for more than 75% of all domestic
balances outstanding. Both gold and standard
- --------
* MasterCard(R) is a federally registered servicemark of MasterCard
International, Inc.; VISA(R) is a federally registered servicemark of VISA,
U.S.A., Inc.
3
<PAGE> 4
accounts undergo the same credit analysis, but gold accounts have higher
initial credit limits because of the cardholders' stronger credit record. In
addition, gold accounts generally offer a wider variety of services to
cardholders. The primary method of account acquisition is direct mail
solicitation. The Company generally uses credit scoring by independent third
parties and proprietary market segmentation and targeting models to target its
mailings to profitable segments of the market.
In 1982, the Company acquired Colonial National Bank USA, the name of
which was changed to Advanta National Bank USA ("AUS") in May 1996. As a
national bank, AUS has the ability to make loans to consumers without many of
the restrictions found in various state usury and licensing laws, to negotiate
variable rate loans, to generate funds economically in the form of deposits
insured by the Federal Deposit Insurance Corporation ("FDIC"), and to include
in its product mix a MasterCard and VISA credit card program. In 1995, the
Company chartered Advanta National Bank ("ANB") to complement the credit card
activities of AUS. ANB is a type of limited purpose national bank known as a
"credit card bank" whose lending activities are limited to consumer credit card
lending. See "Government Regulation -- Advanta National Bank USA and Advanta
National Bank." Prior to the establishment of ANB, substantially all of the
Company's credit card receivables and bank deposits were originated by AUS.
However, at December 31, 1996, ANB accounted for $5.6 billion of the Company's
total of $12.7 billion of managed credit card assets, as well as $716 million
of the total $1.9 billion of bank deposits and all of the $836 million of
medium term bank notes.
MasterCard and VISA license banks, such as AUS and ANB (together the
"Banks") and other financial institutions, to issue credit cards using their
trademarks and to utilize their interchange networks. Cardholders may use their
cards to make purchases at participating merchants or to obtain cash advances
at participating financial institutions. Cardholders may also use special
credit line drafts issued by the Banks to draw against their Visa or MasterCard
credit lines for cash, purchases or balance transfers. Each credit card
transaction is submitted to a merchant bank which remits to the merchant the
purchase amount less a merchant discount fee, and submits the purchase to the
card issuing bank for payment through the appropriate settlement system. The
card issuing bank receives an interchange fee as compensation for the funding
and credit and fraud risk that it takes when its customers use its credit card.
MasterCard or VISA sets the interchange fee as a percentage of each card
transaction (currently averaging approximately 1.4%).
The Company generates interest and other income from its credit card
business through finance charges assessed on outstanding loans, interchange
income, cash advance and other credit card fees, and securitization income as
described below. Credit card income also includes fees paid by credit card
customers for product enhancements they may select, and revenues paid to the
Banks by third parties for the right to market their products to the Company's
credit card customers.
Most of the Company's MasterCard and VISA credit cards carry no annual
fee, and those credit cards which do include an annual fee generally have lower
fees than those charged by many of the Company's competitors. The Company
believes that this characteristic of no or low annual fee credit cards has
appealed to consumers, and that the Company's credit cards have also appealed
to consumers because of their competitive interest rates, credit lines, quality
service, and payment terms. The interest rates on the majority of the Company's
credit card receivables are variable, tied either to the prime rate or the
London interbank offered rate ("LIBOR"). This variable rate structure helps the
Company maintain net interest margins in both rising and declining interest
rate environments.
While the Company believes that its credit card offers will continue
to appeal to consumers for the reasons stated, the Company also notes that for
several years competition has
4
<PAGE> 5
been increasing in the credit card industry. At the same time, the U.S.
consumer has become a generally more sophisticated and demanding user of
credit. These forces are likely to produce significant changes in the industry.
The Company is devoting substantial resources to meeting the challenges and
taking advantage of the opportunities which management sees emerging in the
industry. In 1994 through 1996, this included significant focus on balance
transfer initiatives, in which the Company encouraged new and existing
customers to transfer account balances they were maintaining with other credit
card issuers to an AUS or ANB account with a lower interest rate. Approximately
42% of the new credit card sales generated in 1996 resulted from balance
transfer business. Also in these years, most of the Company's new credit card
accounts carried low "introductory" interest rates, which repriced upwards
after an introductory period of up to one year.
In addition, as part of the strategy to broaden and deepen its
relationship with the consumer, the Company has launched some proprietary
branded credit card products. These products were crafted to meet identified
long-term consumer needs and are expected to establish relationships with
consumers that will be lasting. The Company intends to continue exploring new
approaches to the credit card market.
The following table shows the geographic distribution by state of total managed
credit card receivables among the top five states, together with the impaired
credit card receivables in those states as of December 31, 1996:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
TOTAL TOTAL PERCENT OF
CREDIT TOTAL PORTFOLIO IMPAIRED IMPAIRED TO
CARD RECEIVABLES IMPAIRED BY STATE BY STATE TOTAL RECEIVABLES
---------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
(Dollars in millions)
California $ 1,943.8 $ 59.4 15.3% 18.7% .5%
New York 1,008.9 28.5 8.0 9.0 .2
Texas 906.9 24.9 7.1 7.8 .2
Florida 763.3 24.3 6.0 7.6 .2
Illinois 520.3 11.4 4.1 3.6 .1
Other 7,548.2 169.3 59.5 53.3 1.3
---------- ------ ----- ----- ----
TOTAL $12,691.4 $317.8 100.0% 100.0% 2.5%
--------- ------ ----- ----- ---
</TABLE>
Since 1988, AUS has been active in the credit card securitization
market, and since its inception in 1995, ANB has likewise been active, together
securitizing $3.4 billion of credit card receivables in 1996. The Company
continues to recognize income on a monthly basis from the securitized
receivables. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Notes 1 and 3 of the Notes to Consolidated
Financial Statements.
The Banks' securitization program provides a number of benefits:
diversifying the Banks' funding base, providing liquidity, reducing regulatory
capital requirements, lowering the cost of funds and providing a source of
variable-rate funding to complement the variable-rate credit card portfolio.
Additionally, until September 30, 1996, securitization was important in helping
to limit the on-balance sheet growth of AUS to less than 7% per annum. See
"Government Regulation -- the Company." Furthermore, the Banks continue to own
the credit card accounts and customer relationships, which the Company believes
continue to build significant long-term value. While the Company believes that
securitization will continue to be a reliable source of funding, there is
5
<PAGE> 6
no assurance that the Company will be able to continue securitizations in
amounts or under terms comparable to its securitizations to date.
A securitization involves the transfer by the Company of the
receivables generated by a pool of credit card accounts to a securitization
trust. Certificates issued by the trust and sold to investors represent
undivided ownership interests in receivables transferred to the trust. The
securitization results in removal of the receivables from the Company's balance
sheet for financial and regulatory accounting purposes. For tax purposes, the
investor certificates are characterized as a collaterized debt financing of the
Company.
The trust receives finance and other charges paid by the credit card
customers and pays a rate of return on a monthly or quarterly basis to the
certificate holders. While in most cases the rate of return paid to investors
is variable in order to match the pricing dynamics of the underlying
receivables, the Company also uses fixed rate securitizations in certain
circumstances. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations --Asset/Liability Management." Credit losses on the
securitized receivables are paid from the funds in the trust. The Company
continues to service the accounts for a fee, approximately 2.0% of the
securitized receivables. Excess spread (defined as finance charges plus
miscellaneous fees less interest paid to certificate holders, credit losses and
servicing fees) is first retained to build up a reserve fund to a certain
level, after which amounts are remitted to the Company. The Company's
relationship with its credit card customers is not affected by the
securitization.
Investors in the trust receive payments only of interest during the
first three to eight and one-half years of the trust. Thereafter, an
amortization period (generally between six and ten months) commences, during
which the certificate holders are entitled to payment of principal and
interest. Acceleration of the commencement of the amortization period (which
may occur in limited circumstances) on a securitization would accelerate the
Company's funding requirement. Upon full repayment of principal to the
certificate holders, whether as a result of normal or accelerated amortization,
the trust's lien on the accounts terminates and all related receivables and
funds held in the trust, including the reserve fund, are transferred to the
Company.
ADVANTA PERSONAL FINANCE SERVICES
Formerly designated Advanta Mortgage, the newer name Advanta Personal Finance
Services ("APFS") reflects the growing diversification and product array of
this business unit, which in 1995 expanded to include both Advanta Mortgage and
Advanta Finance, and in 1996 launched an automobile financing business, Advanta
Auto Finance.
Advanta Mortgage Corp. USA originates, purchases, securitizes, and
services non-conforming credit first and second mortgage loans directly,
through its subsidiaries, and for AUS's "Advanta Mortgage USA" Division
(collectively, "Advanta Mortgage"). Loan production is generated through
multiple distribution channels including two centralized, direct to consumer
origination centers (each one dedicated to a specific product), a broker
network serviced by selected sales locations, correspondent relationships and
purchases from other financial institutions. In 1995, Advanta Mortgage
developed and tested a Home Equity Line of Credit product, from which annual
loan production volume grew to $53 million in 1996.
During 1995 a new business channel, "Advanta Finance," was launched,
offering loans directly to the consumer through a branch office system. Through
December 31, 1996, fifty branches have been opened offering first and second
lien mortgage loans similar to those offered by Advanta Mortgage. Advanta
Finance production activity for 1996 grew to $137 million. In 1996, Advanta
Auto Finance began offering loans secured by automobiles to sub-prime
customers, largely through correspondent relationships, with originations
totaling $104 million. The combined origination volume for APFS for 1996 was
$1.5 billion.
6
<PAGE> 7
Advanta Mortgage originates and purchases loans, generally funding
these loans through sales or securitizations which have been structured to
qualify as real estate mortgage investment conduits ("REMICs") under the
Internal Revenue Code. In a securitization, Advanta Mortgage typically sells
receivables to a trust for cash while retaining an interest in the loans
securitized. The cash purchase price is generated through an offering of
pass-through certificates by the trust. The purchasers of the pass-through
certificates are generally entitled to the principal collected and a portion of
the interest collected on the underlying loans while Advanta Mortgage retains
the "excess spread." The excess spread represents the excess of the interest
and fees paid by borrowers on the underlying loans over the sum of the
pass-through rate of interest payable to the certificate holders, credit
losses, a servicing fee which is paid to the Company in its role as servicer,
and certain transaction related costs. During 1996, Advanta Mortgage
securitized $1.4 billion of loans.
The excess spread is received over the life of the loans. However, in
accordance with generally accepted accounting principles ("GAAP"), Advanta
Mortgage recognizes an amount which approximates the estimated present value of
the excess spread as a component of mortgage banking income in the fiscal
period in which the loans are sold. The gain recognized reflects estimates of
the impact of future credit losses and loan prepayments. Other basic sources of
income to Advanta Mortgage are net interest income on loans outstanding pending
their sale, and loan servicing income, including subservicing of loans which
were never owned by the Company. See Note 1 of Notes to Consolidated Financial
Statements.
Advanta Mortgage's subservicing portfolio at December 31, 1996 totals
$3.7 billion of third party loans serviced for a fee. During the year, the
Company assumed $3.1 billion of new servicing for third parties. The Company
has experienced significant growth in this portfolio over the past two years as
a result of its favorable reputation in the sub-prime market and anticipates
continued expansion of its market presence. The Company bears no credit risk on
this portfolio but it does bear operational risk with respect to its servicing
obligations. Subserviced loans are not included in the Company's managed
portfolio.
Advanta Mortgage's managed portfolio of receivables includes owned
loans (generally held for sale) and the loans it services in which it retains
an interest in the excess spread. At December 31, 1996, owned personal finance
loans receivable totaled $376 million while total managed receivables were $2.8
billion. In contrast to the subserviced loans, the performance of the managed
portfolio, including loans sold by the Company, can materially impact ongoing
income from Personal Finance activities. See Note 1 of Notes to Consolidated
Financial Statements. At December 31, 1996, the total serviced portfolio,
including the "subserviced" portfolio, was $6.4 billion.
Approximately 85% of the managed portfolio is secured by first lien
position loans and the balance is secured by second lien position loans.
Approximately 75% of the managed portfolio is comprised of fixed rate loans
while the remainder represents adjustable rate loans. At December 31, 1996,
total personal finance loans managed, and the nonperforming loans included in
these totals, are concentrated in the following five states:
7
<PAGE> 8
<TABLE>
<CAPTION>
PERCENT OF
PERSONAL PERCENT OF PERCENT OF NONPERFORMING
FINANCE TOTAL PORTFOLIO BY NONPERFORMING BY TO TOTAL
LOANS NONPERFORMING STATE STATE LOANS
----- ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(Dollars in Millions)
California $ 501.9 $24.9 18.2% 26.7% .9%
New York 208.3 7.7 7.6 8.3 .3
Maryland 194.2 7.4 7.1 7.9 .3
New Jersey 193.9 12.0 7.0 12.9 .4
Pennsylvania 184.8 7.6 6.7 8.2 .3
Other 1,470.6 33.5 53.4 36.0 1.2
-------- ----- ----- ----- ---
TOTAL $2,753.7 $93.1 100.0% 100.0% 3.4%
-------- ----- ----- ----- ---
</TABLE>
Geographic concentration carries a risk of increased delinquency
and/or loss if a specific area suffers an economic downturn. Advanta Mortgage
monitors economic conditions in those regions through market and trend
analyses. A Credit Policy Committee meets throughout the year to update lending
policies based on the results of analyses, which may include abandoning lending
activities in economically unstable areas of the country. The Company believes
that the concentrations of nonperforming loans reflected in the preceding table
are not necessarily reflective of general economic conditions in each region,
but rather reflect the credit risk inherent in the different grades of loans
originated in each area. The interest rate charged and the maximum
loan-to-value ratio permitted with respect to each grade of loans are adjusted
to compensate for the credit risk inherent in the loan grade. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- -- Provision for Credit Losses" and "-- Credit Risk Management -- Asset
Quality."
ADVANTA BUSINESS SERVICES
In late 1994, the Company's subsidiary, Advanta Leasing Corp., changed its name
to Advanta Business Services Corp. ("ABS"), reflecting the Company's intention
to expand its offerings to small business customers. The name change followed
the Company's introduction, in July 1994, of a business purpose MasterCard
credit card as a supplement to its commercial equipment leasing business. Both
lines of business continue to expand.
The commercial equipment leasing business is generated primarily
through third party referrals from manufacturers or distributors of equipment
as well as independent brokers. Most contact with these referral sources is
made from the Company's ABS headquarters in Voorhees, New Jersey, using
extensive direct marketing operations. These operations include a staff of
telephone sales representatives who are assigned to specific industries, and
backed by the Company's direct mail advertising program. Additional business is
also generated from direct contact with customers through these same channels.
Leasing originations volume, measured by the cost of the equipment
included in new lease contracts, continued to grow, from a total of $251
million in 1995 to $337 million in 1996. While much of this growth is due to
increased penetration of existing markets, such as office machinery, security
systems and computers, some has been the result of expansion into additional
market segments. The most significant of these are leasing programs for certain
industrial and agricultural equipment and programs for leasing equipment to
agencies of State and local governments. The Company's growth in its
traditional markets has been the result, in part, of an expanded National
Accounts program which seeks referral business from larger distributors and
manufacturers.
8
<PAGE> 9
The business-purpose credit card operation grew from 23,412 to 78,599
accounts with balances of $306 million as of December 31, 1996. Again, direct
marketing techniques, primarily direct mail to prospective customers, are the
source of new accounts. This marketing program is the result of extensive and
ongoing testing of various campaigns, with success of each campaign measured by
both the cost of acquisition of new business, and the credit performance of the
resulting business. The "Advanta Business Card" is marketed by ABS and issued
by its affiliate, Advanta Financial Corp. (see "Government Regulation --
Advanta Financial Corp.").
ADVANTA INSURANCE COMPANIES
The Company mainly offers specialty credit related insurance products and
services to its existing customer base. The focus of these products is on the
customers' ability to repay their debt in the event of certain circumstances.
Enrollment in these programs is achieved through the utilization of either
direct mail or telemarketing distribution channels.
Through unaffiliated insurance carriers, the Company generally makes
available a combined credit life, disability and unemployment product, an
accidental death product, or equipment insurance to Advanta's lending and
leasing customers. The Company's insurance subsidiaries reinsure 100% of these
risks from the insurance carriers on a coinsurance basis. In consideration for
assumption of these risks the insurance subsidiaries receive reinsurance
premiums equal to 100% of the net premiums collected by the insurance carriers,
less a ceding fee as defined by the reinsurance treaties, and all acquisition
expenses, premium taxes and loss payments made by the carriers on these risks.
Under the terms of certain reinsurance treaties the subsidiaries are either
obligated to maintain in trust for the benefit of an insurance carrier an
amount equal to 100% of the unearned premiums and all statutory reserves for
future incurred loss payments or have certain of these loss reserves, as
defined, withheld by an insurance carrier.
Credit life insurance for credit card customers insures the life of
the borrower (and any joint borrower) and provides for the payment to the
primary beneficiary (the lender) in the event of the borrower's death of a
benefit generally equal to the unpaid principal balance, subject to a maximum
amount equal to the lesser of the borrower's balance at the date of death or
$10,000. Credit disability and unemployment insurance for credit card
customers generally provide for the payment of the minimum monthly payment
required on the debt outstanding at the commencement of the primary borrower's
inability to work as a result of disability or involuntary unemployment, until
the customer is able to return to work or obtains other employment, subject to
a maximum equal to the lesser of the borrower's balance at the date of
unemployment or disability or $10,000.
Commencing in 1992 and 1995, AUS and ANB, respectively, began making
available to their credit card customers in certain states the option to
purchase a debt cancellation agreement called Credit Protection Plus(R).
Under the terms of the agreement, AUS or ANB will forgive the credit card
borrower's balance in the event of the death or permanent disability of either
the primary or joint (if purchased) credit card borrower up to the lesser of
$10,000, the customer's balance or the customer's credit limit at the date of
death or permanent disability. In addition, the agreement provides for the
suspension of the contractual principal payment obligation and the waiver of
all interest and service fees in the event that either the primary or joint (if
purchased) credit card borrower is unable to work due to involuntary
unemployment or short-term disability, from the date of initial unemployment or
disability to the sooner of twelve months thereafter or the date the customer
is able to return to work or obtains other employment. The Banks have purchased
from the Company's insurance subsidiaries insurance protection against excess
losses, as defined, incurred from providing these services.
9
<PAGE> 10
The Company also offers other specialty-based insurance products to
its customers. In consideration the lending institution receives an expense
reimbursement percentage of insurance revenues collected.
Approximately 90% of the Company's total insurance revenues are
derived from the offering of the combined insurance product and services to
credit card customers of AUS and ANB.
ADVANTA PARTNERS
Advanta Partners LP is a private venture capital equity investment firm formed
in 1994. The firm focuses primarily on growth capital financings,
restructurings and management buyouts in the financial services and information
services industries. The investment objective of Advanta Partners is to earn
attractive returns by building the long-term values of the businesses in which
it invests. Advanta Partners combines transaction expertise, management skills
and a broad contact base with strong industry-specific knowledge which is
further enhanced by its relationship with the Company.
DEVELOPMENTAL INITIATIVES
The Company has initiated a number of new programs focused on creating new
products, entering new markets and expanding the Company's channels of
delivery. As part of the Company's expansion into new markets, in 1995 the
Company formed a joint venture with The Royal Bank of Scotland to market, issue
and service bankcards in the United Kingdom. While initial mailings have
generated positive response, this effort was not material to the Company in
1996. The Company believes that the joint venture will not be material to
earnings in 1997. Additionally, the Company has developed and launched several
branded credit card products. The Company is continuing to explore new product
concepts and expects to introduce new products in 1997. (See "Advanta Personal
Payment Services"). Simultaneously, the Company is exploring new technologies
and delivery systems related to payment services. The Company continues to
engage in research and development activities with respect to products and
services outside the financial services sector.
DEPOSIT, SAVINGS AND INVESTMENT PRODUCTS
The Company offers a range of insured deposit products as well as uninsured
bank notes through AUS and ANB and offers uninsured investment products of
Advanta Corp. through both direct and underwritten sales of debt securities. In
December 1996, Advanta Capital Trust I, a statutory business trust established
by the Company, issued $100,000,000 of 8.99% Capital Securities, maturing in
December 2026. The securities represent a preferred beneficial interest in the
assets of the trust. The proceeds of that offering were lent to the Company for
general corporate purposes (See Note 7 of the Notes to Consolidated Financial
Statements). In October 1995, the Company ceased selling subordinated retail
investment notes, and instead began offering senior retail investment notes
which (like the previous subordinated notes) are marketed by print advertising
and direct mail solicitations to existing and prospective individual investors.
In addition to the senior retail investment note program, the Company has filed
a senior debt shelf registration with the Securities and Exchange Commission
covering $1.6 billion of securities. As of December 31, 1996 $500 million was
outstanding and $1.1 billion remained available for sale under this shelf. The
Company also filed a "universal shelf" registration statement in June 1995 for
$500 million of debt and/or equity securities. In July 1995, $92.5 million of 6
3/4% Convertible Class B Preferred Stock was issued under that shelf. Other
than through the retail investment Note Program described in this paragraph,
investments in the Company's senior debt securities
10
<PAGE> 11
are primarily marketed to institutional investors. In June of 1996, the Company
renegotiated its revolving bank line of credit to extend the term to
approximately four years and to increase the amount to an aggregate of $1
billion available to the Parent, AUS and ANB. Of the $1 billion revolving bank
line of credit, a maximum of $500 million is available to the Parent. This new
line provided by a consortium of domestic and foreign banks further strengthens
the funding capacity of the Company.
Bank deposit products include at AUS: demand deposits, money market
savings, statement savings accounts, and retail certificates of deposit; and at
both AUS and ANB: large denomination certificates of deposit (certificates of
$100,000 or more). Consumer deposit business at AUS is generated from repeat
sales to existing depositors and from new depositors attracted by newspaper
advertising and direct mail solicitations. ANB is limited to the issuance of
deposits having a minimum size of $100,000.
The deposits and senior debt securities of the Banks have investment
grade ratings from the nationally recognized rating agencies. These ratings,
which were first achieved in 1993 for AUS, and in 1995 for ANB, have allowed
the Banks to further diversify their funding sources. The Banks, in September
1995, filed an offering circular with the Office of the Comptroller of the
Currency for $2 billion in senior bank term debt and $250 million in
subordinated bank term debt. As of December 31, 1996, $1.1 billion of senior
bank debt was outstanding under that offering circular. At December 31, 1996,
ANB has $68 million in subordinated debt outstanding which it has issued to its
parent company.
In addition to the funding diversity provided by the debt issuance
capacity of the Company and the debt and deposit raising capabilities of the
Banks, Advanta Financial Corp. ("AFC") has been taking deposits in the form of
certificates of deposit since January 1992. AFC is an FDIC-insured industrial
loan corporation organized under the laws of the State of Utah. As of December
31, 1996, AFC's funding capacity was not material to the Company.
GOVERNMENT REGULATION
THE COMPANY
The Company is not required to register as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company owns
AUS, which is a "bank" as defined under the BHCA as amended by the Competitive
Equality Banking Act of 1987 ("CEBA"). However, under certain grandfathering
provisions of CEBA, the Company is not required to register as a bank holding
company under the BHCA because AUS, which takes demand deposits but does not
make commercial loans, did not come within the BHCA's definition of the term
"bank" prior to the enactment of CEBA and it complies with certain restrictions
set forth in CEBA, such as limiting its activities to those in which it was
engaged prior to March 5, 1987 and , prior to September 30, 1996, limiting its
growth rate to not more than 7% per annum. The 7% growth cap on AUS was
terminated as of September 30, 1996 by statutory amendment of the BHCA. The
elimination of this cap created substantial new flexibility with respect to
asset/liability management for AUS, leading the Company to evaluate the
corporate structure of AUS and ANB. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Asset/Liability Management
- -- Liquidity, Funding and Capital Resources." Continuing CEBA restrictions also
prohibit AUS from cross-marketing products or services of an affiliate that are
not permissible for bank holding companies under the BHCA. In addition, the
Company complies with certain other restrictions set forth in CEBA, such as not
acquiring control of more than 5% of the stock or assets of an additional
"bank" or "savings association" as defined for these purposes under the BHCA.
Consequently, the Company is not subject to examination by the Federal Reserve
Board (other than for purposes of assuring continued compliance with the CEBA
restrictions referenced in this paragraph). Should the Company or AUS cease
complying with the
11
<PAGE> 12
restrictions set forth in CEBA, registration as a bank holding company under
the BHCA would be required.
Registration as a bank holding company is not automatic. The Federal
Reserve Board may deny an application if it determines that control of a bank
by a particular company will cause undue interference with competition or that
such company lacks the financial or managerial resources to serve as a source
of strength to its subsidiary bank. While the Company believes that it meets
the Federal Reserve Board's managerial standards and that its ownership of AUS
has improved the bank's competitiveness, should the Company be required to
apply to become a bank holding company the outcome of any such application
cannot be certain.
Registration as a bank holding company would subject the Company and
its subsidiaries to inspection and regulation by the Federal Reserve Board.
Although the Company has no plans to register as a bank holding company at this
time, the Company believes that registration would not restrict, curtail, or
eliminate any of its activities at current levels, except that some portions of
the current business operations of the Company's insurance subsidiaries would
have to be discontinued, the effects of which would not be material. However,
the Company is actively exploring additional lines of business, some of which
the Company would not be able to pursue as a registered bank holding company
under the BHCA.
Under CEBA, neither ANB nor AFC, is considered a "bank" for purposes
of the BHCA, and so the Company's ownership of these institutions does not
impact the Company's exempt status under the BHCA. ANB is a "credit card bank"
under CEBA, and as such is subject to certain restrictions, including that it
may only engage in credit card operations, it may not offer checking or
transaction accounts, and it may only accept time deposits in amounts of
$100,000 or more.
ADVANTA NATIONAL BANK USA AND ADVANTA NATIONAL BANK (THE "BANKS")
The Company acquired AUS in 1982 and organized ANB in 1995. Both of the Banks
are national banking associations organized under the laws of the United States
of America. The headquarters and respective sole branches of both AUS and ANB
are currently located in Wilmington, Delaware. ANB was chartered to complement
the credit card activities of AUS. ANB is a "credit card bank," a class of
FDIC-insured depository institution created under CEBA, which can only engage
in credit card operations, can only accept deposits in denominations of
$100,000 or more, may not offer transaction (e.g., checking) accounts, may only
maintain one office for the collection of deposits, and may not engage in
commercial lending activities. The Company conducts substantially all of its
consumer credit card lending business through the Banks, and conducts a large
portion of its mortgage lending business through AUS. The Banks are subject
primarily to regulation and periodic examination by the Office of the
Comptroller of the Currency (the "Comptroller"). Such regulation relates to the
maintenance of reserves for certain types of deposits, the maintenance of
certain financial ratios, transactions with affiliates and a broad range of
other banking practices. As national banks, the Banks are subject to provisions
of federal law which restrict their ability to extend credit to their
affiliates or pay dividends to their parent company. See "Dividends and
Transfers of Funds."
The Banks are subject to capital adequacy guidelines approved by the
Comptroller. These guidelines make regulatory capital requirements more
sensitive to differences in risk profiles among banking organizations and
consider off-balance sheet exposures in determining capital adequacy. As of
December 31, 1996, the minimum required ratio of total capital to risk-weighted
assets (including certain off-balance sheet items) was 8%. At least half of the
total capital is to be comprised of common equity, retained earnings and a
limited amount of non-cumulative perpetual preferred stock ("Tier 1 capital").
The remainder may consist of other preferred stock, certain hybrid debt/equity
instruments, a limited amount of term subordinated
12
<PAGE> 13
debt or a limited amount of the reserve for possible credit losses ("Tier 2
capital"). In addition, the Comptroller has also adopted a minimum leverage
ratio (Tier 1 capital divided by total average assets) of 3% for national banks
that meet certain specified criteria, including that they have the highest
regulatory rating. Under this guideline, the minimum leverage ratio would be at
least 1 or 2 percentage points higher for national banks that do not have the
highest regulatory rating, for national banks undertaking major expansion
programs, and for other national banks in certain circumstances. As of December
31, 1996, AUS's Tier 1 capital ratio was 10.15%, its combined Tier 1 and Tier 2
capital ratio was 15.84%, and its leverage ratio was 7.35%. At December 31,
1996, ANB's Tier 1 capital ratio was 11.13%, its combined Tier 1 and Tier 2
capital ratio was 17.20%, and its leverage ratio was 7.15%.
Recognizing that the risk-based capital standards address only credit
risk (and not interest rate, liquidity, operational or other risks), the
Comptroller has indicated that many national banks will be expected to maintain
capital in excess of the minimum standards. As indicated above, each of the
Banks' respective capital levels currently exceed the minimum standards. To
date, the Comptroller has not required either of the Banks to maintain capital
in excess of the minimum standards. However, there can be no assurance that
such a requirement will not be imposed in the future, or if it is, what higher
standard will be applicable.
In addition, pursuant to certain provisions of the FDIC Improvement
Act of 1991 ("FDICIA") and regulations promulgated thereunder with respect
to prompt corrective action, FDIC-insured institutions such as the Banks may
only accept brokered deposits without FDIC permission if they meet certain
capital standards, and are subject to restrictions with respect to the
interest they may pay on deposits unless they are "well-capitalized." To be
"well-capitalized," a bank must have a ratio of total capital to risk-weighted
assets of not less than 10%, Tier 1 capital to risk-weighted assets of not less
than 6%, and a Tier 1 leverage ratio of not less than 5%. As of December 31,
1996, the most recent notifications from the Comptroller categorized each of
AUS and ANB as well capitalized under the regulatory framework for prompt
corrective action. The Company intends to maintain AUS and ANB, at a minimum,
as "adequately capitalized" banks under this regulatory framework.
ADVANTA FINANCIAL CORP.
In January 1992, Advanta Financial Corp. ("AFC") opened for business and began
accepting deposits. AFC is an FDIC-insured industrial loan corporation
organized under the laws of the State of Utah and is subject to examination and
regulation by both the FDIC and the Utah Department of Financial Institutions.
At December 31, 1996, AFC had deposits of $51 million and total assets of
$102 million. Currently, AFC's principal activities consist of small ticket
equipment lease financing and issuance of the "Advanta Business Card" credit
card marketed by ABS. The Company anticipates that AFC's managed receivables
base of Advanta Business Card loans will continue to grow in 1997.
LENDING AND LEASING ACTIVITIES
The Company's activities as a lender are also subject to regulation under
various federal and state laws including the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Home Mortgage Disclosure Act, the Community
Reinvestment Act, the Electronic Funds Transfer Act, and the Fair Credit
Reporting Act. Provisions of those statutes, and related regulations, among
other matters, require disclosure to borrowers of finance charges in terms
of an annual percentage rate, prohibit certain discriminatory practices in
extending credit, require the Company's FDIC-insured depository institutions
to serve the banking needs of their local communities, and regulate the
dissemination and use of information relating to a borrower's creditworthiness.
Certain of these statutes and regulations also apply to the Company's leasing
activities. In addition, Advanta Mortgage, Advanta Finance and their respective
subsidiaries are
13
<PAGE> 14
subject to licensure and regulation in various states as mortgage bankers,
mortgage brokers, and originators, sellers and servicers of mortgage loans.
DIVIDENDS AND TRANSFERS OF FUNDS
There are various legal limitations on the extent to which AUS, ANB or AFC can
finance or otherwise supply funds through dividends, loans or otherwise to the
Company and its affiliates. The prior approval of the Comptroller is required
if the total of all dividends declared by either of the Banks in any calendar
year exceeds that institution's net profits (as defined) for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus accounts. In addition, neither AUS nor ANB may pay a
dividend in an amount greater than its undivided profits then on hand after
deducting its losses and bad debts. The Comptroller also has authority under
the Financial Institutions Supervisory Act to prohibit a national bank from
engaging in any unsafe or unsound practice in conducting its business. It is
possible, depending upon the financial condition of the bank in question and
other factors, that the Comptroller could claim that a dividend payment might
under some circumstances be an unsafe or unsound practice.
AUS, ANB and AFC are also subject to restrictions under Sections 23A
and 23B of the Federal Reserve Act. These restrictions limit the transfer of
funds by the depository institution to the Company and certain other
affiliates, as defined in that Act, in the form of loans, extensions of credit,
investments or purchases of assets, and they require generally that the
depository institution's transactions with its affiliates be on terms no less
favorable to the bank than comparable transactions with unrelated third
parties. These transfers by any one institution to the Company or any single
affiliate are limited in amount to 10% of the depository institution's capital
and surplus and transfers to all affiliates are limited in the aggregate to 20%
of the depository institution's capital and surplus. Furthermore, such loans
and extensions of credit are also subject to various collateral requirements.
In addition, in order for the Company to maintain its grandfathered exemption
under CEBA, neither AUS nor ANB may make any loans to the Company or any of its
subsidiaries.
REGULATION OF INSURANCE
The Company's insurance subsidiaries are subject to the laws and regulations
of, and supervision by, the states in which they are domiciled or have obtained
authority to transact insurance business. These states have adopted laws and
regulations which govern all marketing, administration and financial operations
of an insurance company, including dividend payments and financial solvency. In
addition, the insurance subsidiaries have registered as an Arizona Holding
Company which requires approval of transactions between all affiliated
entities.
The maximum dividend that any of the insurance subsidiaries can
distribute to its parent in any twelve month period without prior approval of
the State of Arizona Department of Insurance is the lesser of 10% of the
subsidiary's statutory surplus or for any given 12 month period, its net income
(if a life insurance company) or net investment income (if a property and
casualty insurance company).
The State of Arizona has adopted minimum risk-based capital standards
as developed by the National Association of Insurance Commissioners. Risk-based
capital is the quantification of an insurer's surplus requirements based on
financial balances and underwriting activity risks. The ratio of an insurer's
total adjusted capital and surplus, as defined, is compared to various levels
of risk-based capital to determine what intervention, if any, is required by
either the insurance company or an insurance department. All of the insurance
companies meet all risk-based capital standards and require no action by any
party.
14
<PAGE> 15
The Company's insurance subsidiaries reinsure risks whose underwriting
insurance practices and rates are regulated in part or fully by state insurance
departments. These rates are continually being reviewed and modified by the
state insurance departments based on prior historical experience. Any
modifications may impact the future profitability of the Company's insurance
subsidiaries.
GENERAL
Because the banking and finance businesses in general are the subject of such
extensive regulation at both the state and federal levels, and because numerous
legislative and regulatory proposals are advanced each year which, if adopted,
could affect the Company's profitability or the manner in which the Company
conducts its activities, the Company cannot now predict the extent of the
impact of any such new laws or regulations.
Various legislative proposals have been introduced in Congress in
recent years, including, among others, proposals relating to imposing a
statutory cap on credit card interest rates, and permitting affiliations
between banks and commercial or securities firms. It is impossible to determine
whether any of these proposals will become law and, if so, what impact they
will have on the Company.
In 1994, Congress adopted the Interstate Banking and Branching
Efficiency Act, which statute permits nationwide interstate bank acquisitions
beginning in 1995, and interstate bank branching in 1997 (or earlier at a
state's option). The Company does not currently believe that the changes in the
country's banking system wrought by this statute will materially impact the
Company's business.
COMPETITION
As a marketer of credit products, the Company faces intense competition from
numerous providers of financial services. Many of these companies are
substantially larger and have more capital and other resources than the
Company. Competition among lenders can take many forms including convenience
in obtaining a loan, customer service, size of loans, interest rates and other
types of finance or service charges, duration of loans, the nature of the risk
which the lender is willing to assume and the type of security, if any,
required by the lender. Although the Company believes it is generally
competitive in most of the geographic areas in which it offers its services,
there can be no assurance that its ability to market its services successfully
or to obtain an adequate yield on its loans will not be impacted by the nature
of the competition that now exists or may develop.
In both domestic and international VISA and MasterCard markets, the
Company competes with national, regional, and local issuers. Additionally,
American Express and the Discover Card represent additional competition in the
general purpose credit card markets in the United States. The Company does not
believe that single purpose credit cards such as oil company, department store
or telephone credit cards represent a significant competitive threat. In recent
years, a large segment of customers have been attracted to credit card issuers
largely on the basis of product features, including price and credit limit; as
such, customer loyalty may be limited. As a result, account and balance
attrition can be significant factors in the credit card industry.
In seeking investment funds from the public, the Company faces
competition from banks, savings institutions, money market funds, credit unions
and a wide variety of private and public entities which sell debt securities,
some of which are publicly traded. Many of the competitors are larger and have
more capital and other resources than the Company. Competition relates to such
matters as rate of return, collateral, insurance or guarantees applicable to
the investment (if any),
15
<PAGE> 16
the amount required to be invested, convenience and the cost to and conditions
imposed upon the investor in investing and liquidating his investment
(including any commissions which must be paid or interest forfeited on funds
withdrawn), customer service, service charges, if any, and the taxability of
interest.
EMPLOYEES
As of December 31, 1996, the Company had 3,541 employees, up from 2,409
employees at the end of 1995. The Company believes that it has good
relationships with its employees. None of its employees are represented by a
collective bargaining unit.
CAUTIONARY STATEMENTS
Information or statements provided by the Company from time to time may contain
certain "forward-looking information" including information relating to
anticipated earnings per share, anticipated returns on equity, anticipated
growth in managed loans outstanding and credit card accounts, anticipated net
interest margins, anticipated operations costs and employment growth,
anticipated marketing expense or anticipated delinquencies and charge-offs. The
cautionary statements provided below are being made pursuant to the provisions
of the Private Securities Litigation Reform Act of 1995 (the "Act") and with
the intention of obtaining the benefits of the "safe harbor" provisions of the
Act for any such forward-looking information. Many of the following important
factors discussed below as well as other factors have also been discussed in
the Company's prior public filings.
The Company cautions readers that any forward-looking information
provided by the Company is not a guarantee of future performance and that
actual results may differ materially from those in the forward-looking
information as a result of various factors, including but not limited to:
-- The impact of repricing accounts and the overall product mix of
accounts on the Company's net interest margins; the actual amount
of accounts (and related loan balances) repriced and the level and
type of account originations at that time; and the ability of the
Company on a competitive basis to use account management
techniques to retain repriced accounts and the related loan
balances. In the fourth quarter of 1996 the Company contractually
repriced $100 million of credit card accounts. In the first
quarter of 1997, approximately $2.9 billion of credit card
accounts will be repriced upwards from their low introductory
rates and the Company anticipates that an additional $1.6 billion
will be similarly repriced upwards in the second quarter. If the
repriced accounts experience greater attrition than expected it
could have an adverse financial effect on the Company.
-- Increased credit losses (including increases due to a worsening of
general economic conditions), increased collection costs
associated with rising delinquency levels, costs associated with
an increase in the number of customers seeking protection under
the bankruptcy laws, resulting in accounts being charged off as
uncollectible, and costs and other effects of fraud by third
parties or customers.
-- Intense and increasing competition from numerous providers of
financial services who may employ various competitive strategies.
The Company faces competition from national, regional and local
issuers of bankcards in each of its markets, some of which have
substantially greater resources than the Company. Additionally,
the Company competes with other general purpose credit card
providers. More of the Company's competitors have begun pricing
credit card products at attractive interest rates, including rates
at or below those currently charged by the Company.
16
<PAGE> 17
-- The effects of interest rate fluctuations on the Company's net
interest margin and the value of its assets and liabilities; the
continued legal or commercial availability of techniques
(including interest rate swaps and similar financial instruments,
loan repricing, hedging and other techniques) used by the Company
to manage the risk of such fluctuations and the continuing
operational viability of those techniques and the accounting and
regulatory treatment of such instruments.
-- Difficulties or delays in the securitization of the Company's
receivables and the resulting impact on the cost and availability
of such funding. Such difficulties and delays may result from
changes in the availability of credit enhancement in
securitizations, the current legal, regulatory, accounting and tax
environment and adverse change in the performance of the
securitized assets.
-- Changes in the Company's aggregate accounts or loan balances and
the growth rate thereof, including changes resulting from factors
such as shifting product mix, amount of actual marketing
investment made by the Company, attrition of accounts and loan
balances (to competing card issuers in connection with repricing
of customers or otherwise) and general economic conditions and
other factors beyond the control of the Company. Customers have
been attracted to credit card issuers largely on the basis of
price, credit limit and other product features and, once an
account is originated, customer loyalty may be limited.
-- The impact of "seasoning" (the average age of a lender's
portfolio) on the Company's level of delinquencies and losses
which may require higher loan loss reserves for on-balance sheet
assets, and may adversely impact credit card, personal finance and
business loan and lease securitization income. The addition of
account originations or balances and the attrition of such
accounts or balances could significantly impact the seasoning of
the overall portfolio.
-- The amount, and rate of growth in, the Company's expenses
(including employee and marketing expenses) as the Company's
business develops or changes and the Company expands into new
market areas; the acquisition of assets (interest-earning, fixed
or other); the effects of changes within the Company's
organization or in its compensation and benefit plans; and the
impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, asset valuations and
organizational structures.
-- The amount, type and cost of financing available to the Company,
and any changes to that financing including any impact from
changes in the Company's debt ratings; and the activities of
parties with which the Company has agreements or understandings,
including any activities affecting any investment.
-- Difficulties or delays in the development, production, testing and
marketing of products or services, including, but not limited to,
a failure to implement new product or service programs when
anticipated, the failure of customers to accept these products or
services when planned, losses associated with the testing of new
products or services or financial, legal or other difficulties as
may arise in the course of such implementation.
- The effects of, and changes in, monetary and fiscal policies, laws
and regulations (financial, consumer regulatory or otherwise),
other activities of governments, agencies and similar
organizations, and social and economic conditions, such as
inflation, and changes in taxation of the Company's earnings.
17
<PAGE> 18
-- The costs and other effects of legal and administrative cases and
proceedings, settlements and investigations, claims and changes in
those items, developments or assertions by or against the Company
or its subsidiaries; adoptions of new, or changes in existing,
accounting policies and practices and the application of such
policies and practices.
ITEM 2. PROPERTIES.
The Company owns four buildings totaling 308,278 square feet and leases an
additional 315,733 square feet in 10 buildings in the Pennsylvania suburbs of
Philadelphia. This includes the Company's principal executive offices located
in Spring House, Pennsylvania. In the adjoining states of New Jersey and
Delaware the Company owns 2 buildings totaling 178,000 square feet and leases
75,881 square feet in 3 buildings. The Company's five offices located in Utah,
California and Colorado total 315,486 square feet. In summary the Company
occupies 1,193,378 square feet of leased and owned space in 20 buildings
located in 6 states.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Registrant or any
of its subsidiaries is a party or of which any of their property is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
18
<PAGE> 19
Advanta Corp. and Subsidiaries
EXECUTIVE OFFICERS OF THE REGISTRANT
Each of the executive officers of the Company listed below was elected by the
Board of Directors, to serve at the pleasure of the Board in the capacities
indicated.
<TABLE>
<CAPTION>
NAME AGE OFFICE DATE ELECTED
---- --- ------ ------------
<S> <C> <C> <C>
Dennis Alter 54 Chairman of the Board 1972
Alex W. Hart 56 Chief Executive Officer and Director 1995
William A. Rosoff 53 Vice Chairman and Director 1996
James J. Allhusen 48 Executive Vice President and Group 1997
Executive, Advanta Personal Payment
Services
William J. Razzouk 49 Chief Executive Officer of Advanta 1996
Information Services
Arthur D. Kranzley 46 Senior Vice President 1995
Albert E. Lindenberg 44 President and Director, Advanta Business 1988
Services
Charles H. Podowski 50 President and Director, Advanta 1995
Insurance Companies
Milton Riseman 60 President and Director, Advanta Mortgage 1994
Corp. USA and Subsidiaries
John W. Roblin 51 Senior Vice President and Chief 1995
Information Officer
David D. Wesselink 54 Senior Vice President and Chief 1993
Financial Officer
</TABLE>
<PAGE> 20
Advanta Corp. and Subsidiaries
<TABLE>
<CAPTION>
NAME AGE OFFICE DATE ELECTED
<S> <C> <C> <C>
Renee Booth 38 Senior Vice President, Human Resources 1996
Christopher S. Derganc 44 Senior Vice President, Corporate 1996
Administration
Jeffrey D. Beck 48 Vice President and Treasurer 1992
John J. Calamari 42 Vice President, Finance 1988
Michael A. Girman 47 Vice President, Audit and Control 1991
Gene S. Schneyer 43 Vice President, Secretary and General 1989
Counsel
</TABLE>
Mr. Alter became Executive Vice President and a director of the Company's
predecessor organization in 1967. He was elected President and Chief Executive
Officer in 1972, and Chairman of the Board of Directors in August 1985. In
February 1986, he relinquished the title of President, and in August 1995 he
relinquished the title of Chief Executive Officer. Mr. Alter remains Chairman of
the Board of Directors.
Mr. Hart joined the Company in March 1994 as a Director and Executive Vice
Chairman. He became Chief Executive Officer in August 1995. For the five years
prior to joining the Company he had been President and Chief Executive Officer
of MasterCard International, Inc., a worldwide association of over 29,000 member
financial institutions. Prior to joining MasterCard in November 1988, Mr. Hart
was Executive Vice President of First Interstate Bancorp, Los Angeles,
California.
Mr. Rosoff joined the Company in January 1996 as a Director and Vice Chairman.
Prior to joining the Company, Mr. Rosoff was a long time partner of the law firm
of Wolf, Block, Schorr and Solis-Cohen, the Company's outside counsel, where he
advised the Company for over 20 years. While at Wolf, Block, Schorr and
Solis-Cohen he served as both Chairman of its Executive Committee and Chairman
of its Tax Department. Mr. Rosoff is a Trustee of Atlantic Realty Trust, a
publicly held real estate investment trust, and Chairman of the Board of RMH
Teleservices, a publicly held company that is a leading provider of
telemarketing services, on an outsourced basis, to Fortune 500 companies.
Mr. Allhusen was elected Executive Vice President of the Company in October 1995
and Group Executive of Advanta Personal Payment Services, the Company's credit
card operations, in January 1997 Prior to joining the Company, from 1990 Mr.
Allhusen served Standard Chartered Bank in various capacities, most recently as
General Manager for the Middle East and South Asia region located in Dubai,
United Arab Emirates. Prior to joining Standard Chartered Bank, Mr. Allhusen
worked for Household Bank from 1986 to 1990 as its President, Midwest Division.
Mr. Razzouk joined the Company in September 1996 as Chief Executive Officer of
Advanta Information Services. Prior to joining the Company, Mr. Razzouk served
as President and Chief Operating Officer of America Online, a position from
which he resigned after a brief tenure. He is most widely known by his former
role as Executive Vice President and head of Worldwide Customer Operations for
Federal Express, a position he held from 1993 to early 1996. In his earlier
years at Federal Express, Mr. Razzouk rose from Vice President of Electronic
Sales in 1983 to Vice President of Sales in North America in 1986 to Senior Vice
President of Sales and Customer Service in 1990. Mr. Razzouk has served on the
board of LaQuinta Inns, Inc. since 1996.
<PAGE> 21
Advanta Corp. and Subsidiaries
Mr. Kranzley was elected Senior Vice President of the Company in October 1995.
For five years prior to joining the Company Mr. Kranzley was Senior Vice
President and General Manager of Debit Products for MasterCard International. In
this capacity Mr. Kranzley also served as President and Chief Executive Officer
of Maestro U.S.A., Inc., the membership corporation of the Maestro global,
on-line point-of-sale debit program in the United States.
Mr. Lindenberg had been the Chairman of the Board and President of an equipment
leasing business, LeaseComm Financial Corporation ("LeaseComm"), from that
company's inception in June 1985 until its purchase by the Company. Following
the acquisition, Mr. Lindenberg was elected President and Chief Executive
Officer of Advanta Business Services, the successor to LeaseComm. Prior to
starting LeaseComm, Mr. Lindenberg had been with First Pennsylvania Bank,
Philadelphia, Pennsylvania since 1982, where he had served in various
capacities, most recently as Vice President of the national division responsible
for that bank's commercial lending activities in leasing and electronics.
Mr. Podowski was elected President of the Advanta Insurance Companies in April
1995. Prior to joining the Company, Mr. Podowski served CIGNA Corporation in
various capacities for seventeen years, most recently as Senior Vice President
in their International Division, with responsibility for CIGNA's life insurance
subsidiaries in Asia and Australia. Prior to joining CIGNA Mr. Podowski worked
for The Chase Manhattan Bank, N.A.
Mr. Riseman came to the Company in June 1992 as Senior Vice President,
Administration. In February 1994, Mr. Riseman became President and Director of
Advanta Mortgage Corp. USA and its subsidiaries. Prior to joining the Company,
Mr. Riseman had 27 years of experience with Citicorp, most recently as Director
of Training and Development. Prior to that he held Citicorp positions as
Business Manager for the Long Island Region, Head of Policy and Administration
for New York's Retail Bank, and Chairman of Citicorp Acceptance Co. which was
involved in the financing and leasing of autos and financing of mobile homes.
Mr. Roblin became Senior Vice President and Chief Information Officer in
December 1994. Prior to joining Advanta, Mr. Roblin spent nineteen years with
the Chubb Group of Insurance Companies in Warren, New Jersey holding a variety
of positions. He was the Chief Information Officer and a Managing Director of
Chubb from 1986 through 1991. In 1991 he joined USF&G in Baltimore as Chief
Information Officer and Senior Vice President until 1993. After a year as an
independent consultant, he briefly joined the Personal Lines Division of the
Travelers Insurance Companies in Hartford, Connecticut as Chief Information
Officer from May 1994 to November 1994.
Mr. Wesselink joined the Company in November 1993 as Senior Vice President and
Chief Financial Officer after serving as Vice President and Treasurer of
Household International for the previous seven years. Prior to that, he served
in various capacities at Household from 1971, including Vice President and
Director of Research, Group Vice President and Chief Financial Officer, and
Senior Vice President and Chief Financial Officer of Household Finance
Corporation. Mr. Wesselink serves on the board of CFC International, a specialty
chemical company.
Mr. Derganc became the Company's Senior Vice President, Corporate Administration
in December 1996, prior to which he served the Company as Vice President of
Corporate Development from June 1993. Prior to joining the Company he was a
Partner in the Financial Advisory Services Group of Coopers & Lybrand for 12
years where he led a wide variety of consulting engagements involving mergers,
acquisitions and business reorganizations.
Ms. Booth joined the Company in October 1996 as Senior Vice President, Human
Resources. Prior to joining the Company, Ms. Booth served as Vice President and
General Manager of Hay Management Consultants in Philadelphia where she was
employed for 11 years. There she was responsible for directing consultant
activities across diverse industry and human resources practice areas.
Mr. Beck joined the Company in 1986 as Senior Vice President of Advanta National
Bank USA (formerly, Colonial National Bank USA) and was elected Vice President
and Treasurer of the Company in 1992. Prior to joining the Company, he was Vice
President at Fidelity Bank, N.A., responsible for asset/liability planning, as
well as for managing a portfolio of investment securities held at the bank. From
1970 through 1980, he served in various treasury and planning capacities for
Wilmington Trust Company.
Mr. Calamari joined the Company as Vice President, Finance in May 1988. From May
1985 through April 1988, Mr. Calamari served in various capacities in the
accounting departments of Chase Manhattan Bank, N.A. and its subsidiaries,
culminating in the position of Chief Financial Officer of Chase Manhattan of
Maryland. From 1976 until May 1985, Mr. Calamari was an accountant with the
public accounting firm of Peat, Marwick, Mitchell in New York.
<PAGE> 22
Advanta Corp. and Subsidiaries
Mr. Girman joined the Company as Vice President, Accounting Operations, Policies
and Procedures in July 1988, and was elected Vice President, Audit and Control,
in April 1991. Prior to joining the Company, Mr. Girman served as Vice
President, Management Accounting and Accounting Policies and Procedures for The
Chase Manhattan Bank (USA), N.A. from April 1985.
Mr. Schneyer joined the Company as Associate General Counsel in September 1986
and was elected to the offices of Vice President, Secretary and General Counsel
in March 1989. Prior to joining the Company, from October 1983 Mr. Schneyer was
an attorney in the Legal Department of Allied-Signal, Inc., Morristown, New
Jersey.
<PAGE> 23
Advanta Corp. and Subsidiaries
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
COMMON STOCK PRICE RANGES AND DIVIDENDS
The Company's common stock is traded on the National Market tier of The Nasdaq
Stock Market(SM) under the symbols ADVNB (Class B non-voting common stock) and
ADVNA (Class A voting common stock).
Following are the high, low and closing sale prices and cash dividends declared
for the last two years as they apply to each class of stock:
<TABLE>
<CAPTION>
Cash
Dividends
Quarter Ended: High Low Close Declared
Class B:
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 1995 $32.25 $24.50 $31.25 $.08
June 1995 38.75 30.75 37.75 .08
September 1995 42.50 36.00 42.50 .08
December 1995 45.00 35.13 36.38 .108
March 1996 49.25 33.75 47.50 .108
June 1996 52.50 43.50 45.25 .108
September 1996 48.25 39.75 42.75 .108
December 1996 48.50 38.25 40.88 .132
Class A:
- -----------------------------------------------------------------------------------------------------------
March 1995 $34.75 $25.50 $33.50 $.067
June 1995 42.50 33.00 41.69 .067
September 1995 46.25 39.50 45.00 .067
December 1995 48.88 37.50 38.25 .09
March 1996 53.50 34.75 52.00 .09
June 1996 58.25 46.50 51.00 .09
September 1996 53.00 41.00 46.00 .09
December 1996 50.00 40.00 42.75 .11
</TABLE>
At December 31, 1996, the Company had approximately 1,050 and 660 holders of
record of Class B and Class A common stock, respectively.
RECENT SALES OF UNREGISTERED SECURITIES
On December 17, 1996, Advanta Capital Trust I, a newly formed statutory
business trust established by the Company (the "Trust"), issued to two
institutional investors, in a private offering exempt from registration
pursuant to section 4(2) of the Securities Act of 1933, as amended, $100
million of 8.99% Capital Securities, representing preferred beneficial
interests in the assets of the Trust (the "Capital Securities"). The aggregate
offering price for the Capital Securities was $100 million and the aggregate
commission paid by the Company was $1 million. The sole assets of the Trust
consist of $100 million of 8.99% junior subordinated debentures issued by the
Company due December 17, 2026. See Note 7 to Consolidated Financial Statements.
<PAGE> 24
Advanta Corp. and Subsidiaries
ITEM 6. SELECTED FINANCIAL DATA FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year Ended December 31, 5 Year
1996 1995 1994 1993 1992 1991 CAGR(2)
----------- ----------- ---------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net operating revenues(1) $ 850,977 $ 615,914 $ 447,837 $ 334,224 $ 266,320 $ 207,347 33%
Net interest income 78,265 72,900 70,381 78,644 73,176 73,990 1
Noninterest revenues 806,532 543,014 395,808 255,580 193,144 133,357 43
Provision for credit losses 96,862 53,326 34,198 29,802 47,138 55,461 12
Operating expenses 523,174 350,685 266,784 181,167 142,082 112,567 36
Income before income taxes
and extraordinary items 264,761 211,903 165,207 123,255 77,100 39,319 46
Income before extraordinary
items 175,657 136,677 106,063 77,920 48,037 25,165 47
Net income 175,657 136,677 106,063 76,647 48,037 25,165 47
----------- ----------- ---------- ---------- ---------- ---------- --
PER COMMON SHARE DATA
Income before extraordinary items $ 3.89 $ 3.20 $ 2.58 $ 1.95 $ 1.38 $ .81 37%
Net income 3.89 3.20 2.58 1.92 1.38 .81 37
Cash dividends declared (3)
Class A .380 .290 .217 .167 .107 .063 43
Class B .456 .348 .260 .200 .104 N/A *
Book value 18.06 14.35 11.12 8.82 5.22 3.70 37
Average shares used to compute
EPS(4) 45,073 42,670 41,046 39,777 34,590 31,044 8
Closing stock price
Class A 42.75 38.25 26.25 33.25 21.58 11.50 30
Class B 40.88 36.38 25.25 29.00 19.33 N/A *
----------- ----------- ---------- ---------- ---------- ---------- --
FINANCIAL CONDITION -- YEAR END
Investments and money market
instruments $ 1,671,309 $ 1,090,047 $ 671,661 $ 542,222 $ 521,567 $ 270,267 44%
Gross receivables
Owned 2,656,641 2,762,927 1,964,444 1,277,305 998,244 1,273,420 16
Securitized 13,632,552 9,452,428 6,190,793 3,968,856 2,721,726 1,573,164 54
Managed 16,289,193 12,215,355 8,155,237 5,246,161 3,719,970 2,846,584 42
Total assets
Owned 5,583,959 4,524,259 3,113,048 2,140,195 1,775,067 1,716,350 27
Managed 19,216,511 13,976,687 9,303,841 6,109,051 4,496,793 3,289,514 42
Deposits 1,860,058 1,906,601 1,159,358 1,254,881 1,204,486 1,205,035 9
Long-term debt 1,393,095 587,877 666,033 368,372 173,668 112,609 65
Stockholders' equity 852,036 672,964 441,690 342,741 174,870 118,859 48
Capital securities(5) 100,000 0 0 0 0 0 *
Stockholders' equity, long-term
debt and capital securities 2,345,131 1,260,841 1,107,723 711,113 348,538 231,468 59
----------- ----------- ---------- ---------- ---------- ---------- --
SELECTED FINANCIAL RATIOS
Return on average assets 3.16% 4.06% 4.47% 3.91% 2.82% 1.63% *
Return on average common equity 25.31 26.15 26.97 27.50 33.32 27.09 *
Return on average total
equity(6) 22.07 24.75 26.97 27.50 33.32 27.09 *
Equity/managed assets(6) 4.95 4.81 4.75 5.61 3.89 3.61 *
Equity/owned assets(6) 17.05 14.87 14.19 16.01 9.85 6.93 *
Dividend payout 10.75 9.97 9.24 9.56 7.69 7.85 *
Managed net interest margin(7) 6.32 5.87 6.72 7.77 8.05 7.54 *
As a percentage of managed
receivables
Total loans 30 days or more
delinquent(8) 5.4 3.3 2.7 3.6 5.0 5.6 *
Net charge-offs (8) 3.2 2.2 2.3 2.9 3.4 3.2 *
Other operating expenses 2.9 2.9 3.7 4.1 4.4 4.6 *
----------- ----------- ---------- ---------- ---------- ---------- --
</TABLE>
(1) Excludes gains on sales of credit card relationships in 1996 and 1994.
(2) Compound annual growth rate from December 31, 1991.
(3) 1992 cash dividends include dividends for three quarters on the Class B
common stock and the full year on the Class A common stock, adjusted to reflect
the effective stock split.
(4) Includes common stock equivalents. 1996 and 1995 amounts include equivalent
shares related to convertible Class B Preferred stock.
(5) Represents Company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures of the Company.
(6) In 1996, return on average total equity, equity/managed assets and
equity/owned assets include capital securities as equity. The ratios without
capital securities were 22.31%, 4.43% and 15.26%, respectively.
(7) Combination of owned interest-earning assets/interest-bearing liabilities
and securitized credit card assets/liabilities.
(8) The 1996 figures reflect the adoption of a new charge-off methodology in
August 1996 relating to credit card bankruptcies (see Asset Quality).
* Not meaningful.
<PAGE> 25
Advanta Corp. and Subsidiaries
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
Net income for 1996 of $175.7 million increased $39.0 million or 29% from the
$136.7 million reported for 1995. Earnings per share of $3.89 increased 22% from
the $3.20 reported for 1995.
Earnings in 1996 reflected a $5.4 billion or 56% increase in average
managed receivables, and a $263.5 million or 49% rise in noninterest revenues
derived principally from securitized receivables and a $33.8 million gain on the
sale of credit card customer relationships. The securitization of $1.4 billion
of mortgage and home equity loans in 1996, 158% greater than in 1995, also
contributed to the increase in noninterest revenues, as income from personal
finance loans (mortgage, home equity and auto loans) was up $58.6 million or
116% from 1995. Credit card securitization activities were affected by the
adoption in the third quarter of 1996 of a new charge-off methodology relating
to bankruptcies (see Asset Quality), the upward repricing of interest rates and
fees, increases in charge-offs and the related impact on reserves, all of which
had an approximate $50 million impact (earnings increase) in 1996, as well as a
57% increase in average securitized receivables. Total other operating expenses
(excluding the amortization of credit card deferred origination costs, net)
increased 56%, consistent with the increase in average managed receivables.
Thus, the operating expense ratio was 2.9% for both 1996 and 1995. Asset quality
indicators tracked unfavorably, as the total managed charge-off rate increased
to 3.2% in 1996 from 2.2% in 1995. The 30-day and over delinquency rate on
managed receivables increased to 5.4% at December 31, 1996 from 3.3% at year end
1995. The 1996 indicators reflect the new charge-off methodology relating to
credit card bankruptcies. Without this change, the managed charge-off rate and
the 30-day and over delinquency rate on managed receivables would have been 3.5%
and 5.2%, respectively. The changes in the delinquency and charge-off rates from
year to year reflect the trend in unsecured consumer credit quality which is
being experienced throughout the industry. This trend is continuing in the
first quarter of 1997.
Over the last three years, average managed receivables have grown at a
compound annual rate of 53%. This receivable growth has greatly contributed to
higher net income and earnings per share. A significant component of this
receivable growth strategy is the Company's continuing efforts to market
"risk-adjusted" credit card products, whereby credit cards are issued with lower
rates to customers whose credit quality is expected to result in a lower rate of
credit losses (the "risk-adjusted pricing strategy"). The Company's pricing
structure on its credit card products also reflects low "introductory" credit
card rates, which reprice upwards after an introductory period of up to one
year. It is estimated that approximately $3 billion of receivables will reprice
upwards in the first quarter of 1997. At repricing, most of the receivables on
these credit cards will have been securitized, and consequently, the enhanced
revenues on those receivables will be recorded primarily as increased
noninterest revenues (securitization income). Although this will not affect the
owned net interest margin, it is expected that it will positively impact the
managed net interest margin.
Net income for 1995 of $136.7 million increased $30.6 million or 29%
from the $106.1 million reported for 1994. Earnings per share of $3.20 increased
24% from the $2.58 reported for 1994. Earnings grew in 1995 primarily as a
result of a 56% increase in average managed receivables, from $6.1 billion in
1994 to $9.5 billion in 1995, partially offset by an approximate 13% contraction
in the managed net interest margin. Noninterest revenues of $543.0 million in
1995 increased $147.2 million or 37% from $395.8 million in 1994. This increase
was primarily due to a 62% increase in average securitized receivables. The
operating expense ratio decreased to 2.9% in 1995 from 3.7% in 1994. The total
managed charge-off rate for 1995 fell to 2.2% from 2.3% in 1994.
On March 17, 1997, the Company announced that it expects to report
1997 results well below previous expectations. The Company stated it expects to
report a loss in the area of $20 million, or approximately $0.44 cents per
share, for the first quarter, and to report net profit for full-year 1997 of
approximately $1.50 per share. This interruption in the Company's historical
pattern of strong financial results reflects a number of factors, including
continuing increases in consumer bankruptcies and charge-offs and lower
receivable balances than originally anticipated in its credit card business. The
Company's mortgage financing, leasing and insurance businesses continue to
perform well. In addition to considering other strategic alternatives with its
financial and other advisors, the Company is pursuing a number of steps to
return the Company to its historical levels of financial performance by
increasing revenues and stemming credit card losses.
This Annual Report on Form 10-K contains forward-looking statements,
including but not limited to projections of future earnings, that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. The most significant among these risks and
uncertainties are: (1) the Company's managed net interest margin, which in turn
is affected by the Company's success in originating new credit card accounts,
the receivables volume and initial pricing of new accounts, the impact of
repricing existing accounts and account attrition, the mix of account types and
interest rate fluctuations; (2) the level of delinquencies and charge-offs; and
(3) the level of expenses. Earnings also may be affected by factors that affect
consumer debt, competitive pressures and the ratings on debt of the Company and
its subsidiaries. Additional risks that may affect the Company's future
performance are detailed elsewhere in this Annual Report on Form 10-K and in the
Company's other filings with the Securities and Exchange Commission.
NET INTEREST INCOME
Net interest income represents the excess of income generated from
interest-earning assets, including on-balance sheet receivables, investments and
money market instruments over the interest paid on interest-bearing liabilities,
primarily deposits and debt.
<PAGE> 26
Advanta Corp. and Subsidiaries
Net interest income of $78.3 million for 1996 increased $5.4 million or
7% from 1995 as a result of a $1.7 billion or 63% increase in average
interest-earning assets, largely offset by a lower owned net interest margin,
which fell to 1.84% in 1996 from 2.80% in 1995. The lower owned net interest
margin resulted from a 99 basis point decrease in the yield on average
interest-earning assets as a significant amount of credit cards on the balance
sheet are at introductory rates, partially offset by a 34 basis point decrease
in the cost of funds.
Net interest income of $72.9 million for 1995 increased $2.5 million or
4% from 1994 as a result of a $737 million or 37% increase in average
interest-earning assets, largely offset by a lower owned net interest margin,
which fell to 2.80% in 1995 from 3.67% in 1994. The lower owned net interest
margin primarily resulted from a 124 basis point increase in the cost of funds.
Credit card, personal finance, and business loan and lease receivable
securitization activity shifts revenues from interest income to noninterest
revenues. This ongoing securitization activity reduces the level of
higher-yielding receivables on the balance sheet while proportionately
increasing the balance sheet levels of new lower-yielding receivables and money
market assets. Net interest income on securitized credit card balances is
reflected in credit card securitization income. Net interest income on
securitized mortgage and other personal finance loans is reflected in income
from personal finance activities, and net interest income on securitized
business loans and leases is reflected in business loan and lease other
revenues. All securitization income is included in noninterest revenues. See
Note 1 to Consolidated Financial Statements.
Average managed credit card receivables of $12.2 billion for 1996
increased $4.5 billion or 58% from 1995. This increase resulted from the
successful marketing of low introductory rate credit cards which generated
approximately 1.7 million new accounts. In 1996, average owned credit card
receivables were $2.6 billion compared to $1.6 billion in 1995.
Average managed personal finance loans increased to $2.1 billion in
1996, a 38% increase from $1.5 billion in 1995. The average balance of owned
personal finance loans increased to $243 million in 1996 from $185 million in
1995. Personal finance loan originations of $1.5 billion in 1996 were up $728
million or 94% from 1995. Yields on owned personal finance loans increased to
10.62% from 9.38% in 1995 reflecting a lower proportion of nonperforming loans
on the balance sheet in 1996 versus the prior year.
Average managed business loans and leases of $604 million increased
$289 million or 92% from 1995. Average owned balances of business loans and
leases increased $116 million or 138% during 1996 primarily due to the success
of the business credit card, as originations increased 552% from $80 million in
1995 to $519 million in 1996. Additionally, during 1996, the Company completed
its first business card securitizations totaling $229 million of receivables.
Yields on owned business loans and leases decreased to 11.97% in 1996 from
12.59% in 1995.
The owned average cost of funds dropped to 6.12% from 6.46% in 1995.
The Company has utilized derivatives to manage interest rate risk (see
discussion under "Derivatives Activities").
The following table provides an analysis of both owned and managed
interest income and expense data, average balance sheet data, net interest
spread (the difference between the yield on interest-earning assets and the
average rate paid on interest-bearing liabilities), and net interest margin (the
difference between the yield on interest-earning assets and the average rate
paid to fund interest-earning assets) for 1994 through 1996. Average owned loan
and lease receivables and the related interest revenues include certain loan
fees.
<PAGE> 27
Advanta Corp. and Subsidiaries
INTEREST RATE ANALYSIS
<TABLE>
<CAPTION>
($ in thousands) Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- ------------------------------
AVERAGE AVERAGE Average Average Average Average
BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ON-BALANCE SHEET
Interest-earning assets:
Receivables:
Credit cards $ 2,594,997 $ 220,547 8.50% $1,580,352 $ 163,637 10.35% $1,171,266 $117,661 10.05%
Personal finance loans(1) 242,946 25,812 10.62 184,855 17,334 9.38 119,919 9,809 8.18
Business loans and
leases(2) 200,052 23,951 11.97 84,216 10,603 12.59 60,437 8,681 14.36
Other loans 12,270 1,045 8.52 5,979 446 7.46 3,893 280 7.19
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
Total receivables 3,050,265 271,355 8.90 1,855,402 192,020 10.35 1,355,515 136,431 10.06
Federal funds sold 166,454 8,853 5.32 141,031 8,210 5.82 103,674 4,437 4.28
Interest-bearing deposits 524,505 34,154 6.51 371,826 22,243 5.98 196,468 10,216 5.20
Tax-free securities(3) 8,052 502 6.23 60,412 3,654 6.05 81,761 4,858 5.94
Taxable investments 704,641 36,808 5.22 296,700 16,121 5.43 250,535 11,899 4.75
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
Total interest earning
assets(4) $ 4,453,917 $ 351,672 7.90% $2,725,371 $ 242,248 8.89% $1,987,953 $167,841 8.44%
=========== ========== ===== ========== ========== ===== ========== ======== =====
Interest-bearing liabilities:
Deposits
Savings $ 302,125 $ 15,728 5.21% $ 270,550 $ 17,728 6.55% $ 269,583 $ 11,411 4.23%
Time deposits
under $100,000 582,887 34,430 5.91 547,710 31,618 5.77 560,015 27,543 4.92
Time deposits of
$100,000 or more 999,613 60,721 6.07 380,918 23,466 6.16 217,683 9,314 4.28
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
Total deposits 1,884,625 110,879 5.88 1,199,178 72,812 6.07 1,047,281 48,268 4.61
Debt 1,856,034 118,612 6.39 981,816 67,908 6.92 583,317 36,347 6.23
Other borrowings 664,529 40,209 6.05 388,340 25,312 6.52 185,298 10,143 5.47
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
Total interest-bearing
liabilities 4,405,188 269,700 6.12 2,569,334 166,032 6.46 1,815,896 94,758 5.22
Net noninterest-bearing
liabilities 48,729 -- -- 156,037 -- -- 172,057 -- --
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
Sources to fund interest-
earning assets $ 4,453,917 $ 269,700 6.06% $2,725,371 $ 166,032 6.09% $1,987,953 $ 94,758 4.77%
=========== ========== ===== ========== ========== ===== ========== ======== =====
Net interest spread -- -- 1.78% -- -- 2.43% -- -- 3.22%
=========== ========== ===== ========== ========== ===== ========== ======== =====
Net interest margin -- -- 1.84% -- -- 2.80% -- -- 3.67%
=========== ========== ===== ========== ========== ===== ========== ======== =====
OFF-BALANCE SHEET
Average balance on
securitized:
Credit cards $ 9,574,549 -- -- $6,105,575 -- -- $3,507,801 -- --
Personal finance loans(1) 1,890,101 -- -- 1,355,383 -- -- 1,105,610 -- --
Business loans and
leases(2) 403,745 -- -- 230,696 -- -- 141,421 -- --
----------- ---------- ----- ---------- ---------- ----- ---------- -------- -----
Total average securitized
receivables 11,868,395 -- -- 7,691,654 -- -- 4,754,832 -- --
Total average managed
receivables $14,918,660 -- -- $9,547,056 -- -- $6,110,347 -- --
=========== ========== ===== ========== ========== ===== ========== ======== =====
MANAGED NET INTEREST
ANALYSIS(5)
Interest-earning assets $14,028,466 $1,712,557 12.21% $8,830,946 $1,081,779 12.25% $5,495,754 $665,009 12.10%
Interest-bearing liabilities $13,979,737 $ 826,379 5.91% $8,674,909 $ 563,385 6.49% $5,323,697 $295,880 5.56%
Net interest spread -- -- 6.30% -- -- 5.76% -- -- 6.54%
Net interest margin -- -- 6.32% -- -- 5.87% -- -- 6.72%
=========== ========== ===== ========== ========== ===== ========== ======== =====
</TABLE>
(1) Includes mortgage, home equity and auto loans beginning in 1996.
(2) Includes leases and business cards beginning in 1996.
(3) Interest and average rate computed on a tax equivalent basis using a
statutory rate of 35%.
(4) Includes assets held and available for sale, and nonaccrual loans and
leases.
(5) Combination of owned interest-earning assets/owned interest-bearing
liabilities and securitized credit card assets/liabilities.
<PAGE> 28
Advanta Corp. and Subsidiaries
INTEREST VARIANCE ANALYSIS: ON-BALANCE SHEET
The following table presents the effects of changes in average volume and
interest rates on individual financial statement line items on a tax equivalent
basis and including certain loan fees. Changes not solely due to volume or rate
have been allocated on a pro rata basis between volume and rate. The effects on
individual financial statement line items are not necessarily indicative of the
overall effect on net interest income.
<TABLE>
<CAPTION>
($ in thousands)
1996 VS. 1995 1995 vs. 1994
---------------------------------- --------------------------------
INCREASE (DECREASE) Increase (Decrease)
DUE TO Due to
---------------------------------- --------------------------------
VOLUME RATE TOTAL Volume Rate Total
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income from:
Loan and lease receivables:
Credit cards $ 78,867 $(21,957) $ 56,910 $42,852 $ 3,124 $45,976
Personal finance loans(1) 5,968 2,510 8,478 5,921 1,604 7,525
Business loans and leases(2) 13,843 (495) 13,348 2,799 (877) 1,922
Other loans 528 71 599 155 11 166
Federal funds sold 1,227 (584) 643 1,888 1,885 3,773
Interest-bearing deposits 9,796 2,115 11,911 10,296 1,730 12,026
Tax-free securities (3,264) 112 (3,152) (1,295) 92 (1,203)
Taxable investments 21,286 (599) 20,687 2,376 1,846 4,222
-------- -------- -------- ------- -------- -------
Total interest income(3) 128,251 (18,827) 109,424 64,992 9,415 74,407
-------- -------- -------- ------- -------- -------
Interest expense on:
Deposits:
Savings 2,656 (4,656) (2,000) 41 6,276 6,317
Time deposits under $100,000 2,041 771 2,812 (593) 4,668 4,075
Time deposits of $100,000 or more 37,593 (338) 37,255 8,925 5,227 14,152
Debt 55,476 (4,772) 50,704 27,158 4,403 31,561
Other borrowings 16,577 (1,680) 14,897 12,907 2,262 15,169
-------- -------- -------- ------- -------- -------
Total interest expense 114,343 (10,675) 103,668 48,438 22,836 71,274
-------- -------- -------- ------- -------- -------
Net interest income $ 13,908 $ (8,152) $ 5,756 $16,554 $(13,421) $ 3,133
-------- -------- -------- ------- -------- -------
</TABLE>
(1) Includes mortgage, home equity and auto loans beginning in 1996.
(2) Includes leases and business cards beginning in 1996.
(3) Includes income from assets held and available for sale.
<PAGE> 29
Advanta Corp. and Subsidiaries
MANAGED PORTFOLIO DATA
The Company analyzes its financial results on a managed basis as well as
analyzing data as reported under generally accepted accounting principles. The
following table provides selected information on a managed basis, as well as a
managed income statement including the effects of credit card securitizations on
selected line items of the Company's Consolidated Income Statements for the past
three years.
<TABLE>
<CAPTION>
($ in thousands) Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data:
Average managed receivables $14,918,660 $ 9,547,056 $6,110,347
Managed receivables 16,289,193 12,215,355 8,155,237
Total managed assets 19,216,511 13,976,687 9,303,841
Managed net interest margin (on a fully tax equivalent 6.32% 5.87% 6.72%
basis)
As a percentage of gross managed receivables:
Total loans 30 days or more delinquent:
New methodology (see Asset Quality) 5.4% -- --
Prior methodology (pro forma) 5.2% 3.3% 2.7%
Net charge-offs:
New methodology (see Asset Quality) 3.2% -- --
Prior methodology (pro forma) 3.5% 2.2% 2.3%
Managed Income Statement:
Net interest income $ 882,471 $ 515,078 $ 366,427
Provision for credit losses 483,581 211,061 126,728
Noninterest revenues 389,045 258,571 192,292
Operating expenses 523,174 350,685 266,784
----------- ----------- ----------
Income before income taxes $ 264,761 $ 211,903 $ 165,207
=========== =========== ==========
</TABLE>
With respect to the Managed Income Statement, net interest income
includes owned net interest income and securitized net interest income. In the
Consolidated Income Statements, securitized net interest income is reported as
noninterest revenues. In addition, the provision for credit losses includes the
amount by which the provision for credit losses would have been higher had the
securitized receivables remained as owned and the provision for credit losses
been equal to actual reported charge-offs (see Asset Quality). Noninterest
revenues exclude the net interest income and credit losses associated with the
securitized credit card receivables.
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $96.9 million in 1996 increased $43.5 million
or 82% from $53.3 million in 1995. The increase was primarily due to higher
charge-offs on owned receivables, which increased 66% from $42.5 million in 1995
to $70.6 million in 1996 and to the higher levels of impaired assets which
continued to increase throughout the year.
The provision for credit losses of $53.3 million in 1995 increased
$19.1 million or 56% from $34.2 million in 1994. The increase was primarily due
to an increase in the desired level of reserves given the increase in impaired
assets and delinquency levels during 1995.
A description of the credit performance of the loan portfolio is set
forth under the section entitled "Credit Risk Management."
<PAGE> 30
Advanta Corp. and Subsidiaries
NONINTEREST REVENUES
<TABLE>
<CAPTION>
($ in thousands)
- --------------------------------------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Gain on sale of credit cards $ 33,820 $ 0 $ 18,352
Other noninterest revenues:
Credit card securitization
income 258,066 183,360 149,043
Credit card servicing
income 176,567 117,369 68,960
Income from personal
finance activities 109,167 50,541 37,586
Credit card interchange
income 102,804 92,439 71,740
Business loan and lease
other revenues 61,622 41,050 21,551
Insurance revenues, net 38,175 30,146 12,734
Equity securities gains 6,522 15,386 0
Other 19,789 12,723 15,842
-------- -------- --------
Total other noninterest
revenues $772,712 $543,014 $377,456
-------- -------- --------
Total noninterest
revenues $806,532 $543,014 $395,808
======== ======== ========
</TABLE>
Noninterest revenues of $806.5 million in 1996 increased $263.5 million
or 49% from $543.0 million in 1995. The increase includes a $33.8 million gain
on the sale of credit card customer relationships in June 1996. Excluding this
gain, noninterest revenues increased $229.7 million or 42% from 1995. This rise
resulted primarily from income derived from increased securitization activity in
all areas, as described below.
Due to the securitization of credit card receivables, activity from
securitized account balances, which otherwise would be reported as net interest
income and charge-offs, is reported in securitization income and servicing
income, both of which are included in noninterest revenues. Credit card
securitization activities were affected by the adoption in the third quarter of
1996 of a new charge-off methodology relating to bankruptcies (see Asset
Quality), the upward repricing of interest rates and fees, increases in
charge-offs and the related impact on reserves, all of which had an approximate
$50 million impact (earnings increase) in 1996, as well as a 57% increase in
average securitized receivables. See Note 1 to Consolidated Financial Statements
for further description of securitization income.
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125").
This statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and will be
applied prospectively. The adoption of SFAS 125 is not expected to have a
material effect on the Company's financial statements.
Credit card servicing income, which represents fees paid to the Company
for continuing to service accounts which have been securitized, increased to
$176.6 million in 1996 from $117.4 million in 1995, in line with the increase in
securitized credit cards. Such fees generally approximate 2% of securitized
receivables.
Interchange income represents fees that are payable by merchants to the
credit card issuer for sale transactions. Total interchange income, which
represents approximately 1.4% of credit card purchases, increased 11% to $102.8
million in 1996 from $92.4 million in 1995.
<PAGE> 31
Advanta Corp. and Subsidiaries
During 1996, the Company securitized $1.4 billion of mortgage and home
equity loans compared to $542 million in 1995. As a result, income from personal
finance activities of $109.2 million for 1996 increased 116% from $50.5 million
in 1995. See Note 1 to Consolidated Financial Statements for a description of
income from personal finance activities.
Business loan and lease other revenues increased $20.6 million to $61.6
million in 1996 primarily due to a 75% growth in average securitized business
loans and leases from 1995. Insurance revenues, net, were $38.2 million in 1996,
an increase of $8.0 million over 1995. This growth is attributed to the
successful marketing of insurance products in the credit card, personal finance,
and business loan and lease areas.
Noninterest revenues of $543.0 million in 1995 increased $147.2 million
or 37% from $395.8 million in 1994, primarily due to increases in credit card
securitization, servicing and interchange income, as well as higher business
loan and lease and insurance revenues. Noninterest revenues for 1994 included an
$18.4 million gain on the sale of credit card customer relationships.
OPERATING EXPENSES
<TABLE>
<CAPTION>
($ in thousands)
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Amortization of credit cards deferred origination costs, net $ 88,517 $ 72,258 $ 39,381
Other operating expenses:
Salaries and employee benefits 182,666 116,681 88,681
External processing 42,814 28,407 22,618
Professional fees 40,247 14,937 10,985
Marketing 31,975 25,374 32,339
Postage 25,700 18,518 12,732
Credit card fraud losses 23,611 20,029 16,654
Equipment expense 22,752 12,751 9,293
Telephone expense 16,116 11,959 8,615
Occupancy expense 14,827 9,254 8,425
Credit and collection expense 13,784 9,039 7,604
Other 20,165 11,478 9,457
======== ======== ========
Total other operating expenses $434,657 $278,427 $227,403
-------- -------- --------
Total operating expenses $523,174 $350,685 $266,784
======== ======== ========
At year end:
Number of accounts managed (000's) 5,984 5,031 3,968
Number of employees 3,541 2,409 1,753
For the year:
Other operating expenses
as a percentage of average managed receivables 2.9% 2.9% 3.7%
-------- -------- --------
</TABLE>
The amortization of credit card deferred origination costs, net,
increased from $72.3 million in 1995 to $88.5 million in 1996. This increase
resulted primarily from amortization related to the increased spending on credit
card origination costs that were incurred over the last eighteen months (see
Note 1 of Notes to Consolidated Financial Statements).
Total other operating expenses of $434.7 million for 1996 were up
$156.3 million or 56% from $278.4 million in 1995. The increase in total other
operating expenses is attributable, in part, to a $66.0 million or 57% increase
in salaries and employee benefits as a result of an increase in the number of
employees from 2,409 at year-end 1995 to 3,541 at year-end 1996, including the
addition of senior management to assist in the strategic growth of the various
business units. Other factors affecting the increase in other operating expenses
were a $25.3 million or 169% increase in professional fees primarily as a result
of corporate strategic initiatives as well as an overall increase in credit card
related costs comparable to the 58% increase in average managed credit card
receivables.
<PAGE> 32
Advanta Corp. and Subsidiaries
The amortization of credit card deferred origination costs, net,
increased from $39.4 million in 1994 to $72.3 million in 1995. This increase
resulted primarily from amortization related to the $80.6 million of credit card
origination costs that were incurred since the fourth quarter of 1994 (see Note
1 of Notes to Consolidated Financial Statements).
Total other operating expenses of $278.4 million for 1995 were up $51.0
million or 22% from $227.4 million in 1994. Part of the increase in total other
operating expenses resulted from a $28.0 million or 32% increase in salaries and
employee benefits. Other factors affecting the increase in other operating
expenses were a $5.8 million or 26% increase in external processing resulting
primarily from a 27% increase in the number of accounts managed year-to-year,
and an overall increase in credit card related costs.
INCOME TAXES
The Company's consolidated income tax expense was $89.1 million for 1996, or an
effective tax rate of 34%, compared to tax expense of $75.2 million, or a 36%
effective rate, in 1995 and tax expense of $59.1 million, or a 36% effective
rate, in 1994. The decrease in the effective tax rate from 1995 to 1996 resulted
from a higher level of insurance-related activities, tax credits from
investments and lower levels of state income taxes.
ASSET/LIABILITY MANAGEMENT
The financial condition of Advanta Corp. is managed with a focus on maintaining
high credit quality standards, disciplined interest rate risk management and
prudent levels of leverage and liquidity.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to net interest income variability resulting
from mismatches between asset and liability indices (basis risk) and the effects
which changes in market interest rates have on asset and liability repricing
mismatches (gap risk).
The Company attempts to minimize the impact of market interest rate
fluctuations on net interest income and net income by regularly evaluating the
risk inherent in its asset and liability structure, including securitized
assets. This risk arises from continuous changes in the Company's
asset/liability mix, market interest rates, the yield curve, prepayment trends
and the timing of cash flows. Computer simulations are used to evaluate net
interest income volatility under varying rate, spread and volume projections
over monthly time periods of up to two years.
In managing its interest rate sensitivity position, the Company
periodically securitizes receivables, sells and purchases assets, alters the mix
and term structure of its funding base, changes its investment portfolio and
short-term investment position, and uses derivative financial instruments.
Derivative financial instruments are used to manage exposures to changes in
interest rates and foreign exchange rates and create match funding of assets and
liabilities. Derivative financial instruments, by policy, are not used for any
speculative purposes (see discussion under "Derivatives Activities"). The
Company has primarily utilized variable rate funding in pricing its credit card
securitization transactions in an attempt to match the variable rate pricing
dynamics of the underlying receivables sold to the trusts. Variable rate funding
is used on the balance sheet as well, in support of unsecuritized receivables
which carry variable rates. Although credit card receivable rates are generally
set at a spread over a floating rate index, they often contain interest rate
floors. These floors have the impact of converting the credit card receivables
to fixed rate receivables in a low interest rate environment. In addition, the
Company at times offers fixed rate pricing to consumers for the introductory
rate period of its credit cards. In instances when a significant portion of
credit card receivables carry fixed rate introductory pricing or are at their
floors, the Company may convert part of the underlying funding to a fixed rate
by using interest rate hedges, swaps and fixed rate securitizations. In pricing
mortgage and business loan and lease securitizations, both fixed rate and
variable rate funding are used depending upon the characteristics of the
underlying receivables and the overall interest rate risk exposure to the
Company. Additionally, basis risk exists in on-balance sheet
<PAGE> 33
Advanta Corp. and Subsidiaries
funding as well as in securitizing credit card receivables at a spread over the
London interbank offered rate ("LIBOR") when the rate on the underlying assets
is indexed to the prime rate. The Company measures the basis risk resulting from
potential variability in the spread between prime and LIBOR and incorporates
such risk into the asset and liability management process. During 1996,
substantially all new credit cards were issued using LIBOR as the repricing
index. The effect of this change is the reduction of prime/LIBOR basis risk over
time. The Company continues to seek cost-effective alternatives for minimizing
this risk.
Interest rate fluctuations affect net interest income at virtually all
financial institutions. While interest rate volatility does have an effect on
net interest income, other factors also contribute significantly to changes in
net interest income. Specifically, within the credit card portfolio, pricing
decisions and customer behavior regarding convenience usage affect the yield on
the portfolio. These factors may counteract or exacerbate income changes due to
fluctuating interest rates. The Company closely monitors interest rate
movements, competitor pricing and consumer behavioral changes in its ongoing
analysis of net interest income sensitivity.
LIQUIDITY, FUNDING AND CAPITAL RESOURCES
The Company's goal is to maintain an adequate level of liquidity, both long and
short-term, through active management of both assets and liabilities. During
1996, the Company, through its subsidiaries, securitized $3.4 billion of credit
card receivables, $1.4 billion of mortgage and home equity loans and $363
million of business loans and leases. Cash generated from these transactions was
temporarily invested in short-term, high quality investments at money market
rates awaiting redeployment to pay down borrowings and to fund future receivable
growth. See the Consolidated Statements of Cash Flows for more information
regarding liquidity, funding and capital resources. In addition, see Note 5 to
the Consolidated Financial Statements and the Supplemental Schedules thereto for
additional information regarding the Company's investment portfolio.
Over the last nine years, the Company has successfully accessed the
securitization market to efficiently support its growth strategy. While
securitization should continue to be a reliable source of funding for the
Company, other funding sources are available and include deposits, medium-term
notes, senior and subordinated debt, repurchase agreements, committed and
uncommitted bank lines, bank notes, federal funds purchased and the ability to
sell assets and raise additional equity.
In February 1995, the Company's wholly owned subsidiary, Advanta
National Bank ("Advanta National" or "ANB"), a Delaware based credit card bank,
commenced operations. The Company's initial capitalization of Advanta National
was $50 million, consisting of $25 million in common stock and $25 million of
additional paid in capital. Additional capital totaling $114 million and $39
million was contributed during 1996 and 1995, respectively, in order to maintain
Advanta National as a "well capitalized" bank under applicable regulations. As a
credit card bank, Advanta National is limited to one office, can engage only in
consumer credit card operations and cannot accept deposits other than savings
and time deposits of $100,000 or more. Advanta National had total assets of $2.2
billion at December 31, 1996.
Funding diversification is an essential component of the Company's
liquidity management. The debt securities of Advanta Corp., Advanta National
Bank USA ("AUS"), and ANB investment-grade ratings from the nationally
recognized rating agencies throughout 1996. These ratings allowed the Company to
further diversify its funding sources. In March 1997, the various rating
agencies lowered their ratings on the debt securities of each of Advanta Corp.,
AUS and ANB by one or two grades. As of March 17, 1997, debt of the two banks,
AUS and ANB, was still rated at or above the lowest level of investment grade
by each agency; debt of the parent company, Advanta Corp., maintained
investment grade ratings (at or above the lowest investment grade level) from
three of the rating agencies, but was rated one level below investment grade by
Standard & Poors and two levels below investment grade by Moody's Investors
Service. Efforts continue to develop new sources of funding, both through
previously untapped customer segments and through developing new financing
structures.
In August 1995, in a public offering, the Company sold 2,500,000
depositary shares each representing a one-hundredth interest in a share of
Stock Appreciation Income Linked Securities ("SAILS"). The SAILS constitute a
series of the Company's Class B Preferred Stock, designated as 6 3/4%
Convertible Class B Preferred Stock, Series 1995 (SAILS). On September 15,
1999, unless either previously redeemed by the Company or converted at the
option of the holder, each share of the SAILS will automatically convert into
100 shares of Class B Common Stock. Proceeds from the offering, net of
underwriting discount, were approximately $90 million. The Company used the
proceeds of the offering for general corporate purposes, including financing
the growth of its subsidiaries.
<PAGE> 34
Advanta Corp. and Subsidiaries
In September 1995, AUS and Advanta National (the "Banks") established a
$2.25 billion bank note program. Under this program, the Banks may issue an
aggregate of $2.0 billion of senior bank notes and $250 million of subordinated
bank notes. These notes may have maturities ranging from seven days to fifteen
years from date of issuance.
In July 1996, the Company's $510 million revolving credit facility was
replaced with a new $1 billion revolving credit facility. A portion of this
facility is available to the Banks as well. Also, in July, the Company filed a
shelf registration statement with the Securities and Exchange Commission for
$1.6 billion of debt securities.
On December 17, 1996, Advanta Capital Trust I, a newly formed statutory
business trust established by the Company (the "Trust"), issued in a private
offering to two institutional investors $100 million of capital securities,
representing preferred beneficial interests in the assets of the Trust (the
"Capital Securities"). The sole assets of the Trust consist of $100 million of
8.99% junior subordinated debentures issued by the Company due December 17, 2026
(the "Junior Subordinated Debentures"). The Capital Securities will be subject
to mandatory redemption under certain circumstances, including at any time on or
after December 17, 2006 upon the optional prepayment by the Company of the
Junior Subordinated Debentures. The Company has guaranteed the obligations of
the Trust. The Company used the proceeds from the sale for general corporate
purposes.
At the Advanta parent company level, steady building of liquidity and
capital in 1996 and 1995 was achieved as a result of $135 million of net
dividends from subsidiaries in 1996 and $66.1 million in 1995. The Board of
Directors currently intends to have the Company pay regular quarterly dividends
to its shareholders, maintaining an approximate 20% premium on the dividend paid
on the Class B common shares; however, the Company plans to reinvest the
majority of its earnings to support future growth. In the fourth quarter of
1996, the quarterly dividends on the Class A Common and Class B Common shares
were raised to $.11 and $.132 respectively, from the previous levels of $.09 and
$.108.
At December 31, 1996, the Company was carrying $1.5 billion of loans
available for sale. The fair value of such loans was in excess of their carrying
value at year end. In connection with liquidity and asset/liability management,
the Company had $1.7 billion of investments available for sale at December 31,
1996. See Note 19 to the Consolidated Financial Statements for fair value
disclosures.
The following tables detail the composition of the deposit base and the
composition of debt and other borrowings at year end for each of the past five
years.
COMPOSITION OF DEPOSIT BASE
<TABLE>
<CAPTION>
($ in millions)
- --------------------------------------------------------------------------------------------------------------------------------
As of December 31,
1996 1995 1994 1993 1992
----------------- ----------------- ----------------- ----------------- -----------------
Amount % Amount % Amount % Amount % Amount %
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 28.3 1% $ 91.7 5% $ 64.5 5% $ 33.4 3% $ 24.8 2%
Money market
savings 329.7 18 277.5 14 301.7 26 220.7 17 210.7 17
Time deposits of
$100,000 or less $ 978.6 53 965.5 51 691.0 60 961.4 77 926.8 77
Time deposits of
more than 523.5 28 571.9 30 102.2 9 39.4 3 42.2 4
$100,000
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
Total deposits $ 1,860.1 100% $ 1,906.6 100% $ 1,159.4 100% $ 1,254.9 100% $ 1,204.5 100%
========== === ========== === ========== === ========== === ========== ===
</TABLE>
<PAGE> 35
Advanta Corp. and Subsidiaries
COMPOSITION OF DEBT AND OTHER BORROWINGS
<TABLE>
<CAPTION>
($ in millions)
As of December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- --------------- ---------------
AMOUNT % Amount % Amount % Amount % Amount %
-------- --- -------- --- -------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subordinated notes and
certificates $ 71.1 3% $ 76.2 4% $ 282.1 20% $ 301.3 63% $ 271.1 83%
Senior notes and
certificates 208.3 8 200.6 11 0 0 0 0 0 0
Subordinated debentures 0 0 0 0 0 0 0 0 33.2 10
Short-term bank notes 309.3 13 25.0 1 85.0 6 0 0 0 0
Medium-term bank notes 835.6 34 322.7 18 0 0 0 0 0 0
5 1/8% notes, due 1996 0 0 150.0 8 149.9 11 149.9 32 0 0
Medium-term notes 880.8 36 504.7 28 359.7 25 15.0 3 0 0
Term fed funds 10.0 0 443.0 25 309.0 22 0 0 0 0
Securities sold under
agreements to repurchase 0 0 0 0 86.5 6 0 0 0 0
Lines of credit and term
funding arrangements 0 0 0 0 50.0 4 7.5 2 16.5 5
Other borrowings 147.0 6 81.8 5 80.9 6 0 0 7.1 2
-------- --- -------- --- -------- --- ------- --- ------- ---
Total debt and other
borrowings $2,462.1 100% $1,804.0 100% $1,403.1 100% $ 473.7 100% $ 327.9 100%
======== === ======== === ======== === ======= === ======= ===
</TABLE>
Previously, as a grandfathered institution under the Competitive
Equality Banking Act of 1987 ("CEBA"), the Company had to limit AUS's average
on-balance sheet asset growth to 7% per annum. For the fiscal CEBA year ended
September 30, 1996, AUS's average assets did not exceed the allowable amount
and, accordingly, AUS was in full compliance with CEBA growth limits. However,
on September 30, 1996 this growth rate provision of CEBA was repealed which has
created substantial new flexibility with respect to asset/liability management
for AUS and ultimately the Company. The timing and size of securitizations,
on-balance sheet liability structure and rapid changes in balance sheet
structure have frequently been due to the management of AUS's balance sheet
within this growth constraint. As a result of the elimination of this growth
restriction, the Company is currently evaluating the corporate structure
of its two banking subsidiaries.
In addition to AUS's total deposits of $1.2 billion, deposits at
December 31, 1996 included $705.1 million of time deposits at Advanta National
and $50.4 million of deposits at Advanta Financial Corp. ("AFC"), a Utah
state-chartered, FDIC-insured industrial loan corporation. AFC's assets and
operations are not currently material to the Company, and the Company does not
expect them to become material in the near term.
While there are no specific capital requirements for Advanta Corp., the
Office of the Comptroller of the Currency requires that AUS and Advanta National
maintain a risk-based capital ratio of at least 8%. Both banks were in excess of
the required level and exceeded the minimum capital level of 10% required for
designation as a "well-capitalized" depository institution. At December 31, 1996
and 1995, AUS's risk-based capital ratio was 15.84% and 11.56%, respectively.
Advanta National's risk-based capital ratio at December 31, 1996 and 1995 was
17.20% and 12.28%, respectively. The Company intends to take the necessary
actions to maintain AUS and Advanta National, at a minimum, as "adequately
capitalized" banks. In addition, the Company's insurance subsidiaries are
subject to certain capital, deposit and dividend rules and regulations as
prescribed by state jurisdictions in which they are authorized to operate. At
December 31, 1996 and 1995 the insurance subsidiaries were in compliance with
all requisite rules and regulations.
<PAGE> 36
Advanta Corp. and Subsidiaries
CAPITAL EXPENDITURES
The Company spent $78.4 million for capital expenditures in 1996, primarily for
the purchase of land and a building in Pennsylvania, leasehold improvements to
both the Company's new headquarters and a Colorado office building, additional
space in existing buildings, office and voice communication equipment and
furniture and fixtures. This compared to $20.6 million for capital expenditures
in 1995 and $24.1 million in 1994.
In 1997, the Company anticipates capital expenditures to be comparable
to those of 1996 to accommodate growth in its operating units.
DERIVATIVES ACTIVITIES
The Company utilizes derivative financial instruments for the purpose of
managing its exposure to interest rate and foreign currency risks. The Company
has a number of mechanisms in place that enable it to monitor and control both
market and credit risk from these derivatives activities. At the broader level,
all derivatives strategies are managed under a hedging policy approved by the
Board of Directors that details the use of such derivatives and the individuals
authorized to execute derivatives transactions. All derivatives strategies must
be approved by the Company's senior management (President, Chief Executive
Officer, Chief Financial Officer and Treasurer).
As part of this approval process, a market risk analysis is completed
to determine the potential impact on the Company from severe negative (stressed)
movements in the market. By policy, derivatives transactions may only be used to
manage the Company's exposure to interest rate and foreign currency risks or for
cost reduction and may not be used for speculative purposes. As such, the impact
of any derivatives transaction is calculated using the Company's asset/liability
model to determine its suitability.
The Company's Investment Committee (a management committee) has a
counterparty credit policy. This policy details the maximum credit exposure,
transaction limit and transaction term for counterparties based on an internally
assigned Investment Committee credit rating. Internal counterparty credit
ratings reflect the credit ratings from nationally recognized rating agencies,
as well as other significant credit factors where appropriate. Each
counterparty's credit quality is reviewed as new information becomes available,
and, in any case, at least quarterly. Activities with counterparties will be
suspended if there is reason to believe that their credit quality is below the
Company's set standards.
For each counterparty, credit exposure amounts are calculated in a
stress environment and represent the maximum aggregate credit exposure from
derivatives and other capital market transactions the Company is willing to
accept from an individually approved counterparty. To manage counterparty
exposure, the Company also uses negotiated agreements that establish threshold
exposure amounts for each counterparty above which the Company has the right to
call for and receive collateral for the amount of such excess, thereby limiting
its exposure to the threshold amount. The threshold levels can be fixed or may
change as the credit rating of the counterparty changes, and in all cases, the
threshold levels are well below the maximum allowable exposure amounts described
above.
Counterparty master agreements and any collateral agreements, by
policy, must be signed prior to the execution of any derivatives transactions
with a counterparty. To date, substantially all master agreements with
counterparties have included bilateral collateral agreements. As such, the
potential exposure from a particular counterparty is limited to the maximum
threshold level for that counterparty.
The Company has a treasury middle office independent of the trading
function, which measures, monitors and reports on credit, market and liquidity
risk exposures from capital markets, hedging and derivative product activities.
It is the responsibility of this department to ensure compliance with respect to
the hedging policy, including the counterparty transaction limits, transaction
terms and trader authorizations. In addition, this department marks each
derivatives position to market on a weekly basis using both internal and
external models. These models have been benchmarked against a sample of
<PAGE> 37
Advanta Corp. and Subsidiaries
derivatives dealers' valuation models for accuracy. Position and counterparty
exposure reports are generated and used to manage collateral requirements of the
counterparty and the Company.
All of these procedures and processes are designed to provide
reasonable assurance that prior to and after the execution of any derivatives
strategy, market, credit and liquidity risks are fully analyzed and incorporated
into the Company's asset/liability and risk measurement models and the proper
accounting treatment for the transaction is identified and executed.
During 1996, the FASB issued its exposure draft for accounting for
hedging and derivatives. This draft, an attempt to standardize accounting
treatment for derivatives and hedging, would materially alter the accounting
treatment for the use of such instruments in the reduction of interest rate
risk. The FASB is currently reviewing comments received on the exposure draft.
The Company is unable to predict the outcome of these deliberations at this
time.
CREDIT RISK MANAGEMENT
Management regularly reviews the loan portfolio in order to evaluate the
adequacy of the reserve for credit losses. The evaluation includes such factors
as the inherent credit quality of the loan portfolio, past experience, current
economic conditions, projected credit losses and changes in the composition of
the loan portfolio. The reserve for credit losses is maintained for on-balance
sheet receivables. The on-balance sheet reserve is intended to cover all credit
losses inherent in the owned loan portfolio. With regard to securitized assets,
anticipated losses and related recourse reserves are reflected in the
calculations of Securitization Income, Amounts due from Credit Card
Securitizations and Other Assets. Recourse reserves are intended to cover all
probable credit losses over the life of the securitized receivables. Management
evaluates both its on-balance sheet and recourse reserve requirements and, as
appropriate, effects additions to and/or transfers between these accounts.
The reserve for credit losses on a consolidated basis was $89.2
million, or 3.4% of owned receivables, at December 31, 1996, compared to $53.5
million, or 1.9% of owned receivables, at December 31, 1995. The reserve for
credit losses on a consolidated basis was $41.6 million, or 2.1% of owned
receivables, in 1994.
ASSET QUALITY
Impaired assets include both nonperforming assets (personal finance loans and
business loans and leases past due 90 days or more, real estate owned, bankrupt,
decedent and fraudulent credit card accounts, and off-lease equipment) and
accruing loans past due 90 days or more on credit cards. The carrying value for
real estate owned is based on net realizable value after taking into account
holding costs and costs of disposition and is reflected in other assets.
Gross interest income that would have been recorded in 1996 and 1995
for owned nonperforming assets, had interest been accrued throughout the year in
accordance with the assets' original terms, was approximately $3.7 million and
$4.0 million, respectively. The amount of interest on nonperforming assets
included in income for 1996 and 1995 was $.7 million and $1.3 million,
respectively.
In the third quarter of 1996, the Company adopted a new charge-off
methodology related to bankrupt credit card accounts, providing for up to a
90-day (rather than up to a 30-day) investigative period following notification
of the bankruptcy petition, prior to charge-off. This new methodology is
consistent with others in the credit card industry. The 1996 credit statistics
set forth in the following table reflect this change in methodology.
On the total managed portfolio, impaired assets were $420.5 million, or
2.6% of receivables, at year end 1996 compared to $167.1 million, or 1.4% of
receivables, in 1995. Nonperforming assets on the total managed portfolio were
$191.7 million, or 1.2% of receivables, compared to $82.2 million, or .7%, in
1995. The total managed charge-off rate for 1996 was 3.2%, compared to 2.2% for
1995. The charge-off rate on managed credit cards was 3.7% for 1996 compared to
2.5% for 1995. As of March 17, 1997, the Company was projecting estimated 1997
charge-off rates on the total managed portfolio of 5.2%-5.6% for the first
quarter and 5.0%-6.0% for the full year, and rates on managed credit cards of
6.6%-7.0% for the first quarter and 6.5%-7.5% for the full year.
<PAGE> 38
Advanta Corp. and Subsidiaries
The 30 day and over delinquency rate on the managed portfolio rose to
5.4% at December 31, 1996 compared to 3.3% at December 31, 1995. The 30 day and
over delinquency rate on managed credit cards was 5.0% at year end 1996 compared
to 2.6% at year end 1995. As of March 17, 1997, the Company was projecting
estimated 30 day and over delinquency rates as of March 31, 1997 of 5.7%-6.1%
of the total managed portfolio, and of 5.2%-5.6% of managed credit cards.
Past due loans represent accruing loans that are past due 90 days or
more as to collection of principal and interest. Credit card receivables, except
those on bankrupt, decedent and fraudulent accounts, continue to accrue interest
until the time they are charged off at 186 days contractual delinquency. In
contrast, all personal finance loans and business loans and leases are put on
nonaccrual status when they become 90 days past due.
During 1994, the Company implemented a new policy for the charge-off of
mortgage loans. Under this policy, when a nonperforming mortgage loan becomes
twelve months delinquent, the Company writes down the loan to its net realizable
value, regardless of anticipated collectibility. Consequently, in 1994, all
mortgage loans that had been twelve or more months delinquent, as well as any
mortgages that became twelve months delinquent during the year were written down
to their net realizable value.
<PAGE> 39
Advanta Corp. and Subsidiaries
The following tables provide a summary of reserves, impaired assets,
delinquencies and charge-offs for the past five years:
<TABLE>
<CAPTION>
(in thousands) December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED-MANAGED
Nonperforming assets $191,668 $ 82,171 $ 61,587 $ 63,589 $ 57,797
Accruing loans past due 90 days or more 228,845 84,892 40,837 31,514 34,890
Impaired assets 420,513 167,063 102,424 95,103 92,687
Total loans 30 days or more delinquent 886,717 404,072 220,390 186,297 184,670
As a percentage of gross receivables:
Nonperforming assets 1.2% .7% .8% 1.2% 1.6%
Accruing loans past due 90 days or more 1.4% .7% .5% .6% .9%
Impaired assets 2.6% 1.4% 1.3% 1.8% 2.5%
Total loans 30 days or more delinquent:
New methodology(1) 5.4%
Prior methodology(2) 5.2% 3.3% 2.7% 3.6% 5.0%
Net charge-offs:
Amount $479,992 $212,865 $139,676 $122,715 $108,606
As a percentage of gross receivables:
New methodology(1) 3.2%
Prior methodology(2) 3.5% 2.2% 2.3% 2.9% 3.4%
-------- -------- -------- -------- --------
CREDIT CARDS-MANAGED
Nonperforming assets $ 89,064 $ 20,516 $ 14,227 $ 10,881 $ 7,592
Accruing loans past due 90 days or more 228,822 84,878 40,721 31,489 34,890
Impaired assets 317,886 105,394 54,948 42,370 42,482
Total loans 30 days or more delinquent 632,083 262,299 133,121 94,035 99,308
As a percentage of gross receivables:
Nonperforming assets .7% .2% .2% .3% .3%
Accruing loans past due 90 days or more 1.8% .8% .6% .8% 1.3%
Impaired assets 2.5% 1.1% .8% 1.1% 1.6%
Total loans 30 days or more delinquent:
New methodology(1) 5.0%
Prior methodology(2) 4.6% 2.6% 2.0% 2.4% 3.7%
Net charge-offs:
Amount $451,239 $193,160 $115,218 $105,966 $100,465
As a percentage of gross receivables:
New methodology(1) 3.7%
Prior methodology(2) 4.1% 2.5% 2.5% 3.5% 4.5%
-------- -------- -------- -------- --------
PERSONAL FINANCE LOANS-MANAGED(3)(4)
Nonperforming assets $ 93,101 $ 56,743 $ 44,678 $ 50,418 $ 46,755
Total loans 30 days or more delinquent 194,412 106,223 65,966 75,747 69,962
As a percentage of gross receivables:
Nonperforming assets 3.4% 3.2% 3.3% 4.4% 5.1%
Total loans 30 days or more delinquent 7.1% 5.9% 4.9% 6.6% 7.7%
Net charge-offs:
Amount $ 14,981 $ 13,836 $ 20,709 $ 13,991 $ 5,924
As a percentage of gross receivables .7% .9% 1.7% 1.3% .8%
-------- -------- -------- -------- ----------
BUSINESS LOANS AND LEASES-MANAGED(5)
Nonperforming assets $ 9,503 $ 4,912 $ 2,682 $ 2,290 $ 3,432
Total loans 30 days or more delinquent 59,880 35,274 20,972 16,476 15,320
As a percentage of receivables:
Nonperforming assets 1.2% 1.3% 1.0% 1.3% 2.5%
Total loans 30 days or more delinquent 7.3% 9.3% 7.9% 9.7% 11.1%
Net charge-offs:
Amount $ 13,777 $ 5,846 $ 3,747 $ 2,759 $ 2,352
As a percentage of receivables 2.3% 1.9% 1.9% 1.9% 2.2%
-------- -------- -------- -------- --------
</TABLE>
(1) The 1996 figures reflect the adoption of a new charge-off methodology in
August 1996 relating to credit card bankruptcies (see Asset Quality).
(2) Pro forma calculation reflecting charge-off of all credit card bankruptcies
within 30 days of notification.
(3) In 1994, the Company implemented a new mortgage loan charge-off policy (see
Asset Quality).
(4) Includes mortgage, home equity and auto loans beginning in 1996.
(5) Includes leases and business cards beginning in 1996.
<PAGE> 40
Advanta Corp. and Subsidiaries
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands) December 31,
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Cash $ 165,875 $ 45,714
Federal funds sold 338,926 146,375
Interest-bearing deposits 546,783 410,709
Investments available for sale 785,600 532,963
Loan and lease receivables, net:
Available for sale 1,476,146 1,079,478
Other loan and lease receivables, net 1,136,857 1,699,771
---------- ----------
Total loan and lease receivables, net 2,613,003 2,779,249
Premises and equipment (at cost, less accumulated
depreciation of $53,979 in 1996 and $37,621 in 1995) 108,130 43,453
Amounts due from credit card securitizations 399,359 190,819
Other assets 626,283 374,977
---------- ----------
TOTAL ASSETS $5,583,959 $4,524,259
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing $ 28,302 $ 91,721
Interest-bearing 1,831,756 1,814,880
---------- ----------
Total deposits 1,860,058 1,906,601
Long-term debt 1,393,095 587,877
Other borrowings 1,068,989 1,216,127
Other liabilities 309,781 140,690
---------- ----------
TOTAL LIABILITIES 4,631,923 3,851,295
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely
subordinated debentures of the Company 100,000 0
STOCKHOLDERS' EQUITY (SEE NOTE 9)
Class A preferred stock, $1,000 par value:
Authorized, issued and outstanding - 1,010 shares
in 1996 and 1995 1,010 1,010
Class B preferred stock, $.01 par value:
Authorized - 1,000,000 shares;
Issued - 25,000 shares in 1996 and 1995 0 0
Class A common stock, $.01 par value;
Authorized - 200,000,000 shares;
Issued - 17,945,471 shares in 1996
and 17,481,022 shares in 1995 179 175
Class B common stock, $.01 par value
Authorized - 200,000,000 shares;
Issued - 25,592,764 shares in 1996
and 24,007,352 shares in 1995 256 240
Additional paid-in capital, net 309,250 280,294
Retained earnings, net 541,383 391,245
Less: Treasury stock at cost,
1,231 Class B common shares in 1996 (42) 0
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 852,036 672,964
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,583,959 $4,524,259
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 41
Advanta Corp. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year Ended December 31,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans and leases $267,823 $189,983 $135,429
Investments:
Taxable 79,640 46,574 26,552
Exempt from federal income tax 502 2,375 3,158
-------- -------- --------
Total investments 80,142 48,949 29,710
-------- -------- --------
Total interest income 347,965 238,932 165,139
-------- -------- --------
Interest expense:
Deposits 110,879 72,812 48,268
Debt 118,612 67,908 36,347
Other borrowings 40,209 25,312 10,143
-------- -------- --------
Total interest expense 269,700 166,032 94,758
-------- -------- --------
Net interest income 78,265 72,900 70,381
-------- -------- --------
Provision for credit losses 96,862 53,326 34,198
-------- -------- --------
Net interest income after provision for credit
losses (18,597) 19,574 36,183
Noninterest revenues:
Gain on sale of credit cards 33,820 0 18,352
Other noninterest revenues 772,712 543,014 377,456
-------- -------- --------
Total noninterest revenues 806,532 543,014 395,808
-------- -------- --------
Operating expenses:
Amortization of credit card deferred
origination costs, net 88,517 72,258 39,381
Other operating expenses 434,657 278,427 227,403
-------- -------- --------
Total operating expenses 523,174 350,685 266,784
-------- -------- --------
Income before income taxes 264,761 211,903 165,207
Provision for income taxes 89,104 75,226 59,144
-------- -------- --------
Net income $175,657 $136,677 $106,063
======== ======== ========
Earnings per common share (See Note 1) $ 3.89 $ 3.20 $ 2.58
======== ======== ========
Weighted average common shares outstanding 45,073 42,670 41,046
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 42
Advanta Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Investment Total
Class A Class B Class A Class B Additional Deferred Holding Stock-
Preferred Preferred Common Common Paid-In Compen- Gains Retained Treasury holder's
Stock Stock Stock Stock Capital sation (Losses) Earnings Stock Equity
--------- --------- -------- ------ -------- -------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1993 $ 1,010 $ 0 $ 172 $ 226 $177,654 $(11,008) $ 524 $174,163 $ 0 $342,741
Change in unrealized
appreciation of
investments (7,062) (7,062)
Preferred and common
cash dividends declared (9,877) (9,877)
Exercise of stock options 1 2 1,671 184 1,858
Issuance of stock:
Benefit plans 3 11,543 (9,542) 636 2,640
Amortization of deferred
compensation 5,327 5,327
Termination-benefit plans (190) 1,010 (820) 0
Net Income 106,063 106,063
--------- --------- -------- ------ -------- -------- ------- -------- ------- --------
Balance at Dec. 31, 1994 1,010 0 173 231 190,678 (14,213) (6,538) 270,349 0 441,690
Change in unrealized
appreciation of
investments 6,258 6,258
Preferred and common
cash dividends declared (15,501) (15,501)
Exercise of stock options 2 3 2,049 59 2,113
Issuance of stock:
Public offering 0 88,927 88,927
Benefit plans 6 18,360 (16,523) 1,296 3,139
Amortization of deferred
compensation 7,661 7,661
Termination/tax benefit-
benefit plans 1,917 1,438 (1,355) 2,000
Net Income 136,677 136,677
--------- --------- -------- ------ -------- -------- ------- -------- ------- --------
Balance at Dec. 31, 1995 1,010 0 175 240 301,931 (21,637) (280) 391,525 0 672,964
Change in unrealized
appreciation of
investments (338) (338)
Preferred and common
cash dividends declared (24,588) (24,588)
Exercise of stock options 4 7 7,503 7,514
Issuance of stock:
Benefit plans 9 36,000 (33,815) 2,228 4,422
Amortization of deferred
compensation 11,960 11,960
Termination/tax benefit-
benefit plans 5,045 2,263 (2,270) 5,038
Foreign currency
translation adjustment (593) (593)
Net Income 175,657 175,657
--------- --------- -------- ------ -------- -------- ------- -------- ------- --------
Balance at Dec. 31, 1996 $ 1,010 $ 0 $ 179 $ 256 $350,479 $(41,229) $ (618) $542,001 $ (42) $852,036
========= ========= ======== ====== ======== ======== ======= ======== ======= ========
</TABLE>
See Notes To Consolidated Financial Statements
<PAGE> 43
Advanta Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
($ in thousands) Year Ended December 31,
---------------------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 175,657 $ 136,677 $ 106,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity securities gains (4,074) (6,776) 0
Depreciation and amortization of intangibles 19,335 10,802 7,907
Provision for credit losses 96,862 53,326 34,198
Change in other assets and amounts due from securitizations (287,798) (127,931) (43,599)
Change in other liabilities 147,276 51,757 27,616
Gain on securitization of receivables (89,843) (35,652) (27,189)
------------ ----------- -----------
Net cash provided by operating activities 57,415 82,203 104,996
INVESTING ACTIVITIES
Purchase of investments available for sale (30,770,841) (3,313,555) (1,804,963)
Proceeds from sale of investments available for sale 1,119,231 1,683,934 623,663
Proceeds from maturing investments available for sale 29,388,538 1,430,276 1,159,702
Change in fed funds sold and interest-bearing deposits (303,435) (202,262) (34,973)
Change in credit card receivables, excluding sales (3,329,603) (4,179,735) (2,787,652)
Proceeds from sales/securitizations of receivables 5,385,055 4,331,739 2,738,740
Purchase of personal finance loan/lease portfolios (288,753) (214,094) (143,804)
Principal collected on personal finance loans 60,544 30,945 25,753
Personal finance loans made to customers (1,267,073) (608,064) (451,892)
Purchase of premises and equipment (84,167) (20,652) (24,088)
Proceeds from sale of premises and equipment 574 20 647
Excess of cash collections over income
recognized on direct financing leases 78,282 38,910 21,691
Equipment purchased for direct financing lease contracts (325,729) (235,773) (160,080)
Change in business card receivables, excluding sales (262,064) (43,684) (2,769)
Net change in other loans (11,553) (4,062) (75)
------------ ----------- -----------
Net cash used by investing activities (610,994) (1,306,057) (840,100)
FINANCING ACTIVITIES
Change in demand and savings deposits (11,277) 3,023 112,048
Proceeds from deposits sold 0 30,018 0
Proceeds from sales of time deposits 1,481,557 1,322,388 448,624
Payments for maturing time deposits (1,516,823) (608,186) (656,195)
Change in repurchase agreements and term fed funds (433,000) 47,545 395,455
Proceeds from issuance of subordinated/senior debt 41,076 59,256 39,437
Payments on redemption of subordinated/senior debt (38,541) (64,642) (58,618)
Proceeds from issuance of medium-term notes 720,545 165,052 344,787
Payments on maturity of medium-term notes (494,400) (20,000) 0
Change in notes payable 837,210 212,730 127,489
Proceeds from issuance of capital securities 100,000 0 0
Proceeds from issuance of stock 11,974 94,179 4,498
Cash dividends paid (24,581) (15,501) (9,877)
------------ ----------- -----------
Net cash provided by financing activities 673,740 1,225,862 747,648
------------ ----------- -----------
Net increase in cash 120,161 2,008 12,544
Cash at beginning of year 45,714 43,706 31,162
Cash at end of year $ 165,875 $ 45,714 $ 43,706
============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 44
Advanta Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Advanta Corp. (the "Company"), a Delaware corporation, is a financial services
company which provides a variety of products to consumers and small businesses.
The Company services approximately 6 million customers and manages receivables
in excess of $16 billion. The Company issues credit cards primarily through its
two wholly owned subsidiaries Advanta National Bank USA ("AUS") and Advanta
National Bank ("Advanta National" or "ANB", and together with AUS, "the Banks").
Substantially all of the Company's credit card processing is performed by a
single outside third party processor. Total managed credit card receivables at
December 31, 1996 totaled $12.7 billion. The Company also operates through other
wholly owned subsidiaries including: Advanta Mortgage Corp. USA ("AMC") which
originates mortgage loans, Advanta Business Services Corp. ("ABS") which
provides small ticket equipment leases and markets business credit cards to
businesses, and Advanta Life Insurance Company which reinsures or writes various
credit insurance products available to the Company's customers. Managed
receivables for AMC and ABS totaled approximately $2.8 billion and $.8 billion,
respectively, at December 31, 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
BASIS OF PRESENTATION
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
ultimate results could differ from those estimates.
Certain prior-period amounts have been reclassified to conform with current-year
classifications.
CREDIT CARD ORIGINATION COSTS, SECURITIZATION INCOME AND FEES
Credit Card Origination Costs
The Company accounts for credit card origination costs under Statement of
Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases" ("SFAS 91"). This accounting standard requires certain loan and lease
origination fees and costs to be deferred and amortized over the life of a loan
or lease. Origination costs are defined under this standard to include costs of
loan origination associated with transactions with independent third parties and
certain costs relating to underwriting activities and preparing and processing
loan documents. The Company engages third parties to solicit and originate
credit card account relationships. Amounts deferred under these arrangements
approximated $54.6 million in 1996, $71.9 million in 1995 and $55.2 million in
1994.
The Company amortizes deferred credit card origination costs following
the consensus reached at the May 20, 1993 meeting of the Emerging Issues Task
Force ("EITF") of the Financial Accounting Standards Board ("FASB") regarding
the acquisition of individual credit card accounts from independent third
parties (EITF Issue 93-1). Under this consensus amounts paid to third parties
are deferred and amortized on a straight-line basis over one year. Costs
incurred for originations which were initiated prior to May 20, 1993 continue to
be amortized over a 60 month period as was the practice prior to the EITF Issue
93-1 consensus.
Credit Card Securitization Income
<PAGE> 45
Advanta Corp. and Subsidiaries
Since 1988, the Company, through its subsidiaries AUS and Advanta National, has
completed credit card securitizations totaling $12.2 billion in receivables. See
Note 3 and Note 16. In each transaction, credit card receivables were
transferred to a trust and interests in the trust were sold to investors for
cash. The Company records excess servicing income on credit card securitizations
representing additional cash flow from the receivables initially sold based on
estimates of the repayment term, including prepayments. As the estimates used to
record excess servicing income are influenced by factors outside the Company's
control, there is uncertainty inherent in these estimates, making it reasonably
possible that they could change in the near term. Excess servicing income
recorded at the time of each transaction is substantially offset by the
establishment of recourse reserves for anticipated charge-offs. During the
"revolving period" of each trust, income is recorded based on additional cash
flows from the new receivables which are sold to the trusts on a continual basis
to replenish the investors' interest in trust receivables which have been repaid
by the credit cardholders. Credit card securitization activities were affected
by the adoption in the third quarter of 1996 of a new charge-off methodology
relating to bankruptcies (see Credit Losses below), the upward repricing of
interest rates and fees, increases in charge-offs and the related impact on
reserves, all of which had an approximate $50 million impact (earnings increase)
in 1996, as well as a 57% increase in average securitized receivables.
MORTGAGE LOAN ORIGINATION FEES
The Company generally charges origination fees ("points") for mortgage loans
where permitted under state law. Origination fees, net of direct origination
costs, are deferred and amortized over the contractual life of the loan.
However, upon the sale or securitization of the loans, the unamortized portion
of such fees is recognized and included in the computation of the gain on sale.
LOAN AND LEASE RECEIVABLES AVAILABLE FOR SALE
Loan and lease receivables available for sale represent receivables currently on
the balance sheet that the Company generally intends to sell or securitize
within the next six months. These assets are reported at the lower of cost or
fair market value.
INVESTMENTS AVAILABLE FOR SALE
Investments available for sale include securities that the Company sells from
time to time to provide liquidity and in response to changes in the market. Debt
and equity securities classified as Available for Sale are reported at market
value under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115,
unrealized gains and losses on these securities (except those held by the
Company's venture capital unit, Advanta Partners LP) are reported as a separate
component of stockholders' equity and included in retained earnings. Changes in
the fair value of Advanta Partners LP investments are reported in noninterest
revenues as equity securities gains or losses. The fair value of publicly traded
investments takes into account their quoted market prices with adjustments made
for liquidity or sale restrictions. For investments that are not publicly
traded, estimates of fair value have been made by management that considered
several factors including the investees' financial results, conditions and
prospects, and the values of comparable public companies. Because of the nature
of these investments, the equity method of accounting is not used in situations
where the Company has a greater than 20 percent ownership interest.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses various derivative financial instruments ("derivatives") such
as interest rate swaps and caps, forward contracts, options on securities, and
financial futures as part of its risk management strategy to reduce interest
rate and foreign currency exposures, and where appropriate, to synthetically
lower its cost of funds. Derivatives are classified as hedges or synthetic
alterations of specific on-balance sheet items, off-balance sheet items or
anticipated transactions. In order for derivatives to qualify for hedge
accounting treatment the following conditions must be met: 1) the underlying
item being hedged by derivatives exposes the Company to interest rate or foreign
currency risks, 2) the derivative used serves to reduce the Company's
sensitivity to interest rate or foreign currency risks, and 3) the derivative
used is designated and deemed effective in hedging the Company's exposure to
interest rate or foreign currency risks. In addition to meeting these
conditions, anticipatory hedges must demonstrate that the anticipated
transaction being hedged is probable to occur and the expected terms of the
transaction are identifiable.
<PAGE> 46
Advanta Corp. and Subsidiaries
For derivatives designated as hedges of interest rate exposure, gains
or losses are deferred and included in the carrying amounts of the related item
exposing the Company to interest rate risk and ultimately recognized in income
as part of those carrying amounts. For derivatives designated as hedges of
foreign currency exposure, gains or losses are reported in stockholders' equity.
Accrual accounting is applied for derivatives designated as synthetic
alterations with income and expense recorded in the same category as the related
underlying on-balance sheet or off-balance sheet item synthetically altered.
Gains or losses resulting from early terminations of derivatives are deferred
and amortized over the remaining term of the underlying balance sheet item or
the remaining term of the derivative, as appropriate.
Derivatives not qualifying for hedge or synthetic accounting treatment
would be carried at market value with realized and unrealized gains and losses
included in noninterest revenues. At December 31, 1996, 1995 and 1994, all the
Company's derivatives qualified as hedges or synthetic alterations.
INCOME FROM PERSONAL FINANCE ACTIVITIES
The Company, through its subsidiaries, sells mortgage and home equity loans
through both secondary market securitizations and whole loan sales, typically
with servicing retained. Income is recognized at the time of sale approximately
equal to the present value of the anticipated future cash flows resulting from
the retained yield adjusted for an assumed prepayment rate, net of any
anticipated charge-offs, and allowing for a normal servicing fee. As these
estimates are influenced by factors outside the Company's control, there is
uncertainty inherent in these estimates, making it reasonably possible that they
could change in the near term. Changes in the anticipated future cash flows, as
well as the receipt of cash flows which differ from those projected, affect the
recognition of current and future income from personal finance activities. Also
included in income is any difference between the net sales proceeds and the
carrying value of the mortgage loans sold at the time of the transaction. See
Note 3 and Note 16. The carrying value includes deferred loan origination fees
and costs which include certain fees and costs related to acquiring and
processing a loan held for resale. These deferred origination fees and costs are
netted against income from personal finance activities when the loans are sold.
Income from personal finance activities includes loan servicing fees equal to
.5% of the outstanding balance of securitized loans less amortization of
previously recorded mortgage servicing assets and loan servicing fees on
mortgage loan portfolios which were never owned by the Company ("contract
servicing").
INCOME FROM BUSINESS LOAN AND LEASE SECURITIZATIONS
The Company, through its subsidiaries, sells business loans and leases through
secondary market securitizations. The Company records excess servicing income on
lease securitizations approximately equal to the present value of the
anticipated future cash flows net of anticipated charge-offs, partially offset
by deferred initial direct costs, transaction expenses and estimated credit
losses under certain recourse requirements of the transactions. Also included in
income is the difference between the net sales proceeds and the carrying amount
of the receivables sold. Subsequent to the initial sale, securitization income
is recorded in proportion to the actual cash flows received from the trusts. The
Company records excess servicing income on business card securitizations
representing additional cash flow from the receivables initially sold based on
estimates of the repayment term, including prepayments. Excess servicing income
recorded at the time of each transaction is substantially offset by the
establishment of recourse reserves for anticipated charge-offs. As the estimates
to record excess servicing income are influenced by factors outside the
Company's control, there is uncertainty inherent in these estimates, making it
reasonably possible that they could change in the near term. During the
"revolving period" of each trust, income is recorded based on additional cash
flows from the new receivables which are sold to the trusts on a continual basis
to replenish the investors' interest in trust receivables which have been repaid
by the credit cardholders. See Note 3 and Note 16.
INSURANCE
Reinsurance premiums, net of commissions on credit life, disability and
unemployment policies on credit cards, are earned monthly based upon the
outstanding balance of the underlying receivables. Insurance premiums are earned
ratably over the period of insurance coverage provided. The cost of acquiring
new reinsurance is deferred and amortized over the respective periods in order
to match the expense with the anticipated revenue. Insurance loss reserves are
based on estimated settlement amounts for both reported losses and incurred but
not reported losses.
<PAGE> 47
Advanta Corp. and Subsidiaries
CREDIT LOSSES
The Company's charge-off policy, as it relates to consumer credit card accounts,
is to charge-off a receivable, if not paid, at 186 days contractual delinquency.
Accounts suspected of being fraudulent are written off after a 90 day
investigation period, unless the investigation shows no evidence of fraud.
In the third quarter of 1996, the Company adopted a new charge-off
methodology related to bankrupt credit card accounts, providing for up to a
90-day (rather than up to a 30-day) investigative period following notification
of the bankruptcy petition, prior to charge-off. This new methodology is
consistent with others in the credit card industry.
During 1994, the Company implemented a new policy for the charge-off of
nonperforming mortgage loans. Under this policy, the Company charges off
potential losses on all nonperforming mortgages that have become twelve months
delinquent, regardless of anticipated collectibility. During the 1994 transition
period, losses with respect to both mortgages that became twelve months
delinquent in 1994, as well as those mortgages that had been twelve months or
more delinquent, were charged off.
PREMISES AND EQUIPMENT
Premises, equipment, computers and software are stated at cost less accumulated
depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets. Repairs and
maintenance are charged to expense as incurred.
GOODWILL
Goodwill, representing the cost of investments in subsidiaries and affiliated
companies in excess of net assets acquired at acquisition, is amortized on a
straight-line basis for a period of up to 25 years.
STOCK-BASED COMPENSATION
The FASB has issued SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). This statement requires that an employer's financial statements
include certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. The Company chose to apply
certain allowable accounting provisions, and as such continues to account for
these plans under APB Opinion No. 25. No adjustments to reported net income or
earnings per share are required, however certain disclosures required under SFAS
123 are reported in Note 11.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax basis of assets and liabilities given the provisions of the
enacted tax laws.
EARNINGS PER SHARE
Earnings per common share are computed by dividing net earnings after Class A
preferred stock dividends by the average number of shares of common stock and
common stock equivalents outstanding during each year. The outstanding Class A
preferred stock is not a common stock equivalent. The outstanding Class B
preferred stock is mandatorily convertible into common stock and thus is
considered a common stock equivalent.
CASH FLOW REPORTING
For purposes of reporting cash flows, cash includes cash on hand and amounts due
from banks. Cash paid during 1996, 1995 and 1994 for interest was $241.1
million, $147.2 million and $91.5 million, respectively. Cash paid for taxes
during these periods were $45.1 million, $43.9 million and $60.9 million,
respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
<PAGE> 48
Advanta Corp. and Subsidiaries
The FASB has issued SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). This
statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and will be
applied prospectively. Under SFAS 125, a transfer of financial assets in which
the transferor surrenders control over those assets is accounted for as a sale
to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. SFAS 125 requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practicable. It also
requires that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between the assets
sold, if any, and retained interests, if any, based on their relative fair
values at the date of the transfer. The adoption of SFAS 125 is not expected to
have a material effect on the Company's financial statements.
NOTE 2. LOAN AND LEASE RECEIVABLES
Loan and lease receivables consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Credit cards(A) $ 2,045,219 $ 2,338,280
Personal finance loans(B)(C) 376,260 321,711
Business loans and leases(D) 214,327 93,660
Other loans 20,835 9,276
----------- -----------
Gross loan and lease receivables 2,656,641 2,762,927
----------- -----------
Add: Deferred origination
costs, net of deferred fees(E) 45,546 69,816
Less: Reserve for credit losses:
Credit cards (76,084) (36,889)
Personal finance loans (8,785) (3,360)
Business loans and leases (4,241) (977)
Other (74) (12,268)
----------- -----------
Total (89,184) (53,494)
----------- -----------
Net loan and lease receivables $ 2,613,003 $ 2,779,249
=========== ===========
</TABLE>
(A) Includes credit card receivables available for sale of $1.1 billion and
$776.7 million in 1996 and 1995, respectively.
(B) Includes mortgage, home equity and auto loans beginning in 1996.
(C) Includes personal finance loan receivables available for sale of $337.3
million and $279.4 million in 1996 and 1995, respectively and is net of
unearned income of $2.5 million in 1996.
(D) Includes business loans and leases available for sale of $71.9 million and
$18.0 million in 1996 and 1995, respectively, and is net of unearned income
of $20.9 million and $15.9 million in 1996 and 1995, respectively. Also
includes residual interest for both years.
(E) Includes approximately $4.0 million and $5.3 million in 1996 and 1995,
respectively, related to loan and lease receivables available for sale.
<PAGE> 49
Advanta Corp. and Subsidiaries
Receivables serviced for others consisted of the following items:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Credit cards $10,646,177 $7,692,463
Personal finance loans(A) 2,377,430 1,475,871
Business loans and leases 608,945 284,094
----------- ----------
Total $13,632,552 $9,452,428
=========== ==========
</TABLE>
(A) Excludes mortgage loans which were not originated by the Company, but which
the Company services for a fee ("contract servicing"). Contract servicing
receivables were $3.7 billion and $.6 billion at December 31, 1996 and
1995, respectively.
The geographic concentration of managed receivables was as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1996 1995
----------------------- -----------------------
RECEIVABLES % Receivables %
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
California $ 2,559,128 15.7% $ 2,043,281 16.7%
New York 1,283,895 7.9 983,832 8.1
Texas 1,003,641 6.2 692,665 5.7
Florida 902,692 5.5 640,859 5.3
New Jersey 731,055 4.5 599,867 4.9
All other 9,808,782 60.2 7,254,851 59.3
Total managed receivables $16,289,193 100.0% $12,215,355 100.0%
=========== ===== =========== =====
</TABLE>
In the normal course of business, the Company makes commitments to
extend credit to its credit card customers. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
conditions established in the contract. The Company does not require collateral
to support this financial commitment. At December 31, 1996 and 1995, the Company
had $41.2 billion and $33.3 billion, respectively, of commitments to extend
credit outstanding for which there is potential credit risk. The Company
believes that its customers' utilization of these lines of credit will continue
to be substantially less than the amount of the commitments, as has been the
Company's experience to date. At December 31, 1996 and 1995, outstanding managed
consumer and business credit card receivables represented 32% and 30%,
respectively, of outstanding commitments.
NOTE 3. CREDIT CARD, PERSONAL FINANCE AND BUSINESS LOAN AND LEASE
SECURITIZATIONS
AUS and Advanta National together had securitized credit card receivables
outstanding of $10.6 billion at December 31, 1996. In each securitization
transaction, credit card receivables were transferred to a trust which issued
certificates representing ownership interests in the trust primarily to
institutional investors. The Banks retained a participation interest in each
trust, reflecting the excess of the total amount of receivables transferred to
the trust over the portion represented by certificates sold to investors. The
retained participation interests in the credit card trusts were $.9 billion and
$1.5 billion at December 31, 1996 and 1995, respectively. Although the Banks
continue to service the underlying credit card accounts and maintain the
customer relationships, these transactions are treated as sales for financial
reporting purposes to the extent of the investors' interests in the trusts.
Accordingly, the associated receivables are not reflected on the balance sheet.
The Banks are subject to certain recourse provisions in connection with
these securitizations. At December 31, 1996 and 1995, the Banks had reserves of
$334.6 million and $167.4 million, respectively, related to these recourse
provisions. These reserves are netted against the amounts due from credit card
securitizations. At December 31, 1996, the Company had amounts receivable from
credit card securitizations, including related interest-bearing deposits, of
$733.3 million, $333.9 million of which constitutes amounts which are subject to
liens by the providers of the credit enhancement facilities for the individual
securitizations and is net of amounts awaiting distribution to investors. At
December 31, 1995, the amounts receivable were $453.2 million and amounts
subject to lien (net of amounts due to investors) were $262.4 million.
<PAGE> 50
Advanta Corp. and Subsidiaries
At December 31, 1996, the Company had $2.4 billion of securitized
personal finance loans outstanding which are subject to certain recourse
provisions. The Company had reserves of $64.4 million and $27.2 million at year
end 1996 and 1995, respectively, related to these recourse provisions which are
netted against the excess mortgage servicing rights. See Note 16. At December
31, 1996, the Company had amounts receivable from personal finance loan sales
and securitizations of $260.2 million, $96.5 million of which was subject to
liens. At December 31, 1995, the amounts receivable and amounts subject to lien
were $162.4 million and $58.1 million, respectively.
At December 31, 1996, the Company had $609 million of securitized
business loans and leases outstanding which are subject to certain recourse
provisions. There were reserves of $22.2 million and $15.3 million at year end
1996 and 1995, respectively, related to these recourse provisions which are
netted against the excess servicing on business loan and lease securitizations.
See Note 16. The Company had accounts receivable from business loan and lease
securitizations of $27.6 million at year end 1996 and $22.2 million at year end
1995, of which $8.1 million and $7.5 million, respectively, were subject to
liens by providers of the credit enhancement facilities. Total interest in
residuals for business loan and lease assets sold at December 31, 1996 and 1995,
was $32.1 million and $22.4 million respectively, and is also subject to
recourse provisions.
As indicated in Note 1, recourse reserves are established at the time
of the securitization transactions based on anticipated future cash flows,
prepayment rates and charge-offs. As these estimates are influenced by factors
outside of the Company's control, there is uncertainty inherent in these
estimates, making it reasonably possible that they could change in the near
term.
NOTE 4. RESERVE FOR CREDIT LOSSES
The reserve for credit losses for lending and leasing transactions is
established to reflect losses anticipated from delinquencies that have already
occurred. In estimating the reserve, management relies on historical experience
by loan type adjusted for any known trends in the portfolio. As these estimates
are influenced by factors outside of the Company's control, there is uncertainty
inherent in these estimates, making it reasonably possible that they could
change in the near term.
Any adjustments to the reserves (net of transfers between on-and
off-balance sheet reserves) are reported in the Consolidated Income Statements
in the periods they become known.
<PAGE> 51
Advanta Corp. and Subsidiaries
The following table displays five years of reserve history:
RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
.................................. .............. ............... .............. ............. ............
1996 1995 1994 1993 1992
- ------------------------------------------------- --------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $ 53,494 $ 41,617 $ 31,227 $ 40,228 $ 36,355
Provision for credit losses 96,862 53,326 34,198 29,802 47,138
Transfer of reserves from/(to)
recourse reserves 3,000 1,100 11,485 (12,027) (3,300)
Reserves on receivables purchased 6,404 0 0 0 0
Gross credit losses:
Credit cards (73,466) (41,779) (28,646) (33,805) (46,477)
Personal finance loans (3,473) (6,038) (11,731) (2,247) (1,488)
Business loans and leases (3,444) (1,413) (1,053) (1,376) (1,930)
Other loans (13) (38) (44) (93) (73)
.................................. .............. ............... .............. ............. ............
Total credit losses (80,396) (49,268) (41,474) (37,521) (49,968)
.................................. .............. ............... .............. ............. ............
Recoveries:
Credit cards 8,945 6,354 5,958 10,182 9,095
Personal finance loans 414 76 42 40 37
Business loans and leases 442 274 139 429 663
Other loans 19 15 42 94 208
- ---------------------------------- -------------- --------------- -------------- ------------- ------------
Total recoveries 9,820 6,719 6,181 10,745 10,003
- ---------------------------------- -------------- --------------- -------------- ------------- ------------
Net credit losses (70,576) (42,549) (35,293) (26,776) (39,965)
- ---------------------------------- -------------- --------------- -------------- ------------- ------------
Balance at December 31 $ 89,184 $ 53,494 $ 41,617 $ 31,227 $ 40,228
- ---------------------------------- -------------- --------------- -------------- ------------- ------------
</TABLE>
NOTE 5. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consisted of the following:
<TABLE>
<CAPTION>
December 31,
- ------------------------------ ---------------------------- ----------------------------------------------- ---------
1996 1995
- ------------------------------ --------- ---------- ---------- --------- ---------- ---------- ---------- --------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------- --------- ---------- ---------- --------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury & other U.S.
Government Securities $645,113 $ 21 $ (677) $644,457 $405,614 $ 70 $ (286) $405,398
State and municipal securities 3,640 38 0 3,678 24,239 52 0 24,291
Collateralized mortgage
obligations 7,624 9 (108) 7,525 8,066 0 (101) 7,965
Mortgage- backed securities 41,493 45 (464) 41,074 36,599 0 (103) 36,496
Equity securities 55,115 21,155 (6,250) 70,020 37,860 4,307 (250) 41,917
Other 18,850 0 (4) 18,846 16,897 0 (1) 16,896
- ------------ --------- --------- --------- -------- -------- --------- -------- --------
Total $771,835 $21,268 $(7,503) $785,600 $529,275 $ 4,429 $ (741) $532,963
- ------------ --------- --------- --------- -------- -------- --------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
- ------------ ----------------------------------------
1994
- ------------ --------- --------- --------- --------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ------------ --------- --------- --------- --------
<S> <C> <C> <C> <C>
U. S. Treasury & other U.S.
Government Securities $192,994 $ 0 $ (4,509) $188,485
State and municipal securities 78,884 0 (1,676) 77,208
Collateralized mortgage
obligations 8,584 0 (672) 7,912
Mortgage- backed securities 34,555 0 (2,829) 31,726
Equity securities 13,056 0 (372) 12,684
Other 745 0 (1) 744
- ------------ -------- ----- -------- --------
Total $328,818 $ 0 $(10,059) $318,759
- ------------ -------- ----- -------- --------
</TABLE>
<PAGE> 52
Advanta Corp. and Subsidiaries
At December 31, 1996, investment securities with a book value of $2,916
were pledged at the Federal Reserve Bank. At December 31, 1995, investment
securities with a book value of $4,139 were pledged at the Federal Reserve Bank
and as collateral for derivatives transactions. At December 31, 1996, 1995 and
1994, investment securities with a book value of $6,395, $6,281, and $7,133,
respectively, were deposited with insurance regulatory authorities to meet
statutory requirements or held by a trustee for the benefit of primary insurance
carriers. At December 31, 1996, $13,765 of net unrealized gains on securities
was included in investments available for sale. During 1996, the net change in
unrealized gains/losses on available for sale securities included as a separate
component of stockholders' equity was a decrease of $338.
Maturity of investments available for sale at December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
Amortized Market
Cost Value
.....................
<S> <C> <C>
Due in 1 year $592,720 $592,639
Due after 1 but within 5 years 54,293 53,734
Due after 5 but within 10 years 1,740 1,762
Due after 10 years 0 0
- -----------------------------------------------------------
Subtotal 648,753 648,135
Mortgage-backed CMO and MBS 49,117 48,599
Equity and other securities 73,965 88,866
- -----------------------------------------------------------
Total investments $771,835 $785,600
- -----------------------------------------------------------
</TABLE>
During 1996, proceeds from sales of available for sale securities were
$1,114,000. Gross gains of $2,492 and losses of $110 were realized on these
sales. Of the gross gains, $2,448 relate to investments held by the Company's
venture capital unit. Proceeds during 1995 were $1,689,000. Gross gains of
$8,666 and losses of $320 were realized on these sales. Of the gross gains,
$8,610 related to an investment held by the Company's venture capital unit.
Proceeds during 1994 were $624,000. Gross gains of $118 and losses of $596 were
realized on these sales. The specific identification method was the basis used
to determine the amortized cost in computing realized gains and losses.
<PAGE> 53
Advanta Corp. and Subsidiaries
NOTE 6. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
............................
1996 1995
........... ...........
<S> <C> <C>
SENIOR DEBT
RediReserve certificates $ 4,952 $ 4,203
6 month senior notes 4,857 4,629
12 month senior notes 66,955 46,372
18 month senior notes (5.83%-6.35%) 7,855 6,534
24 month senior notes (5.87%-7.58%) 41,911 37,600
30 month senior notes (5 45%-7.14%) 13,599 16,730
48 month senior notes (5.60%-8.16%) 10,440 19,939
60 month senior notes (5.83%-10.08%) 48,108 55,604
5 1/8% notes due 1996 0 149,955
Medium-term notes,
fixed (6.00%-8.36%) 627,835 289,735
Medium-term notes, floating 253,000 215,000
Short-term bank notes (5.43%-6.07%) 309,349 24,999
Medium-term bank notes,
fixed (5.59%-7.18%) 530,086 297,737
Medium-term bank notes, floating 305,481 24,970
Other senior notes 9,639 8,961
- ------------------------------------------------------------ -----------
Total senior debt $ 2,234,067 $ 1,202,968
SUBORDINATED DEBT
Subordinated notes (5.45%-10.08%) $ 21,275 $ 26,523
7% subordinated bank notes due 2003 49,739 49,699
............................................................ ...........
Total subordinated debt $ 71,014 $ 76,222
............................................................ ...........
Total debt $ 2,305,081 $ 1,279,190
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Less short-term debt & certificates $ (911,986) $ (691,313)
- ------------------------------------------------------------ -----------
Long-term debt $ 1,393,095 $ 587,877
============================================================ ===========
</TABLE>
The Company's senior floating rate notes were priced based on a factor
of LIBOR. At December 31, 1996 the rates on these notes varied from 5.63% to
6.01%.
The annual maturities of long-term debt at December 31, 1996 for the
years ending December 31 are as follows: $469.4 million in 1998; $237.5 million
in 1999; $155.0 million in 2000; $446.4 million in 2001; and $84.8 million
thereafter. The average interest cost of the Company's debt during 1996, 1995
and 1994 was 6.39%, 6.92%, and 6.23%, respectively.
NOTE 7. MANDATORILY REDEEMABLE PREFERRED SECURITIES
On December 17, 1996, Advanta Capital Trust I, a newly formed statutory business
trust established by the Company (the "Trust"), issued in a private offering to
two institutional investors $100 million of Company-obligated mandatorily
redeemable preferred securities, representing preferred beneficial interests in
the assets of the Trust (the "Capital Securities"). The sole assets of the Trust
consist of $100 million of 8.99% junior subordinated debentures issued by the
Company due December 17, 2026 (the "Junior Subordinated Debentures"). The
Capital Securities will be subject to mandatory redemption under certain
circumstances, including at any time on or after December 17, 2006 (upon the
optional prepayment by the Company of the junior subordinated debentures) at an
amount per Capital Security equal to 104.495% of the principal amount declining
ratably on each December 17 thereafter to 100% on December 17, 2016, plus
accrued and unpaid distributions thereon. The Company has guaranteed the
obligations of the Trust. The Company used the proceeds from the sale for
general corporate purposes.
<PAGE> 54
Advanta Corp. and Subsidiaries
NOTE 8. CAPITAL STOCK
The number of shares of capital stock was as follows:
<TABLE>
<CAPTION>
Issued and Outstanding
December 31,
--------------------------
1996 1995
--------------------------
(In thousands)
<S> <C> <C>
Class A preferred-
$1,000 par value;
Authorized, 1,010 1 1
...............................................................
Class B preferred---
$.01 par value;
Authorized, 1,000,000 25 25
...............................................................
Class A voting common
stock-$.01 par value;
Authorized, 200,000,000 17,945 17,481
Class B non-voting
common stock
$.01 par value;
Authorized, 200,000,000 25,593 24,007
Less treasury stock:
Class B 1 0
- ---------------------------------------------------------------
Total common stock 43,537 41,488
===============================================================
</TABLE>
The Class A Preferred Stock is entitled to 1/2 vote per share and a
non-cumulative dividend of $140 per share per year, which must be paid prior to
any dividend on the common stock. Dividends were declared on the Class A
Preferred Stock for the first time in 1989 and have continued through 1996 as
the Company paid dividends on its common stock. The redemption price of the
Class A Preferred Stock is equivalent to the par value. The Class B Preferred
Stock pays a 6 3/4% dividend per share per year (equal to $249.75 per share) and
must be paid prior to any dividend on the common stock.
NOTE 9. ISSUANCE OF PREFERRED STOCK
On August 21, 1995, in a public offering, the Company sold 2,500,000 depositary
shares each representing a one-hundredth interest in a share of Stock
Appreciation Income Linked Securities ("SAILS"). The SAILS constitute a series
of the Company's Class B Preferred Stock, designated as 6 3/4% Convertible Class
B Preferred Stock, Series 1995 (SAILS). The SAILS (and thereby the related
depositary shares) are not redeemable by the Company before September 15, 1998.
The call price of each of the depositary shares will be $37.6244 declining
periodically to $37.00 at September 15, 1999 (the mandatory conversion date). On
September 15, 1999, unless either previously redeemed by the Company or
converted at the option of the holder, each share of the SAILS will
automatically convert into 100 shares of Class B Common Stock. Proceeds from the
offering, net of underwriting discount, were approximately $90 million. The
Company used the proceeds of the offering for general corporate purposes,
including financing the growth of its subsidiaries.
NOTE 10. INCOME TAXES
Income tax expense consisted of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Current:
Federal $78,037 $55,184 $54,246
State 5,346 4,943 4,948
- -------------------------------------------------------------
83,383 60,127 59,194
- -------------------------------------------------------------
Deferred:
Federal 5,800 14,316 (613)
State (79) 783 563
- -------------------------------------------------------------
5,721 15,099 (50)
- -------------------------------------------------------------
Total tax expense $89,104 $75,226 $59,144
- -------------------------------------------------------------
</TABLE>
<PAGE> 55
Advanta Corp. and Subsidiaries
Current taxes payable include the earnings of certain subsidiaries
which are not included in the consolidated federal income tax return.
The reconciliation of the statutory federal income tax to the
consolidated tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Statutory federal income tax $92,740 $74,166 $57,822
State income taxes, net of
federal income tax benefit 3,423 3,722 3,582
Nontaxable investment
income (443) (984) (1,149)
Insurance income (4,492) 0 0
Tax credits (1,231) 0 0
Other (893) (1,678) (1,111)
- -------------------------------------------------------------------
Consolidated tax expense $89,104 $75,226 $59,144
===================================================================
</TABLE>
<PAGE> 56
Advanta Corp. and Subsidiaries
Deferred taxes are determined based on the estimated future tax effects
of the differences between the financial statement and tax basis of assets and
liabilities given the provisions of the enacted tax laws. The net deferred tax
asset/(liability) is comprised of the following:
<TABLE>
<CAPTION>
December 31,
...............................
1996 1995
...............................
<S> <C> <C>
Deferred taxes:
Gross assets $112,861 $ 75,851
Gross liabilities (83,226) (59,445)
- --------------------------------------------------------------
Total deferred taxes $ 29,635 $ 16,406
- --------------------------------------------------------------
</TABLE>
The Company concluded that a valuation allowance against the deferred
tax asset at December 31, 1996 and 1995 is not necessary. Realization of the
deferred tax asset is dependent on generating sufficient future taxable income.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized.
The tax effect of significant temporary differences representing
deferred tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
SFAS 91 $(17,870) $(23,899)
Loan losses 26,851 20,197
Mortgage banking income 6,623 9,767
Securitization income (35,415) (35,546)
Leasing income 56,447 41,901
Other (7,001) 3,986
- --------------------------------------------------------------------
Net deferred tax assets $ 29,635 $ 16,406
- --------------------------------------------------------------------
</TABLE>
NOTE 11. BENEFIT PLANS
The Company has adopted several management incentive plans designed to provide
incentives to participating employees to remain in the employ of the Company and
devote themselves to its success. Under these plans, eligible employees were
given the opportunity to elect to take portions of their anticipated or "target"
bonus payments for future years in the form of restricted shares of common stock
(with each plan covering three performance years). To the extent that such
elections were made (or, for executive officers, were required by the terms of
such plans), restricted shares were issued to employees, with the number of
shares granted to employees determined by dividing the amount of future bonus
payments the employee had elected to receive in stock by the market price as
determined under the incentive plans. The restricted shares are subject to
forfeiture should the employee terminate employment with the Company prior to
vesting. Restricted shares vest 10 years from the date of grant, but with
respect to the restricted shares issued under each plan, vesting was and will be
accelerated annually with respect to one-third of the shares, to the extent that
the employee and the Company met or meet their respective performance goals for
a given plan performance year. When newly eligible employees elect to
participate in a plan, the number of shares issued to them with respect to their
"target" bonus payments for the relevant plan performance years is determined
based on the average market price of the stock for the 90 days prior to
eligibility.
The following table summarizes the Company's incentive plans:
<TABLE>
<CAPTION>
Plan
Performance Original Stock Shares Shares
Years Covered Price Issued Vested
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMIPWISE III 1996-1998 $17.00 796,042 0
AMIPWISE IV 1999-2001 $25.00 732,252 0
- --------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of shares issued on or after January 1,
1995 are: $35 for 77,517 AMIPWISE III shares and $26 for 450,321 AMIPWISE IV
shares issued in 1995, and $42 for both 277,219 AMIPWISE III shares and 281,931
AMIPWISE IV shares issued in 1996.
<PAGE> 57
Advanta Corp. and Subsidiaries
At December 31, 1996, a total of 1,565,904 shares issued under these
and the predecessor plans to AMIPWISE III were subject to restrictions and were
included in the number of shares outstanding. At December 31, 1996 the Company
had two stock option plans and accounts for these plans under APB Opinion No.
25, under which no compensation expense has been recognized.
Had compensation cost for these plans been determined consistent with
SFAS 123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
......................................................................
<S> <C> <C> <C>
Net Income As reported $175,657 $136,677
Pro forma 168,193 119,718
Earnings per share As reported $ 3.89 $ 3.20
Pro forma 3.73 2.81
- ----------------------------------------------------------------------
</TABLE>
Because SFAS 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
The Company's two stock option plans together authorize the grant to
employees and directors of options to purchase an aggregate of 10.2 million
shares of common stock. The Company presently intends only to issue options to
purchase Class B common stock. Options generally vest over a four-year period
and expire 10 years after the date of grant.
Shares available for future grant were approximately 3.4 million at
December 31, 1996, and 97 thousand at December 31, 1995. Transactions under the
plans for the three years ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-----------------------------------------------------------------------------------------
(shares in thousands) Weighted Weighted Weighted
Number of average Number of average Number of average
Shares exercise price Shares exercise price Shares exercise price
..........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,039 $10 3,415 $14 4,381 $21
Granted 762 29 1,363 34 578 39
Exercised (313) 5 (300) 6 (699) 9
Terminated (73) 17 (97) 27 (151) 30
- --------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,415 14 4,381 21 4,109 25
- --------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 2,145 2,015 2,138
Weighted average fair value of
options granted during the year N/A $19.34 $19.87
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------------
(shares in thousands) Weighted average Number
Number Outstanding remaining Weighted average exercisable Weighted average
Range of Exercise Prices at 12/31/96 contractual life exercise price at 12/31/96 exercise price
..........................................................................................................................
<S> <C> <C> <C> <C> <C>
$ 1 to 10 555 3.0 years $ 3 555 $ 3
11 to 20 694 5.1 12 694 12
21 to 30 1,084 6.9 26 607 25
31 to 40 1,458 8.7 35 259 34
40 to 52 318 9.2 44 23 42
- --------------------------------------------------------------------------------------------------------------------------
$ 1 to 52 4,109 6.6 25 2,138 16
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants for 1995 and 1996: risk-free interest rates of 6.7
percent and 6.0 percent, respectively; expected dividend yields of 1 percent;
expected lives of 10 years; expected volatility of 41 percent.
The Company also has outstanding options to purchase 87 thousand shares
of common stock at a price range of $1.52 to $4.75 per share, which were not
issued pursuant to either of the stock option plans. All of these shares were
issued prior to January 1, 1995 and were vested at December 31, 1996.
<PAGE> 58
Advanta Corp. and Subsidiaries
The Company has an Employee Stock Purchase Plan which allows employees
and directors to purchase Class B common stock at a 15% discount from the market
price without paying brokerage fees. The Company reports this 15% discount as
compensation expense. During 1996, shares were issued under the plan from
unissued stock or from treasury stock at the average market price on the day of
purchase.
The Company has a tax-deferred employee savings plan which provides
employees savings and investment opportunities, including the ability to invest
in the Company's Class B common stock. The employee savings plan provides for
discretionary Company contributions equal to a portion of the first 5% of an
employee's compensation contributed to the plan. For the three years ended
December 31, 1996, 1995 and 1994, the Company contributions equaled 100% of the
first 5% of participating employees' compensation contributed to the plan. The
expense for this plan totaled $2,546, $2,027 and $1,565 in 1996, 1995, and 1994,
respectively. All shares purchased by the plan for the three years ended
December 31, 1996, 1995 and 1994 were acquired from the Company at the market
price on each purchase date or were purchased on the open market.
The Company offers an elective, nonqualified deferred compensation plan
to qualified executives and nonemployee directors, which allows them to defer a
portion of their cash compensation on a pretax basis. The plan contains
provisions related to minimum contribution levels and deferral periods with
respect to any individual's participation. The plan participant makes
irrevocable elections at the date of deferral as to deferral period and date of
distribution. Interest is credited to the participant's account at the rate of
125% of the 10 Year Rolling Average Interest Rate on 10-Year U.S. Treasury
Notes. Distribution from the plan may be either at retirement or at an earlier
date, and can be either in a lump sum or in installment payments. The Company
has purchased life insurance contracts with a face value of $53.4 million to
fund this plan.
NOTE 12. CREDIT CARD SALES
In June 1996, the Company, through its subsidiary AUS, sold certain credit card
customer relationships and the related receivables balance to a domestic bank.
The receivables associated with these relationships represented less than 2% of
the Company's managed credit card portfolio as of June 30, 1996. The Company
recorded a $33.8 million net gain related to this transaction.
In April 1994, the Company, through its subsidiary AUS, reached an
agreement with NationsBank of Delaware, N.A., to sell certain credit card
customer relationships which at that time represented approximately $150 million
of securitized credit card receivables. In the second quarter of 1994, the
Company recorded an $18.4 million pretax gain on the sale related to the value
associated with the customer relationships. In addition, the Company deferred a
portion of the proceeds related to the excess spread of the receivables to be
generated over the remaining life of the securitization trust, which terminated
in the second quarter of 1995. These proceeds were recognized as securitization
income over the related period.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company leases office space in several states under leases accounted for as
operating leases. Total rent expense for all of the Company's locations for the
years ended December 31, 1996, 1995 and 1994 was $8.5 million, $4.9 million and
$5.4 million, respectively. The future minimum lease payments of all
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------
<S> <C>
1997 $ 8,598
................................................................
1998 7,299
................................................................
1999 5,296
................................................................
2000 4,666
................................................................
2001 3,572
- ----------------------------------------------------------------
Thereafter 13,044
- ----------------------------------------------------------------
</TABLE>
<PAGE> 59
Advanta Corp. and Subsidiaries
NOTE 14. OTHER BORROWINGS
The Company had a revolving credit facility of $1.0 billion and money market bid
lines of $265 million at December 31, 1996. There is a quarterly facility fee of
up to 35 basis points on the total amount of the revolving credit facility.
There is no facility fee on the money market bid lines as they are uncommitted
facilities. At December 31, 1996, the Company had borrowed $40 million on the
money market bid lines. Under the revolving credit facility, the Company is
subject to various loan covenants, including the maintenance of certain fixed
financial ratios and conditions, limitations on mergers and acquisitions, and
limitations on liens on property and other assets.
<TABLE>
<CAPTION>
The composition of other borrowings was as follows:
December 31,
- ------------------------------------------------------------------------
1996 1995
........................................................................
<S> <C> <C>
Term fed funds $ 10,000 $ 443,000
Short-term debt 911,986 691,313
Other borrowings 147,003 81,814
- ------------------------------------------------------------------------
Total $1,068,989 $1,216,127
========================================================================
</TABLE>
The following table displays information related to selected types of
short-term borrowings:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------
AMOUNT RATE Amount Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At year end:
Securities sold under repurchase
agreements $ 0 0.00% $ 0 0.00%
Term fed funds 10,000 5.42 443,000 5.83
- ---------------------------------------------------------------------------------------
Total $ 10,000 5.42% $443,000 5.83%
- ---------------------------------------------------------------------------------------
Average for the year:
Securities sold under repurchase
agreements $ 149,791 5.31% $ 25,008 5.97%
Term fed funds and fed funds
purchased 100,793 5.71 199,166 6.10
- ---------------------------------------------------------------------------------------
Total $ 250,584 5.47% $224,174 6.09%
- ---------------------------------------------------------------------------------------
Maximum month-end balance
Securities sold under repurchase
agreements $ 1,027,695 $ 29,813
Term fed funds and fed funds
purchased 263,000 455,250
=======================================================================================
</TABLE>
The weighted average interest rates were calculated by dividing the
interest expense for the period for such borrowings by the average amount of
short-term borrowings outstanding during the period.
<PAGE> 60
Advanta Corp. and Subsidiaries
NOTE 15. SELECTED INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
NONINTEREST REVENUES
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sale of credit cards $ 33,820 $ 0 $ 18,352
Other noninterest revenues:
Credit card securitization
income 258,066 183,360 149,043
Credit card servicing income 176,567 117,369 68,960
Income from personal finance
activities 109,167 50,541 37,586
Credit card interchange
income 102,804 92,439 71,740
Business loan and lease
other revenues 61,622 41,050 21,551
Insurance revenues, net 38,175 30,146 12,734
Equity securities gains 6,522 15,386 0
Other 19,789 12,723 15,842
- --------------------------------------------------------------------------------
Total other noninterest
revenues $772,712 $543,014 $377,456
================================================================================
Total noninterest revenues $806,532 $543,014 $395,808
================================================================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSES
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of credit card
deferred origination costs, net $ 88,517 $ 72,258 $ 39,381
Other operating expenses:
Salaries and employee
benefits 182,666 116,681 88,681
External processing 42,814 28,407 22,618
Professional fees 40,247 14,937 10,985
Marketing 31,975 25,374 32,339
Postage 25,700 18,518 12,732
Credit card fraud losses 23,611 20,029 16,654
Equipment expense 22,752 12,751 9,293
Telephone expense 16,116 11,959 8,615
Occupancy expense 14,827 9,254 8,425
Credit and collection expense 13,784 9,039 7,604
Other 20,165 11,478 9,457
Total other operating expenses $434,657 $278,427 $227,403
================================================================================
Total operating expenses $523,174 $350,685 $266,784
================================================================================
</TABLE>
<PAGE> 61
Advanta Corp. and Subsidiaries
NOTE 16. SELECTED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
INTEREST-BEARING DEPOSITS
- ---------------------------------------------------------------
December 31,
- ---------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Amounts due from credit card trusts(A) $333,923 $262,392
Amounts due from mortgage trusts(A) 96,460 58,105
Amounts due from business loan and
leasing trusts(A) 8,099 7,479
Other interest-bearing deposits 108,301 82,733
===============================================================
Total interest-bearing deposits $546,783 $410,709
===============================================================
</TABLE>
(A) Represents initial deposits and subsequent excess collections up to the
required amount on each of the credit card, mortgage and business loan and lease
securitizations. Also includes amounts to be distributed to investors.
<TABLE>
<CAPTION>
OTHER ASSETS
- ------------------------------------------------------------------------
December 31,
........................................................................
1996 1995
........................................................................
<S> <C> <C>
Excess mortgage servicing rights $149,418 $ 96,194
Prepaid assets 117,934 69,170
Accrued interest receivable 101,021 67,681
Deferred costs 42,252 20,670
Current and deferred federal income
taxes 28,169 15,823
Investments in operating leases 17,276 11,928
Due from trustees mortgage 14,298 8,095
Excess servicing - leasing 14,205 11,813
Goodwill 5,795 4,983
Due from trustees - business loans
and leasing 5,326 2,941
Other real estate(A) 2,513 3,333
Other 128,076 62,346
========================================================================
Total other assets $626,283 $374,977
========================================================================
</TABLE>
(A) Carried at the lower of cost or fair market value.
At December 31, 1996 and 1995, the Company had $399.4 million and
$190.8 million, respectively, of amounts due from credit card securitizations.
These amounts include excess servicing, accrued interest receivable and other
amounts related to these securitizations and are net of recourse reserves
established.
<TABLE>
<CAPTION>
OTHER LIABILITIES
......................................................................
December 31,
.........................................................................
1996 1995
.........................................................................
<S> <C> <C>
Deferred fees and other reserves $ 86,877 $ 46,058
Accounts payable and accrued expenses 59,432 32,831
Accrued interest payable 55,320 29,012
Current and deferred state income taxes 10,300 9,026
Other 97,852 23,763
=========================================================================
Total other liabilities $309,781 $140,690
=========================================================================
</TABLE>
<PAGE> 62
Advanta Corp. and Subsidiaries
NOTE 17. CASH, DIVIDEND AND LOAN RESTRICTIONS
In the normal course of business, the Company and its subsidiaries enter into
agreements, or are subject to regulatory requirements, that result in cash, debt
and dividend restrictions.
The Federal Reserve Act imposes various legal limitations on the extent
to which banks that are members of the Federal Reserve System can finance or
otherwise supply funds to certain of their affiliates. In particular, AUS and
Advanta National are subject to certain restrictions on any extensions of credit
to, or other covered transactions, such as certain purchases of assets, with the
Company or its affiliates. Such restrictions prevent both banks from lending to
the Company and its affiliates unless such extensions of credit are secured by
U.S. Government obligations or other specified collateral. Further, such secured
extensions of credit by AUS and Advanta National are limited in amount: (a) as
to the Company or any such affiliate, to 10 percent of each bank's capital and
surplus, and (b) as to the Company and all such affiliates in the aggregate, to
20 percent of each bank's capital and surplus.
Under certain grandfathering provisions of the Competitive Equality
Banking Act of 1987, the Company is not required to register as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA"), so
long as the Company and AUS continue to comply with certain restrictions on
their activities. With respect to AUS, these restrictions include limiting the
scope of its activities to those in which it was engaged prior to March 5, 1987.
Since AUS was not making commercial loans at that time, it must continue to
refrain from making commercial loans, which would include any loans to the
Company or any of its subsidiaries, in order for the Company to maintain its
grandfathered exemption under the BHCA. The Company has no present plans to
register as a bank holding company under the BHCA. Advanta National, as a credit
card bank, must also refrain from making commercial loans, which would include
any loans to the Company or any of its subsidiaries. AUS and Advanta National
are also subject to various legal limitations on the amount of dividends that
can be paid to their parent, Advanta Corp. Each bank is eligible to declare a
dividend provided that it is not greater than the current year's net profits
plus net profits of the preceding two years, as defined. During 1996, AUS paid
$107 million of dividends to Advanta Corp. while $63 million of dividends were
paid during 1995. At December 31, 1996, total stockholders' equity of the
Company's banking and insurance affiliates approximated $434.2 million, of which
$35.0 million was available for payment of dividends without prior approval by
the applicable regulatory authority.
NOTE 18. CAPITAL RATIOS
AUS and Advanta National are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the institutions' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
each institution must meet specific capital guidelines that involve quantitative
measures of its assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The institutions' capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require each institution to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes that as of December
31, 1996, each institution meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most recent notifications from the Office
of the Comptroller of the Currency (the "OCC") categorized each institution as
well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized each institution must maintain minimum total
risk-based and Tier I risk-based capital and Tier I leverage ratios as set forth
in the following table. There are no conditions or events since those
notifications that management believes have changed either institution's
category.
<PAGE> 63
Advanta Corp. and Subsidiaries
<TABLE>
<CAPTION>
Actual
- -----------------------------------------------------------------
Amount Ratio
- -----------------------------------------------------------------
<S> <C> <C>
As of December 31, 1995
Total Capital (to Risk Weighted
Assets)
AUS $193,718 11.56%
ANB 113,066 12.28
Tier I Capital (to Risk Weighted
Assets)
AUS 122,354 7.30
ANB 74,066 8.04
Tier I Capital (to Average Assets)
AUS 122,354 6.79
ANB 74,066 7.87
As of December 31, 1996
Total Capital (to Risk Weighted
Assets)
AUS $179,649 15.84%
ANB 241,534 17.20
Tier I Capital (to Risk Weighted
Assets)
AUS 115,237 10.15
ANB 156,287 11.13
Tier I Capital (to Average Assets)
AUS 115,237 7.35
ANB 156,287 7.15
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective
Purposes Action Provisions
- ---------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1995
Total Capital (to Risk Weighted
Assets)
AUS $134,086 Greater Than or Equal To 8.0 % $167,067 Greater Than or Equal To 10.0 %
ANB 73,665 Greater Than or Equal To 8.0 92,082 Greater Than or Equal To 10.0
Tier I Capital (to Risk Weighted
Assets)
AUS 67,043 Greater Than or Equal To 4.0 100,564 Greater Than or Equal To 6.0
ANB 73,665 Greater Than or Equal To 8.0(1) 73,665 Greater Than or Equal To 8.0(1)
Tier I Capital (to Average Assets)
AUS 50,282 Greater Than or Equal To 3.0 83,804 Greater Than or Equal To 5.0
ANB 27,625 Greater Than or Equal To 3.0 46,041 Greater Than or Equal To 5.0
As of December 31, 1996
Total Capital (to Risk Weighted
Assets)
AUS $ 90,820 Greater Than or Equal To 8.0 % $113,525 Greater Than or Equal To 10.0 %
ANB 112,359 Greater Than or Equal To 8.0 140,449 Greater Than or Equal To 10.0
Tier I Capital (to Risk Weighted
Assets)
AUS 45,410 Greater Than or Equal To 4.0 68,115 Greater Than or Equal To 6.0
ANB 112,359 Greater Than 8.0(1) 112,359 Greater Than of Equal To 8.0(1)
Tier I Capital (to Average Assets)
AUS 34,058 Greater Than or Equal To 3.0 56,763 Greater Than or Equal To 5.0
ANB 42,135 Greater Than or Equal To 3.0 70,225 Greater Than or Equal To 5.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Supplementary agreement with the OCC requires ANB to maintain a Tier I
capital ratio of at least 8% during the first three years of operation
(until February 1998) as well as a minimum Tier I capital level of $50
million.
NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 165,875 $ 165,875 $ 45,714 $ 45,714
Federal funds sold 338,926 338,926 146,375 146,375
Interest-bearing deposits 546,783 546,783 410,709 410,709
Investments available for sale 785,600 785,600 532,963 532,963
Loans, net of reserve for credit losses 2,613,003 2,629,797 2,779,249 2,846,166
Amounts due from credit card securitizations 399,359 399,359 190,819 236,483
Excess mortgage servicing rights 149,418 155,266 96,194 105,024
Financial liabilities:
Demand and savings deposits $ 358,429 $ 358,469 $ 369,224 $ 369,224
Time deposits and debt 3,806,710 3,813,634 2,816,567 2,830,590
Other borrowings 157,003 156,984 524,814 525,246
Off-balance sheet financial instruments Asset/(Liability):
Interest rate swaps and swaptions $ 0 $ 9,788 $ 0 $ 3,198
Interest rate options:
Caps purchased 273 1,766 1,228 1,211
Caps written (272) (1,845) (4,330) (1,703)
Corridors/collars 831 (748) 66 (1,033)
Forward contracts 0 573 0 (1,294)
Intangibles:
Credit card customer relationships
on- and off-balance sheet $ 0 $ 2,460,700 $ 0 $ 1,841,900
-----------------------------------------------------------
</TABLE>
<PAGE> 64
Advanta Corp. and Subsidiaries
The above values do not necessarily reflect the premium or discount
that could result from offering for sale at one time the Company's entire
holdings of a particular instrument. In addition, these values, derived from the
methods and assumptions described below, do not consider the potential income
taxes or other expenses that would be incurred on an actual sale of an asset or
settlement of a liability. With respect to the fair value of liabilities, the
above table is prepared on the basis that the amounts necessary to discharge
such liabilities represent fair value. The Company's off-balance sheet financial
instruments relate to managing the interest rate sensitivity position as
described in Note 21.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
CASH, FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS
For these short-term instruments, the carrying amount is a reasonable estimate
of the fair value.
INVESTMENTS
For investment securities held to maturity and those available for sale, the
fair values are based on quoted market prices, dealer quotes or estimated using
quoted market prices for similar securities.
LOANS, NET OF RESERVE FOR CREDIT LOSSES
For consumer credit card receivables, business card receivables and personal
finance loans, the fair value is estimated using quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value for these loans also includes the estimated
value of the portion of the interest payments and fees which are not sold with
the securities backed by these types of loans. The value of the retained
interest payments (i.e., excess servicing) is estimated by discounting the
future cash flows, adjusted for prepayments, net of anticipated charge-offs and
allowing for the value of the servicing. The value of direct finance lease
receivables and other loans is estimated based on the market prices of similar
receivables with similar characteristics.
AMOUNTS DUE FROM CREDIT CARD SECURITIZATIONS AND EXCESS MORTGAGE SERVICING
RIGHTS
The fair values of the excess servicing rights component of amounts due from
credit card securitizations and excess mortgage servicing rights are estimated
by discounting the future cash flows at rates which management believes to be
reasonable. However, because there is no active market for these financial
instruments, management has no basis to determine whether the fair values
presented above would be indicative of the value negotiated in an actual sale.
The future cash flows used to estimate the fair values of these financial
instruments are adjusted for prepayments, net of anticipated charge-offs under
recourse provisions, and allow for the value of servicing. For the other
components of amounts due from credit card securitizations, the carrying amount
is a reasonable estimate of the fair value.
DEMAND AND SAVINGS DEPOSITS
The fair value of demand deposits, savings accounts, and money market deposits
is the amount payable on demand at the reporting date. This fair value does not
include any benefit that may result from the low cost of funding provided by
these deposits compared to the cost of borrowing funds in the market.
TIME DEPOSITS AND DEBT
The fair value of fixed-maturity certificates of deposit and notes is estimated
using the rates currently offered for deposits and notes of similar remaining
maturities.
<PAGE> 65
Advanta Corp. and Subsidiaries
OTHER BORROWINGS
The other borrowings are all at variable interest rates and therefore the
carrying value approximates a reasonable estimate of the fair value.
INTEREST RATE SWAPS, OPTIONS AND FORWARD CONTRACTS
The fair value of interest rate swaps, options and forward contracts (used for
managing interest rate and foreign currency risks) is the estimated amount that
the Company would pay or receive to terminate the agreement at the reporting
date, taking into account current interest and foreign exchange rates and the
current creditworthiness of the counterparty.
CREDIT CARD CUSTOMER RELATIONSHIPS (BOTH ON- AND OFF-BALANCE SHEET)
The fair value of the credit card relationships, which are not financial
instruments, is estimated using a credit card valuation model which considers
the value of the existing receivables together with the value of new receivables
and the associated fees generated from existing cardholders over the remaining
life of the portfolio.
COMMITMENTS TO EXTEND CREDIT
Although the Company had $28.2 billion of unused commitments to extend credit,
there is no market value associated with these commitments, as any fees charged
are consistent with the fees charged by other companies at the reporting date to
enter into similar agreements.
NOTE 20. CALCULATION OF EARNINGS PER COMMON SHARE
The following table shows the calculation of earnings per common share for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 175,657 $ 136,677 $ 106,063
less: Preferred 'A' dividends (141) (141) (141)
--------- --------- ---------
Net income available to
common shares $ 175,516 $ 136,536 $ 105,922
Average common stock
outstanding 40,795 39,723 38,877
Common stock equivalents:
Restricted stock and options 2,210 2,206 2,169
Mandatorily convertible
Preferred 'B' stock
(see Note 9) 2,068 741 0
--------- --------- ---------
Weighted average shares
outstanding 45,073 42,670 41,046
========= ========= =========
Earnings per common share $ 3.89 $ 3.20 $ 2.58
========= ========= =========
</TABLE>
NOTE 21. DERIVATIVE FINANCIAL INSTRUMENTS
In managing its interest rate sensitivity and foreign currency positions, the
Company may use derivative financial instruments. These instruments are used for
the express purpose of managing its interest rate and foreign currency exposures
and are not used for any trading or speculative activities. As of December 31,
1996 and 1995, all of the Company's derivatives were designated as hedges or
synthetic alterations and were accounted for as such.
<PAGE> 66
Advanta Corp. and Subsidiaries
The following table summarizes by notional amounts the Company's
derivatives instruments as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest rate swaps $1,560,444 $ 867,835
Swaptions 153,000 0
Interest rate options:
Caps written 1,413,222 1,360,000
Caps purchased 365,000 270,000
Corridors/collars 500,000 575,000
Forward contracts 386,680 190,652
========== ==========
Total $4,378,346 $3,263,487
========== ==========
</TABLE>
The notional amounts of derivatives do not represent amounts exchanged
by the counterparties and, thus, are not a measure of the Company's exposure
through its use of derivatives. The amounts exchanged are determined by
reference to the notional amounts and the other terms of the derivatives
contracts.
Credit risk associated with derivatives arises from the potential for a
counterparty to default on its obligations. The Company attempts to limit credit
risk by only transacting with highly creditworthy counterparties and requiring
master netting and collateral agreements for all interest rate swap and interest
rate option contracts. All derivative counterparties are associated with
organizations having securities rated as investment grade by independent rating
agencies. The list of eligible counterparties, setting of counterparty limits,
and monitoring of credit exposure is controlled by the Investment Committee, a
management committee. The Company's credit exposure to derivatives, with the
exception of caps written, is represented by contracts with a positive fair
value without giving consideration to the value of any collateral exchanged --
see Note 19. For caps written, credit exposure does not exist since the
counterparty has performed its obligation to pay the Company a premium payment.
Interest rate swap agreements generally involve the exchange of fixed
and floating rate interest payments without the exchange of the underlying
notional amount on which the interest payments are calculated. Based on its
interest rate sensitivity analyses, the Company enters into interest rate swaps
to more effectively manage the impact of fluctuating interest rates on its net
interest income and noninterest revenues. The Company has used interest rate
swaps to synthetically alter the cash flows on certain deposit, debt, and
off-balance sheet credit card and leasing securitizations.
As of December 31, 1996, the Company used interest rate swaps,
including swaptions, for the following purposes: $976.3 million to effectively
convert fixed rate debt to a LIBOR based variable rate, and $737.1 million to
effectively convert certain off-balance sheet variable pass-through rate home
equity and leasing securitizations to a fixed rate. As of December 31, 1995, the
Company used $250.0 million to effectively convert certain variable rate
deposits to a fixed rate, $203.8 million to effectively convert fixed rate debt
to a LIBOR based variable rate, and $414.0 million to effectively convert
certain off-balance sheet variable pass-through rate credit card and leasing
securitizations to a fixed rate. In 1995, as part of its asset/liability risk
management process, the Company elected to terminate $285.9 million of interest
rate swaps which were effectively converting certain fixed rate debt to a
variable rate based on LIBOR. Gains or losses resulting from these interest rate
swap terminations are deferred and amortized to interest expense over the
remaining life of the underlying fixed rate debt.
<PAGE> 67
Advanta Corp. and Subsidiaries
The following table summarizes by notional amounts the Company's
interest rate swap and swaption activity by major category for the periods
presented:
<TABLE>
<CAPTION>
Receive Pay
Fixed Rate Fixed Rate Total
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance at 1/1/94 $ 150,000 $ 500,000 $ 650,000
Additions 309,735 0 309,735
Maturities 0 (500,000) (500,000)
- ---------------------------------------------------------------------
Balance at 12/31/94 459,735 0 459,735
Additions 30,000 625,962 655,962
Net accretion 0 38,038 38,038
Terminations (285,900) 0 (285,900)
- ---------------------------------------------------------------------
Balance at 12/31/95 203,835 664,000 867,835
Additions 635,000 594,804 1,229,804
Net accretion 0 41,805 41,805
Maturities (26,000) (400,000) (426,000)
---------------------------------------
Balance at 12/31/96 $ 812,835 $ 900,609 $ 1,713,444
=====================================================================
</TABLE>
Interest rate options are contracts that grant the purchaser, for a
premium payment, the right to either purchase or sell a financial instrument at
a future date for a specified price from the writer of the option. Interest rate
caps and floors are option-like contracts that require the seller (writer) to
pay the purchaser at specified future dates the amount by which a specified
market interest rate exceeds the cap rate or falls below the floor rate,
multiplied against a notional amount. A corridor is also an option-like contract
which is the simultaneous purchase and sale of separate interest rate caps where
each cap is referenced to a different interest rate index. A collar is an
option-like contract which is the simultaneous purchase of an interest rate cap
and the sale of an interest rate floor using the same reference interest rate
index.
As part of managing its balance sheet and liquidity position, the
Company periodically securitizes and sells credit cards, business loans and
leases. For credit enhancement purposes, certain variable pass-through rate
credit card and business loan and lease securitizations were issued with
embedded or purchased interest rate caps. These rate caps, however, were not
needed to satisfy asset/liability management strategies. In order to achieve its
desired interest rate sensitivity structure and further reduce the effective
pass-through rate of the securitization, the Company has synthetically altered
the interest rate structure on certain off-balance sheet credit card, business
loan and lease securitizations by writing interest rate caps to offset the
embedded and purchased rate caps attached to them.
The premiums received or paid for writing or purchasing such cap
contracts with third parties are included in other assets and are amortized to
noninterest revenues over the life of the contract. Any obligations which may
arise under these contracts are recorded in noninterest revenues on an accrual
basis. As of December 31, 1996, unamortized premiums for caps written and
purchased amounted to $272 thousand and $273 thousand, respectively. The
weighted average maturities for caps written and purchased were 2.7 years and
4.3 years, respectively. As of December 31, 1995, unamortized premiums for caps
written and purchased amounted to $4.3 million and $1.2 million, respectively.
The weighted average maturities for caps written and purchased were 2.9 years
and 2.8 years, respectively.
When the Company periodically securitizes and sells credit card
receivables, the receivables sold to the securitization trust may carry rates
which are indexed to the prime rate, whereas the securitization certificates
issued from the trust may be priced at a spread over LIBOR. The Company is
exposed to interest rate risk to the extent that these two rate indices react
differently to changes in market interest rates. The Company may choose to hedge
its excess servicing revenues from the risk of spread compression between the
prime rate and LIBOR by entering into corridor transactions which effectively
fix a prime/LIBOR spread. In addition, variable rate receivables sold to a
variable pass-through rate securitization trust may contain introductory fixed
rates which expose the Company to interest rate risk during the receivables'
introductory period. The Company may choose to hedge the risk of interest rate
spread compression by entering into collar transactions which effectively lock
in a minimum interest rate spread in a changing interest rate environment.
<PAGE> 68
Advanta Corp. and Subsidiaries
Premiums paid or received for entering into corridor and collar
transactions are included in other assets or other liabilities and are amortized
to noninterest revenues over the life of the contract. Any obligations which may
arise under these contracts are recorded to noninterest revenues on an accrual
basis. As of December 31, 1996 and 1995, unamortized premiums received for
corridor and collar transactions amounted to $831 thousand and $66 thousand,
respectively. As of December 31, 1996 and 1995, the weighted average maturities
of corridor and collar transactions were 2.2 years and 8 months, respectively.
Forward contracts are commitments to either purchase or sell a
financial instrument at a future date for a specified price and may be settled
in cash or through delivery of the underlying financial instrument. The Company
regularly securitizes and sells fixed rate mortgage, business loan and lease
receivables. The Company may choose to hedge the changes in the market value of
its fixed rate loans and commitments designated for anticipated securitizations
by selling U.S. Treasury securities for forward settlement. The maximum and
average terms of hedges of anticipated mortgage loan sales is four and two
months, respectively. Gains and losses from forward sales are deferred and
included in the measurement of the dollar basis of the loans sold. Realized
gains of $3.4 million and realized losses of $1.8 million were deferred as of
December 31, 1996 and 1995, respectively.
In addition, the Company periodically issues fixed pass-through rate
credit card securitizations, fixed rate bank notes and capital securities. The
Company is exposed to interest rate risk to the extent that rates rise before
the issuance of the anticipated fixed rate obligations. The Company may choose
to hedge the interest costs associated with anticipated obligations by selling
securities for forward settlement. Gains or losses resulting from these hedges
are deferred and amortized to interest expense over the life of the underlying
obligation. The maximum and average terms of these types of anticipatory hedges
are two months. As of December 31, 1996 and 1995, unamortized losses on hedges
of anticipated fixed interest rate obligations amounted to $1.7 million and $2.2
million, respectively and the remaining weighted average amortization period was
3.3 years and 4.3 years, respectively.
The Company also has foreign currency risk to the extent that its net
investment in the joint venture with the Royal Bank of Scotland is not funded
with local currency. The Company may choose to hedge its foreign exchange risk
by selling foreign currency for forward settlement. The maximum and average
terms of hedges of foreign currency exposure is thirty days. Losses from foreign
currency forward contracts are included in stockholders' equity and amounted to
$2.3 million and $4 thousand as of December 31, 1996 and December 31, 1995,
respectively.
<PAGE> 69
Advanta Corp. and Subsidiaries
The following table discloses the Company's interest rate swaps by
major category, notional value, weighted average interest rates, and annual
maturities for the periods presented.
<TABLE>
<CAPTION>
Balances maturing in:
Balance at ---------------------------------------------------------------------------------------------------
12/31/96 1997 1998 1999 2000 2001 2002 2003 2005 2006
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pay Fixed/Receive
Variable:
Notional Value $ 900,609 $ 10,500 $ 80,000 $ 73,000 $ 46,553 $305,410 $22,000 $ 83,084 $280,062 $ 0
Weighted Average
Pay Rate 5.97% 5.88% 5.44% 5.35% 5.72% 6.03% 5.97% 6.46% 6.12% 0.00%
Weighted Average
Receive Rate 5.58% 5.50% 5.55% 5.55% 5.83% 5.67% 5.48% 5.43% 5.38% 0.00%
Receive Fixed/Pay
Variable:
Notional Value $ 812,835 $136,835 $114,000 $ 91,000 $ 0 $406,000 $ 0 $ 50,000 $ 0 $15,000
Weighted Average 6.63% 6.74% 6.44% 6.57% 0.00% 6.62% 0.00% 6.90% 0.00% 6.71%
Receive Rate
Weighted Average
Pay Rate 5.28% 5.49% 5.52% 5.54% 0.00% 5.00% 0.00% 5.50% 0.00% 5.56%
Total Notional
Value $1,713,444 $147,335 $194,000 $164,000 $ 46,553 $711,410 $22,000 $133,084 $280,062 $15,000
Total Weighted
Average
Rates on Swaps:
Pay Rate 5.64% 5.52% 5.49% 5.45% 5.72% 5.45% 5.97% 6.10% 6.12% 5.56%
Receive Rate 6.08% 6.65% 6.07% 6.12% 5.83% 6.21% 5.48% 5.98% 5.38% 6.71%
---------- -------- -------- -------- -------- -------- ------- -------- -------- -------
</TABLE>
<PAGE> 70
Advanta Corp. and Subsidiaries
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF ADVANTA CORP.:
We have audited the accompanying consolidated balance sheets of Advanta Corp. (a
Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanta
Corp. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, PA
January 21, 1997
REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING
TO THE STOCKHOLDERS OF ADVANTA CORP.:
The management of Advanta Corp. and its subsidiaries is responsible for the
preparation, content, integrity and objectivity of the financial statements
contained in this Annual Report. These financial statements have been prepared
in accordance with generally accepted accounting principles and as such must, by
necessity, include amounts based upon estimates and judgments made by
management. The other financial information in the Annual Report was also
prepared by management and is consistent with the financial statements.
Management maintains a system of internal controls that provides
reasonable assurance as to the integrity and reliability of the financial
statements. This control system includes: (l) organizational and budgetary
arrangements which provide reasonable assurance that errors or irregularities
would be detected promptly, (2) careful selection of personnel and
communications programs aimed at assuring that policies and standards are
understood by employees, (3) a program of internal audits, and (4) continuing
review and evaluation of the control program itself.
The financial statements in this Annual Report have been audited by
Arthur Andersen LLP, independent public accountants. Their audits were conducted
in accordance with generally accepted auditing standards and considered the
Company's system of internal controls to the extent they deemed necessary to
determine the nature, timing and extent of their audit tests.
Their report is printed herewith.
/s/ ALEX W. HART /s/ DAVID D. WESSELINK /s/ JOHN J. CALAMARI
- ------------------- ---------------------- --------------------
Alex W. Hart David D. Wesselink John J. Calamari
Chief Executive Senior Vice President Vice President,
Officer and Chief Financial Officer Finance
<PAGE> 71
Advanta Corp. and Subsidiaries
SUPPLEMENTAL SCHEDULES
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
(in thousands) December 31,
- ---------------------------------------------------------------------
1996
- ---------------------------------------------------------------------
<S> <C>
Maturity:
3 months or less $260,027
Over 3 months through 6 months 178,174
Over 6 months through 12 months 259,359
Over 12 months 150,102
- ---------------------------------------------------------------------
Total $847,662
- ---------------------------------------------------------------------
</TABLE>
COMMON STOCK PRICE RANGES AND DIVIDENDS
The Company's common stock is traded on the National Market tier of the Nasdaq
Stock Market under the symbols ADVNB (Class B non-voting common stock and ADVNA
(Class A voting common stock).
Following are the high, low and closing sale prices and cash dividends declared
for the last two years as they apply to each class of stock:
<TABLE>
<CAPTION>
Cash
Dividends
Quarter Ended: High Low Close Declared
- ---------------------------------------------------------------------------------
Class B:
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 1995 $ 32.25 $ 24.50 $ 31.25 $ .08
June 1995 38.75 30.75 37.75 .08
September 1995 42.50 36.00 42.50 .08
December 1995 45.00 35.13 36.38 .108
March 1996 49.25 33.75 47.50 .108
June 1996 52.50 43.50 45.25 .108
September 1996 48.25 39.75 42.75 .108
December 1996 48.50 38.25 40.88 .132
- ---------------------------------------------------------------------------------
Class A:
- ---------------------------------------------------------------------------------
March 1995 $ 34.75 $ 25.50 $ 33.50 $ .067
June 1995 42.50 33.00 41.69 .067
September 1995 46.25 39.50 45.00 .067
December 1995 48.88 37.50 38.25 .09
March 1996 53.50 34.75 52.00 .09
June 1996 58.25 46.50 51.00 .09
September 1996 53.00 41.00 46.00 .09
December 1996 50.00 40.00 42.75 .11
- ---------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the Company had approximately 1,050 and 660
holders of record Class B and Class A common stock, respectively.
<PAGE> 72
Advanta Corp. and Subsidiaries
QUARTERLY DATA
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996
------------------------------------------------------
December 31, September 30, June 30, March 31,
------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 90,754 $ 101,118 $ 83,447 $ 72,646
Interest expense 68,736 77,697 67,332 55,935
------------------------------------------------------
Net interest income 22,018 23,421 16,115 16,711
Provision for credit losses 29,899 24,230 27,651 15,082
Net interest income after provision for credit losses (7,881) (809) (11,536) 1,629
------------------------------------------------------
Noninterest revenues:
Gain on sale of credit cards 0 0 33,820 0
Other noninterest revenues 218,832 209,338 173,513 171,029
------------------------------------------------------
Total noninterest revenues 218,832 209,338 207,333 171,029
Operating expenses 143,925 141,309 127,445 110,495
------------------------------------------------------
Income before income taxes 67,026 67,220 68,352 62,163
------------------------------------------------------
Net income $ 45,151 $ 44,356 $ 45,120 $ 41,030
------------------------------------------------------
Earnings per common share $ 1.00 $ 0.98 $ 1.00 $ 0.91
------------------------------------------------------
Weighted average common shares outstanding 45,245 45,181 45,239 44,875
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------
December 31, September 30, June 30, March 31,
------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 74,487 $ 56,482 $ 48,557 $ 59,406
Interest expense 50,829 41,522 35,571 38,110
------------------------------------------------------
Net interest income 23,658 14,960 12,986 21,296
Provision for credit losses 25,215 10,603 8,583 8,925
------------------------------------------------------
Net interest income after provision for credit losses (1,557) 4,357 4,403 12,371
Noninterest revenues 161,721 136,221 130,849 114,223
Operating expenses 102,377 86,296 83,871 78,141
------------------------------------------------------
Income before income taxes 57,787 54,282 51,381 48,453
------------------------------------------------------
Net income $ 37,580 $ 34,914 $ 33,400 $ 30,783
------------------------------------------------------
Earnings per common share $ 0.85 $ 0.81 $ 0.80 $ 0.74
------------------------------------------------------
Weighted average common shares outstanding 44,349 43,133 41,772 41,438
------------------------------------------------------
</TABLE>
<PAGE> 73
Advanta Corp. and Subsidiaries
SUPPLEMENTAL SCHEDULES
ALLOCATION OF RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Credit cards $76,084 85% $36,889 69% $27,486 66% $25,859 83% $35,743 89%
Personal finance
loans(1) 8,785 10 3,360 6 5,164 12 2,706 9 2,926 7
Business loans
and leases(2) 4,241 5 977 2 1,076 3 1,826 6 1,442 4
Other 74 -- 12,268 23 7,891 19 836 2 117 --
------- --- ------- --- ------- --- ------- --- ------- ---
Total $89,184 100% $53,494 100% $41,617 100% $31,227 100% $40,228 100%
==================================================================================
</TABLE>
COMPOSITION OF GROSS RECEIVABLES
<TABLE>
<CAPTION>
($ in thousands) December 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Credit cards $2,045,219 77% $2,338,280 85% $1,730,176 88% $1,131,367 89% $737,485 74%
Personal
finance 376,260 14 321,711 12 142,874 7 91,340 7 212,273 21
loans(1)
Business loans
and leases(2) 214,327 8 93,660 3 86,157 5 51,008 4 46,712 5
Other loans 20,835 1 9,276 -- 5,237 -- 3,590 -- 1,774 --
-----------------------------------------------------------------------------------------------
Total $2,656,641 100% $2,762,927 100% $1,964,444 100% $1,277,305 100% $998,244 100%
===============================================================================================
</TABLE>
(1) Includes mortgage, home equity and auto loans beginning in 1996.
(2) Includes leases and business cards beginning in 1996.
YIELD AND MATURITY OF INVESTMENTS AVAILABLE FOR SALE AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
($ in thousands) Maturing
-------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
-------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government securities $592,153 5.60% $52,304 6.06% $ 0 0.00% $ 0 0.00%
State and municipal
securities(1) 486 6.06 1,431 7.11 1,761 7.80 0 0.00
Other(2) 1,030 2.96 2,871 6.84 7,738 7.04 38,312 7.00
-------------------------------------------------------------------------------------
Total $593,669 5.60% $56,606 6.13% $9,499 7.18% $38,312 7.00%
=====================================================================================
</TABLE>
(1) Yield computed on a taxable equivalent basis using a statutory rate of 35%.
(2) Equity investments and other securities without a stated maturity are
excluded from this table.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE> 74
Advanta Corp. and Subsidiaries
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The text of the Proxy Statement under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" are hereby
incorporated by reference, as is the text in Part I of this Report under the
caption, "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The text of the Proxy Statement under the captions "Executive Compensation,"
"Compensation Committee Report on Executive Compensation" and "Election of
Directors--Committees, Meetings and Compensation of the Board of
Directors", "--Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" and "--Other Matters" are hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The text of the Proxy Statement under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" are hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The text of the Proxy Statement under the captions "Election of
Directors--Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" and "--Other Matters" are hereby incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following Financial Statements, Schedules, and Other Information of the
Registrant and its subsidiaries are included in this Form 10-K:
(a)(1) Financial Statements
1. Consolidated Balance Sheets at December 31, 1996 and 1995.
2. Consolidated Income Statements for each of the three years in the
period ended December 31, 1996.
3. Consolidated Statements of Changes in Stockholders' Equity for each of
the three years in the period ended December 31, 1996.
4. Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1996.
5. Notes to Consolidated Financial Statements.
(a)(2) Schedules
1. Schedule I--Condensed Financial Information of Registrant.
2. Schedule II--Valuation and Qualifying Accounts.
3. Report of Independent Public Accountants on Supplemental Schedules.
Other statements and schedules are not being presented either because
they are not required or the information required by such statements
and schedules is presented elsewhere in the financial statements.
(a)(3) Exhibits
3-a Restated Certificate of Incorporation of Registrant (incorporated by
reference to Exhibit 4.1 to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-3 (File No. 33-53475),
filed June 10, 1994) , as amended by the Certificate of Designations,
Preferences, Rights and Limitations of the Registrant's 6 3/4%
Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation
Income Linked Securities (SAILS)) (incorporated by reference to Exhibit
4.3 to the Registrant's Current Report on Form 8-K dated August 15,
1995, filed the same date).
3-b By-laws of the Registrant, as amended (incorporated by reference to
Exhibit 3.1 to the Registrant's Current Report on Form 8-K for the year
dated March 17, 1997).
<PAGE> 75
Advanta Corp. and Subsidiaries
4-a* Trust Indenture dated April 22, 1981 between Registrant and Mellon
Bank, N.A., (formerly, CoreStates Bank, N.A.), as Trustee, including
Form of Debenture.
4-b Specimen of Class A Common Stock Certificate and specimen of Class B
Common Stock Certificate (incorporated by reference to Exhibit 1 of the
Registrant's Amendment No. 1 to Form 8 and Exhibit 1 to Registrant's
Form 8-A, respectively, both dated April 22, 1992).
4-c Trust Indenture dated as of November 15, 1993 between the Registrant
and The Chase Manhattan Bank (National Association), as Trustee
(incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-3 (No. 33-50883), filed November 2,
1993).
4-d Specimen of 6 3/4% Convertible Class B Preferred Stock, Series 1995
(Stock Appreciation Income Linked Securities (SAILS)) Certificate
(incorporated by reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated August 15, 1995, filed the same date).
4-e Deposit Agreement, dated as of August 15, 1995, among Advanta Corp. and
Mellon Securities Trust Company and the Holders from Time to Time of
the Depositary Receipts Described Therein in Respect of the 6 3/4%
Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation
Income Linked Securities (SAILS)) (with form of Depositary Receipt as
an exhibit thereto) (incorporated by reference to Exhibit 4.10 to the
Company's Current Report on Form 8-K dated August 15, 1995, filed the
same date).
4-f Senior Trust Indenture, dated as of October 23, 1995, between the
Registrant and Mellon Bank, N.A., as Trustee (incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3
(File No. 33-62601), filed September 13, 1995).
4-g Indenture dated as of December 17, 1996 between Advanta Corp. and The
Chase Manhattan Bank, as trustee relating to the Junior Subordinated
Debentures (filed herewith).
4-h Declaration of Trust dated as of December 5, 1996 of Advanta Capital
Trust I (filed herewith).
4-i Amended and Restated Declaration of Trust dated as of December 17, 1996
for Advanta Capital Trust I (filed herewith).
4-j Registration Rights Agreement dated as of December 11, 1996 between
Advanta Corp. and the Initial Purchasers of the Advanta Capital Trust
I Capital Securities (filed herewith).
4-k Series A Capital Securities Guarantee Agreement dated as of December
17, 1996 (filed herewith).
9 Inapplicable.
10-a Registrant's Stock Option Plan, as amended (incorporated by reference
to Exhibit 10-b to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989).+
10-b Amended and Restated Advanta Corp. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).+
10-c Advanta Management Incentive Plan, as amended (filed herewith).+
10-d* Application for membership in VISA(R) U.S.A. Inc. and Membership
Agreement executed by Colonial National Bank USA on March 25, 1983.
10-e* Application for membership in MasterCard(R) International, Inc. and
Card Member License Agreement executed by Colonial National Bank USA on
March 25, 1983.
10-f Agreement dated as of January 21, 1994 between the Registrant and Alex
W. Hart (incorporated by reference to Exhibit 10-h to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993, filed
March 29, 1994).+
10-g* Indenture of Trust dated May 11, 1984 between Linda M. Ominsky, as
settlor, and Dennis Alter, as trustee.
10-g(i) Agreement dated October 20, 1992 among Dennis Alter, as Trustee of the
trust established by the Indenture of Trust filed as Exhibit 10-g (the
"Indenture"), Dennis Alter in his individual capacity, Linda A.
Ominsky, and Michael Stolper, which Agreement modifies the Indenture
(incorporated by reference to Exhibit 10-g(i) to the Registrant's
Registration Statement on Form S-3 (File 33-58660), filed February 23,
1993).
<PAGE> 76
Advanta Corp. and Subsidiaries
10-h Advanta Management Incentive Plan with Stock Election (incorporated by
reference to Exhibit 4-c to Amendment No. 1 to the Registrant's
Registration Statement on Form S-8 (No. 33-33350), filed February 21,
1990).+
10-i Advanta Corp. Executive Deferral Plan (incorporated by reference to the
Exhibit 10-j to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995), as amended by Amendment No. 2 thereto
(filed herewith).+
10-j Advanta Corp. Non-Employee Directors Deferral Plan (incorporated by
reference to Exhibit 10-K to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995), as amended (Amendment
filed herewith).+
10-k Advanta Management Incentive Plan With Stock Election II (incorporated
by reference to Exhibit 10-o to the Registrant's Registration Statement
on Form S-2 (File No. 33-39343), filed March 8, 1991).+
10-l Amended and Restated Master Pooling and Servicing Agreement between
Advanta National Bank USA and The Chase Manhattan Bank, formerly
Chemical Bank, as Trustee, dated as of April 1, 1992 (incorporated by
reference to Exhibit 4.1 to Advanta National's Registration Statement
on Form S-1 (No. 33-49602), filed with Amendment No. 1 thereto on
August 19, 1992).
10-m Advanta Management Incentive Plan With Stock Election III, as amended
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.+
10-n Life Insurance Benefit for Certain Key Executives and Directors (filed
herewith).+
10-o Revolving Credit and Competitive Loan Agreement, dated as of July 26,
1996, by and among Advanta Corp., Advanta National Bank and Advanta
National Bank USA (the "Borrowers"), The Chase Manhattan Bank, as Agent
for the Banks (as defined in the Agreement), Nationsbanc Capital
Markets, Inc., as syndication agent and PNC Bank, National Association,
as documentation agent (incorporated by reference to Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
10-p Advanta Management Incentive Plan With Stock Election IV, as amended
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10-q Amended and Restated Agreement of Limited Partnership of Advanta
Partners LP, dated as of October 1, 1996 (filed herewith).
10-r Pooling and Servicing Agreement between Advanta National Bank USA and
Bankers Trust Company, as Trustee, dated December 1, 1993, as amended
May 23, 1994 (incorporated by reference to Exhibit 4.1 to Advanta
National's Registration Statement on Form S-3 (No. 33-79986), filed
June 8, 1994)
10-s Agreement dated as of January 15, 1996 between the Registrant and
William A. Rosoff (incorporated by reference to Exhibit 10-u to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995).+
10-t Agreement dated September 5, 1996 between the Registrant and William J.
Razzouk (file herewith).+
11 Inapplicable.
12 Inapplicable.
13 Inapplicable.
16 Inapplicable.
18 Inapplicable.
21 Subsidiaries of the Registrant (filed herewith).
22 Inapplicable.
<PAGE> 77
Advanta Corp. and Subsidiaries
23 Consent of Independent Public Accountants (filed herewith).
24 Powers of Attorney (included on the signature page hereof).
27 Financial Data Schedule (filed herewith).
28 Inapplicable.
99 Inapplicable.
* Incorporated by reference to the Exhibit with corresponding number
constituting part of the Registrant's Registration Statement on Form
S-2 (No. 33-00071), filed on September 4, 1985.
+ Management contract or compensatory plan or arrangement.
<PAGE> 78
Advanta Corp. and Subsidiaries
(b) Reports on Form 8-K
1. A Report on Form 8-K was filed by the Company on October 17,
1996 regarding consolidated earnings of the Company and its
subsidiaries for the fiscal quarter ended September 30, 1996.
Summary earnings and balance sheet information as of that
date were filed with such report.
2. A Report on Form 8-K was filed by the Company on January 22,
1997 regarding consolidated earnings for the Company and its
subsidiaries for the fiscal quarter and fiscal year ended
December 31, 1996. Summary earnings and balance sheet
information as of that date were filed with such report.
3. A Report on Form 8-K was filed by the Registrant on March 17,
1997 reporting on certain announcements made by the Company
that day, the adoption of a shareholder rights plan and
amendments to the Company's By-laws. Summary estimated
earnings and financial information for the fiscal quarter
ending March 31, 1997 and the fiscal year ending December 31,
1997 were filed with such report.
<PAGE> 79
Advanta Corp. and Subsidiaries
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.
Advanta Corp.
Dated: March 26, 1997
By: /s/ Alex W. Hart
----------------------------------
Alex W. Hart,
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does
hereby constitute and appoint Dennis Alter, Alex W. Hart, William A. Rosoff,
John J. Calamari, David D. Wesselink and Gene S. Schneyer, or any of them (with
full power to each of them to act alone), his or her true and lawful attorney
in-fact and agent, with full power of substitution, for him or her and on his or
her behalf to sign, execute and file an Annual Report on Form 10-K under the
Securities Exchange Act of 1934, as amended, for the fiscal year ended December
31, 1996 relating to the Advanta Corp. and any or all amendments thereto, with
all exhibits and any and all documents required to be filed with respect
thereto, with the Securities and Exchange Commission or any regulatory
authority, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he or she might or
could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 26th day of March, 1997.
Name Title
---- -----
/s/ Dennis Alter Chairman of the Board
- -------------------------------
Dennis Alter
/s/ Alex W. Hart Chief Executive Officer and Director
- -------------------------------
Alex W. Hart
/s/ William A. Rosoff Vice Chairman and Director
- -------------------------------
William A. Rosoff
/s/ David D. Wesselink Senior Vice President and Chief Financial
- ------------------------------- Officer
David D. Wesselink
/s/ John J. Calamari Vice President, Finance and Chief
- ------------------------------- Accounting Officer
John J. Calamari
<PAGE> 80
Advanta Corp. and Subsidiaries
Name Title
---- -----
/s/ Arthur P. Bellis Director
- ----------------------------
Arthur P. Bellis
/s/ Max Botel Director
- ----------------------------
Max Botel
/s/ Richard J. Braemer Director
- ----------------------------
Richard J. Braemer
/s/ William C. Dunkelberg Director
- ----------------------------
William C. Dunkelberg
/s/ Dana Becker Dunn Director
- ----------------------------
Dana Becker Dunn
/s/ Robert C. Hall Director
- ----------------------------
Robert C. Hall
/s/ James E. Ksansnak Director
- ----------------------------
James E. Ksansnak
- ---------------------------- Director
Ronald Lubner
/s/ Ronald J. Naples Director
- ----------------------------
Ronald J. Naples
/s/ Phillip A. Turberg Director
- ----------------------------
Phillip A. Turberg
<PAGE> 81
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULES
To Advanta Corp.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated January 21, 1997. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The supplemental
schedules listed in Item 14(a)(2) are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, PA
January 21, 1997
<PAGE> 82
ADVANTA CORP. & SUBSIDIARIES
December 31, 1996
Schedule I - Condensed Financial Information of Registrant
Parent Company Only
CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 93,019 $ 81,337
Investments available for sale 32,960 107,451
Other assets, principally investments in and
advances to wholly owned subsidiaries 2,023,559 1,373,926
---------- ----------
Total assets $2,149,538 $1,562,714
========== ==========
LIABILITIES
Accrued expenses and other liabilities $ 43,984 $ 7,965
Subordinated debt and other borrowings 1,253,518 881,785
---------- ----------
Total liabilities 1,297,502 889,750
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock 1,010 1,010
Common stock 435 415
Other stockholders' equity 850,591 671,539
---------- ----------
Total stockholders' equity 852,036 672,964
---------- ----------
Total liabilities and stockholders' equity $2,149,538 $1,562,714
========== ==========
</TABLE>
<PAGE> 83
Schedule I (cont'd)
Parent Company Only
CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 135,006 $ 76,000 $ 39,000
Interest 62,144 53,745 23,983
Other 40,107 27,130 15,724
--------- --------- ---------
Total income 237,257 156,875 78,707
--------- --------- ---------
Expenses:
General and administrative 86,425 59,129 42,948
Interest 72,219 69,105 34,787
--------- --------- ---------
Total expenses 158,644 128,234 77,735
--------- --------- ---------
Income before income taxes
and equity in subsidiaries 78,613 28,641 972
Benefit for income taxes 24,784 20,469 16,419
--------- --------- ---------
Income before equity in
undistributed net profit
of subsidiaries 103,397 49,110 17,391
Equity in undistributed net profit
of subsidiaries 72,260 87,567 88,672
--------- --------- ---------
Net income $ 175,657 $ 136,677 $ 106,063
========= ========= =========
</TABLE>
<PAGE> 84
Schedule I (Cont'd)
Parent Company Only
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 175,657 $ 136,677 $ 106,063
Adjustments to reconcile net income to net cash
used by operating activities:
Equity in net profit of subsidiaries (207,266) (163,567) (127,672)
Dividends received from subsidiaries 135,006 76,000 39,000
Depreciation and amortization of intangibles 1,375 964 414
Change in other assets (265,658) (159,599) (2,823)
Change in accrued liabilities 51,853 8,387 7,865
- -------------------------------------------------------------------------------------------------------------------
Net cash provided/(used) by operating activities (109,033) (101,138) 22,847
INVESTING ACTIVITIES
Net change in premises & equipment (9,408) (1,901) (2,810)
Purchase of investments available for sale (3,754,047) (637,917) (1,161,420)
Proceeds from sales of investments available
for sale 77,404 340,177 295,196
Proceeds from maturing investments available
for sale 3,771,981 373,410 797,233
- -------------------------------------------------------------------------------------------------------------------
Net cash provided/(used) by investing activities 85,930 73,769 (71,801)
FINANCING ACTIVITIES
Change in lines of credit 40,000 (50,000) 50,000
Proceeds from issuance of subordinated/senior debt 41,036 147,200 39,398
Payments on redemption of subordinated/senior debt (38,541) (152,626) (58,618)
Change in repurchase agreements 0 (52,975) 52,975
Increase in affiliate borrowings (324,341) (35,444) (389,949)
Proceeds from issuance of medium-term notes 720,545 165,052 344,787
Payments on maturity of medium-term notes (494,400) (20,000) 0
Proceeds from issuance of affiliate subordinated debentures 103,093 0 0
Cash dividends paid (24,581) (15,501) (9,877)
Issuance of stock 11,974 94,179 4,498
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 34,785 79,885 33,214
- -------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash 11,682 52,516 (15,740)
Cash at beginning of year 81,337 28,821 44,561
Cash at end of year $ 93,019 $ 81,337 $ 28,821
===================================================================================================================
</TABLE>
<PAGE> 85
Schedule II
ADVANTA Corp. & Subsidiaries
Valuation & Qualifying Accounts
($000's)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ---------------------- -------- --------
Additions
----------------------
Year Balance Charged Charged to Balance
Ended at to Other at
December Beginning Costs and Accounts Deductions End
31, Description of Period Expenses (Describe) (Describe) of Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Reserve for losses on
securitized credit cards 167,425 0 553,884 (1) 386,719 (2)(3) 334,590
Reserve for credit losses
and prepayments on
securitized personal
finance loans (4) 30,606 0 71,050 (1)(3) 17,280 (2)(5) 84,376
Reserve for losses on
securitized business loans
and leases (6) 15,302 0 17,649 (1) 10,776 (2) 22,175
Reserve for uncollectable
receivables & unbillable fees 0 0 0 0 0
1995 Reserve for losses on
securitized credit cards 74,471 0 250,689 (1) 157,735 (2) 167,425
Reserve for credit losses and
prepayments on securitized
personal finance loans (4) 19,767 0 24,933 (1) 14,094 (2)(7) 30,606
Reserve for losses on
securitized business loans
and leases (6) 9,671 0 10,338 (1) 4,707 (2) 15,302
Reserve for uncollectable
receivables & unbillable fees 0 0 0 0 0
1994 Reserve for losses on
securitized credit cards 96,377 0 70,624 (1) 92,530 (2) 74,471
Reserve for credit losses and
prepayments on securitized
personal finance loans (4) 40,513 0 15,441 (1) 36,187 (2)(8) 19,767
Reserve for losses on
securitized business loans
and leases (6) 5,298 0 7,420 (1) 3,047 (2) 9,671
Reserve for uncollectable
receivables & unbillable fees 23 16 0 39 (2) 0
</TABLE>
(1) Amounts netted against securitization income.
(2) Relates to net charge-offs.
(3) Includes $14.0MM transferred from off-balance sheet credit card reserves to
off-balance mortgage reserves.
(4) Includes mortgage and home equity loans.
(5) Includes $3.0MM transferred from off-balance sheet reserves to on-balance
sheet reserves.
(6) Includes business credit cards and leases.
(7) Includes $1.0MM transferred from off-balance sheet reserves to on-balance
sheet reserves.
(8) Includes $12.8MM transferred from off-balance sheet to on-balance sheet
reserves.
<PAGE> 1
Exhibit 4-g
ADVANTA CORP.
INDENTURE
Dated as of December 17, 1996
THE CHASE MANHATTAN BANK
as Trustee
8.99% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
DUE DECEMBER 17, 2026
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Additional Interest...................................... -1-
Adjusted Treasury Rate................................... -1-
Advanta Capital Trust.................................... -2-
Affiliate................................................ -2-
Authenticating Agent..................................... -2-
Bankruptcy Law........................................... -2-
Board of Directors....................................... -2-
Board Resolution......................................... -2-
Business Day............................................. -2-
Capital Securities....................................... -2-
Capital Securities Guarantee............................. -3-
Commission............................................... -3-
Common Securities........................................ -3-
Common Securities Guarantee.............................. -3-
Common Stock............................................. -3-
Company.................................................. -3-
Company Request.......................................... -3-
Comparable Treasury Issue................................ -4-
Comparable Treasury Price................................ -4-
Compounded Interest...................................... -4-
Custodian................................................ -4-
Declaration.............................................. -4-
Default.................................................. -4-
Deferred Interest........................................ -4-
Definitive Securities.................................... -4-
Depositary............................................... -4-
Dissolution Event........................................ -5-
Event of Default......................................... -5-
Exchange Act............................................. -5-
Exchange Offer........................................... -5-
Extended Interest Payment Period......................... -5-
Global Security.......................................... -5-
Indebtedness for Money Borrowed.......................... -5-
Indenture................................................ -5-
Initial Optional Redemption Date......................... -5-
Interest Payment Date.................................... -5-
Liquidated Damages....................................... -5-
</TABLE>
<PAGE> 3
Table of Contents (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Maturity Date............................................ -5-
Mortgage................................................. -5-
Non Book-Entry Capital Securities........................ -5-
Officers................................................. -6-
Officers' Certificate.................................... -6-
Opinion of Counsel....................................... -6-
Optional Redemption Price................................ -6-
Other Debentures......................................... -6-
Other Guarantees......................................... -6-
outstanding.............................................. -6-
Person................................................... -7-
Predecessor Security..................................... -7-
Principal office of the Trustee,......................... -7-
Purchase Agreement....................................... -7-
Property Trustee......................................... -7-
Quotation Agent.......................................... -7-
Redemption Price......................................... -7-
Reference Treasury Dealer Quotations..................... -7-
Registration Rights Agreement............................ -7-
Remaining Life........................................... -8-
Responsible Officer,..................................... -8-
Restricted Security...................................... -8-
Rule 144A................................................ -8-
Securities............................................... -8-
Securities Act........................................... -8-
Securityholder........................................... -8-
Security Register........................................ -8-
Senior Indebtedness...................................... -8-
Series A Securities...................................... -8-
Series B Securities...................................... -8-
Special Event............................................ -9-
Special Event Redemption Price........................... -9-
Subsidiary............................................... -9-
Trustee.................................................. -9-
Trust Indenture Act of 1939.............................. -9-
Trust Securities........................................ -10-
U.S. Government Obligations............................. -10-
</TABLE>
-ii-
<PAGE> 4
Table of Contents (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally................................ -10-
SECTION 2.02. Execution and Authentication................... -10-
SECTION 2.03. Form and Payment............................... -11-
SECTION 2.04. Legends........................................ -11-
SECTION 2.05. Global Security................................ -11-
SECTION 2.06. Interest....................................... -13-
SECTION 2.07. Transfer and Exchange.......................... -14-
SECTION 2.08. Replacement Securities......................... -15-
SECTION 2.09. Treasury Securities............................ -16-
SECTION 2.10. Temporary Securities........................... -16-
SECTION 2.11. Cancellation................................... -17-
SECTION 2.12. Defaulted Interest............................. -17-
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest..... -18-
SECTION 3.02. Offices for Notices and Payments, etc.......... -18-
SECTION 3.03. Appointments to Fill Vacancies in Trustee's
Office......................................... -19-
SECTION 3.04. Provision as to Paying Agent................... -19-
SECTION 3.05. Certificate to Trustee......................... -20-
SECTION 3.06. Compliance with Consolidation Provisions....... -20-
SECTION 3.07. Limitation on Dividends........................ -20-
SECTION 3.08. Covenants as to Advanta Capital Trust.......... -21-
SECTION 3.09. Payment of Expenses............................ -21-
SECTION 3.10. Payment Upon Resignation or Removal............ -22-
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists......................... -22-
SECTION 4.02. Preservation and Disclosure of Lists........... -23-
SECTION 4.03 Reports of the Company.......................... -24-
SECTION 4.04. Reports by the Trustee......................... -25-
</TABLE>
-iii-
<PAGE> 5
Table of Contents (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. Events of Default.............................. -25-
SECTION 5.02. Payment of Securities on Default; Suit Therefor -27-
SECTION 5.03. Application of Moneys Collected by Trustee..... -29-
SECTION 5.04. Proceedings by Securityholders................. -29-
SECTION 5.05. Proceedings by Trustee......................... -30-
SECTION 5.06. Remedies Cumulative and Continuing............. -31-
SECTION 5.07. Direction of Proceedings and Waiver of Defaults
by Majority of Securityholders................. -31-
SECTION 5.08. Notice of Defaults............................. -32-
SECTION 5.09. Undertaking to Pay Costs....................... -32-
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of the Trustee..... -32-
SECTION 6.02. Reliance on Documents, Opinions, etc........... -34-
SECTION 6.03. No Responsibility for Recitals, etc............ -35-
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities -35-
SECTION 6.05. Moneys to be Held in Trust..................... -36-
SECTION 6.06. Compensation and Expenses of Trustee........... -36-
SECTION 6.07. Officers' Certificate as Evidence.............. -36-
SECTION 6.08. Conflicting Interest of Trustee................ -37-
SECTION 6.09. Eligibility of Trustee......................... -37-
SECTION 6.10. Resignation or Removal of Trustee.............. -37-
SECTION 6.11. Acceptance by Successor Trustee................ -39-
SECTION 6.12. Successor by Merger, etc....................... -39-
SECTION 6.13. Limitation on Rights of Trustee as a Creditor.. -40-
SECTION 6.14. Authenticating Agents.......................... -40-
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders...................... -41-
SECTION 7.02. Proof of Execution by Securityholders.......... -42-
SECTION 7.03. Who Are Deemed Absolute Owners................. -42-
</TABLE>
-iv-
<PAGE> 6
Table of Contents (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 7.04. Securities Owned by Company Deemed Not
Outstanding.................................... -42-
SECTION 7.05. Revocation of Consents; Future Holders Bound... -43-
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purpose of Meetings............................ -43-
SECTION 8.02. Call of Meetings by Trustee.................... -44-
SECTION 8.03. Call of Meetings by Company or Securityholders. -44-
SECTION 8.04. Qualifications for Voting...................... -44-
SECTION 8.05. Regulations.................................... -44-
SECTION 8.06. Voting......................................... -45-
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders............. -46-
SECTION 9.02. With Consent of Securityholders................ -47-
SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures........................ -48-
SECTION 9.04. Notation on Securities......................... -48-
SECTION 9.05. Evidence of Compliance of Supplemental
Indenture to be Furnished Trustee.............. -48-
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01 Company May Consolidate, etc., on Certain Terms -49-
SECTION 10.02. Opinion of Counsel to be Given Trustee........ -49-
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture........................ -49-
SECTION 11.02. Deposited Moneys and U.S. Government
Obligations to be Held in Trust by Trustee.... -50-
SECTION 11.03. Paying Agent to Repay Moneys Held............. -50-
SECTION 11.04. Return of Unclaimed Moneys.................... -51-
</TABLE>
-v-
<PAGE> 7
Table of Contents (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.05. Defeasance Upon Deposit of Moneys or
U.S. Government Obligations................... -51-
SECTION 11.06. Reinstatement................................. -52-
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations................................... -53-
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.................................... -53-
SECTION 13.02. Official Acts by Successor Corporation........ -53-
SECTION 13.03. Surrender of Company Powers................... -53-
SECTION 13.04. Address for Notices, etc...................... -54-
SECTION 13.05. Governing Law................................. -54-
SECTION 13.06. Evidence of Compliance with Conditions
Precedent..................................... -54-
SECTION 13.07. Business Days................................. -54-
SECTION 13.08. Trust Indenture Act to Control................ -55-
SECTION 13.09. Table of Contents, Headings, etc.............. -55-
SECTION 13.10. Execution in Counterparts..................... -55-
SECTION 13.11. Separability.................................. -55-
SECTION 13.12. Assignment.................................... -55-
SECTION 13.13. Acknowledgment of Rights...................... -55-
ARTICLE XIV
REDEMPTION OF SECURITIES; NO SINKING FUND
SECTION 14.01. Special Event Redemption...................... -56-
SECTION 14.02. Optional Redemption by Company................ -56-
SECTION 14.03. No Sinking Fund............................... -57-
SECTION 14.04. Notice of Redemption; Selection of Securities. -57-
SECTION 14.05. Payment of Securities Called for Redemption... -58-
ARTICLE XV
SUBORDINATION OF SECURITIES
</TABLE>
-vi-
<PAGE> 8
Table of Contents (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 15.01. Agreement to Subordinate...................... -59-
SECTION 15.02. Default on Senior Indebtedness................ -59-
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.......... -60-
SECTION 15.04. Subrogation................................... -61-
SECTION 15.05. Trustee to Effectuate Subordination........... -62-
SECTION 15.06. Notice by the Company......................... -62-
SECTION 15.07. Rights of the Trustee; Holders of Senior
Indebtedness.................................. -63-
SECTION 15.08. Subordination May Not Be Impaired............. -64-
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period.......... -64-
SECTION 16.02. Notice of Extension........................... -65-
</TABLE>
-vii-
<PAGE> 9
THIS INDENTURE, dated as of December 17, 1996, between Advanta
Corp., a Delaware corporation (hereinafter sometimes called the "Company"), and
The Chase Manhattan Bank, as trustee (hereinafter "Trustee").
W I T N E S S E T H:
In consideration of the premises, and the purchase of the
Securities by the holders thereof, the Company covenants and agrees with the
Trustee for the equal and proportionate benefit of the respective holders from
time to time of the Securities, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture shall have the respective meanings specified in this Section
1.01. All other terms used in this Indenture which are defined in the Trust
Indenture Act of 1939, or which are by reference therein defined in the
Securities Act, shall (except as herein otherwise expressly provided or unless
the context otherwise requires) have the meanings assigned to such terms in said
Trust Indenture Act and in said Securities Act as in force at the date of this
Indenture as originally executed. The following terms have the meanings given to
them in the Declaration: (i) Clearing Agency; (ii) Delaware Trustee; (iii)
Depository; (iv) Capital Security Certificate; (v) Property Trustee; (vi)
Administrative Trustees; and (vii) Direct Action. All accounting terms used
herein and not expressly defined shall have the meanings assigned to such terms
in accordance with generally accepted accounting principles, and the term
"generally accepted accounting principles" means such accounting principles as
are generally accepted at the time of any computation. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision. Headings are used for convenience of reference only and do not
affect interpretation. The singular includes the plural and vice versa.
"Additional Interest" shall have the meaning set forth in Section
2.06(c).
"Adjusted Treasury Rate" shall mean, with respect to any redemption
date pursuant to Section 14.01, the rate per annum equal to (i) the yield, under
the heading which represents the average for the immediately prior week,
appearing in the most recently published statistical release designated "H.15
(519)" or any successor publication which is published weekly by the Federal
Reserve Board and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption "Treasury
Constant Maturities," for the maturity corresponding to the Remaining Life (if
no maturity is within three months before or after the maturity corresponding to
the Remaining Life, yields for the two
<PAGE> 10
published maturities most closely corresponding to the Remaining Life shall be
interpolated, and the Adjusted Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the nearest
month) or (ii) if such release (or any successor release) is not published
during the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date, in each case calculated on
the third Business Day preceding the redemption date, plus in each case (a)
1.25% if such redemption occurs on or prior to December 31, 1997 and (b) 0.50%
in all other cases.
"Advanta Capital Trust" shall mean Advanta Capital Trust I, a
Delaware business trust created for the purpose of issuing its undivided
beneficial interests in connection with the issuance of Securities under this
Indenture.
"Affiliate"shall mean, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding the power to vote
10% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with,
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person, and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"Authenticating Agent" shall mean any agent or agents of the Trustee
which at the time shall be appointed and acting pursuant to Section 6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
"Board of Directors" shall mean either the Board of Directors of the
Company or any duly authorized committee of that board.
"Board Resolution" shall mean a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" shall mean, with respect to any series of Securities,
any day other than a Saturday or a Sunday or a day on which banking institutions
in New York, New York or Wilmington, Delaware are authorized or required by law
or executive order to close.
"Capital Securities" shall mean undivided beneficial interests in
the assets of Advanta Capital Trust which rank pari passu with the Common
Securities issued by Advanta
2
<PAGE> 11
Capital Trust; provided, however, that if an Event of Default has occurred and
is continuing, no payments in respect of Distributions on, or payments upon
liquidation, redemption or otherwise with respect to, the Common Securities
shall be made until the holders of the Capital Securities shall be paid in full
the Distributions and the liquidation, redemption and other payments to which
they are entitled. References to "Capital Securities" shall include,
collectively, any Series A Capital Securities and Series B Capital Securities.
"Capital Securities Guarantee" shall mean any guarantee that the
Company may enter into with The Chase Manhattan Bank or other Persons that
operate directly or indirectly for the benefit of holders of Capital Securities
of Advanta Capital Trust and shall include a Series A Capital Securities
Guarantee and a Series B Capital Securities Guarantee with respect to the Series
A Capital Securities and the Series B Capital Securities, respectively.
"Commission" shall mean the United States Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act, or
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Securities" shall mean undivided beneficial interests in the
assets of Advanta Capital Trust that rank pari passu with Capital Securities
issued by Advanta Capital Trust; provided, however, that if an Event of Default
has occurred and is continuing, no payments in respect of Distributions on, or
payments upon liquidation, redemption or otherwise with respect to, the Common
Securities shall be made until the holders of the Capital Securities shall be
paid in full the Distributions and the liquidation, redemption and other
payments to which they are entitled.
"Common Securities Guarantee" shall mean any guarantee that the
Company may enter into with any Person or Persons that operate directly or
indirectly for the benefit of holders of Common Securities of Advanta Capital
Trust.
"Common Stock" shall mean the Class A Common Stock, par value $0.01
per share, of the Company, or the Class B Common Stock, par value $0.01 per
share, of the Company, or any other class of stock resulting from changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
"Company" shall mean Advanta Corp., a Delaware corporation, and,
subject to the provisions of Article X, shall include its successors and
assigns.
"Company Request" or "Company Order" shall mean a written request or
order signed in the name of the Company by the Chairman, the Chief Executive
Officer, the President, a Vice Chairman, a Vice President or Treasurer of the
Company, and delivered to the Trustee.
3
<PAGE> 12
"Comparable Treasury Issue" shall mean the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to the
Remaining Life of the Securities that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining Life
of the Securities. If no United States Treasury security has a maturity which is
within a period from three months before to three months after the Initial
Optional Prepayment Date, the two most closely corresponding United States
Treasury securities shall be used as the Comparable Treasury Issue, and the
Adjusted Treasury Rate shall be interpolated or extrapolated on a straight-line
basis, rounding to the nearest month, using such securities.
"Comparable Treasury Price" shall mean, with respect to any
redemption date pursuant to Section 14.01, (i) the average of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) on the third Business Day preceding such redemption
date, as set forth in the daily statistical release (or any successor release)
published by the Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for U.S. Government Securities"' or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
Business Day, (A) the average of five Reference Treasury Dealer Quotations for
such redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than five such
Reference Treasury Dealer Quotations (the Trustee to have discretion as to the
number of Reference Treasury Dealer Quotations obtained), the average of all
such Quotations.
"Compounded Interest" shall have the meaning set forth in Section
16.01.
"Custodian" shall mean any receiver, trustee, assignee, liquidator,
or similar official under any Bankruptcy Law.
"Declaration" shall mean the Amended and Restated Declaration of
Trust of Advanta Capital Trust, dated as of December 17, 1996.
"Default" shall mean any event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section
16.01.
"Definitive Securities" shall mean those securities issued in fully
registered certificated form not otherwise in global form.
"Depositary" shall mean, with respect to Securities of any series,
for which the Company shall determine that such Securities will be issued as a
Global Security, The Depository Trust Company, New York, New York, another
clearing agency, or any successor registered as a clearing agency under the
Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to Section 2.05(d).
4
<PAGE> 13
"Dissolution Event" shall mean the liquidation of Advanta Capital
Trust pursuant to the Declaration, and the distribution of the Securities held
by the Property Trustee to the holders of the Trust Securities issued by Advanta
Capital Trust pro rata in accordance with the Declaration.
"Event of Default" shall mean any event specified in Section 5.01,
continued for the period of time, if any, and after the giving of the notice, if
any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" shall mean the offer that may be made pursuant to
the Registration Rights Agreement (i) by the Company to exchange Series B
Securities for Series A Securities and to exchange a Series B Capital Securities
Guarantee for a Series A Capital Securities Guarantee and (ii) by Advanta
Capital Trust to exchange Series B Capital Securities for Series A Capital
Securities.
"Extended Interest Payment Period" shall have the meaning set forth
in Section 16.01.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
"Global Security" shall mean, with respect to the Securities, a
Security executed by the Company and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, all in accordance with the
Indenture, which shall be registered in the name of the Depositary or its
nominee.
"Indebtedness for Money Borrowed" shall mean any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments.
"Indenture" shall mean this instrument as originally executed or, if
amended as herein provided, as so amended.
"Initial Optional Redemption Date" shall mean December 17, 2006.
"Interest Payment Date" shall have the meaning set forth in Section
2.06.
"Liquidated Damages" shall have the meaning set forth in the
Registration Rights Agreement.
"Maturity Date" shall mean December 17, 2026.
5
<PAGE> 14
"Non Book-Entry Capital Securities" shall have the meaning set forth
in Section 2.05.
"Officers" shall mean any of the Chairman, a Vice Chairman, the
Chief Executive Officer, the President, a Vice President or the Treasurer of the
Company.
"Officers' Certificate" shall mean a certificate signed by two
Officers and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who
may be an employee of the Company, and who shall be acceptable to the Trustee.
"Optional Redemption Price" shall have the meaning set forth in
Section 14.02.
"Other Debentures" shall mean all junior subordinated debentures
(other than the Securities) issued by the Company from time to time and sold to
trusts to be established by the Company (if any), in each case similar to
Advanta Capital Trust.
"Other Guarantees" shall mean all guarantees to be issued by the
Company with respect to capital securities (if any) and issued to other trusts
to be established by the Company (if any), in each case similar to Advanta
Capital Trust.
The term "outstanding" when used with reference to Securities,
shall, subject to the provisions of Section 7.04, mean, as of any particular
time, all Securities authenticated and delivered by the Trustee or an
Authenticating Agent under this Indenture, except
(a) Securities theretofore canceled by the Trustee or an
Authenticating Agent or delivered to the Trustee for
cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall
have been deposited in trust with the Trustee or with
any paying agent (other than the Company) or shall have
been set aside and segregated in trust by the Company
(if the Company shall act as its own paying agent);
provided that, if such Securities, or portions thereof,
are to be redeemed prior to maturity thereof, notice of
such redemption shall have been given as in Article
Fourteen provided or provision satisfactory to the
Trustee shall have been made for giving such notice; and
(c) Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered
pursuant to the terms of Section 2.08 unless proof
satisfactory to the Company and the
6
<PAGE> 15
Trustee is presented that any such Securities are held
by bona fide holders in due course.
"Person" shall mean any individual, corporation, estate,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security shall mean every
previous Security evidencing all or a portion of the same debt and as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Principal office of the Trustee," or other similar term, shall mean
the principal office of the Trustee, at which at any particular time its
corporate trust business shall be administered.
"Purchase Agreement" shall mean the Purchase Agreement dated
December 11, 1996 among the Company, Advanta Capital Trust and the initial
purchasers named therein.
"Property Trustee" shall have the same meaning as set forth in the
Declaration.
"Quotation Agent" shall mean the Reference Treasury Dealer appointed
by the Company.
"Redemption Price" shall mean the Special Event Redemption Price or
the Optional Redemption Price, as the context requires.
"Reference Treasury Dealer" shall mean (i) Merrill Lynch Government
Securities, Inc. and its successors; provided, however, that if the foregoing
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by
the Company.
"Reference Treasury Dealer Quotations" shall mean, with respect to
each Reference Treasury Dealer and any redemption date pursuant to Section
14.01, the average, as determined by the Trustee, of the bid and asked prices
for the Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) at 5:00 p.m., New York City time, on the third Business Day
preceding such redemption date quoted in writing to the Trustee by such
Reference Treasury Dealer.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 11, 1996, by and among the Company, the Trust
and the Initial Purchasers named therein as such agreement may be amended,
modified or supplemented from time to time.
7
<PAGE> 16
"Remaining Life" shall mean the period from and including any
redemption date pursuant to Section 14.01 of this Indenture to and including the
Initial Optional Prepayment Date.
"Responsible Officer," when used with respect to the Trustee, shall
mean any officer of the Trustee with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Security" shall mean Securities that bear or are
required to bear the legends set forth in Exhibit A hereto, other than those
legends to be set forth on a Global Security.
"Rule 144A" shall mean Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or under any similar rule or regulation
hereafter adopted by the Commission.
"Securities" shall mean, collectively, the Series A Securities and
the Series B Securities.
"Securities Act" shall mean the Securities Act of 1933 as amended.
"Securityholder," "holder of Securities" or other similar terms,
shall mean any Person in whose name at the time a particular Security is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof.
"Security Register" shall mean (i) prior to a Dissolution Event, the
list of holders provided to the Trustee pursuant to Section 4.01, and (ii)
following a Dissolution Event, any security register maintained by a security
registrar for the Securities appointed by the Company following the execution of
a supplemental indenture providing for transfer procedures as provided for in
Section 2.07(a).
"Senior Indebtedness" shall mean all Indebtedness for Money
Borrowed, whether outstanding on the date of execution of this Indenture or
hereafter created, assumed or incurred, unless the terms thereof specifically
provide that it is not superior in right of payment to the Securities, and any
deferrals, renewals or extensions of such Senior Indebtedness.
"Series A Securities" shall mean the Company's 8.99% Series A Junior
Subordinated Deferrable Interest Debentures due December 17, 2026, as
authenticated and issued under this Indenture.
"Series B Securities" shall mean the Company's 8.99% Series B Junior
Subordinated Deferrable Interest Debentures due December 17, 2026, as
authenticated and issued under this Indenture.
8
<PAGE> 17
"Special Event" shall mean the receipt by Advanta Capital Trust and
the Company of an Opinion of Counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein; or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after December
17, 1996, there is more than an insubstantial risk that (i) Advanta Capital
Trust is, or will be within 90 days of the date of such opinion, subject to
United States Federal income tax with respect to income received or accrued on
the Securities, (ii) interest payable by the Company on the Securities is not,
or within 90 days of the date of such opinion will not be, deductible by the
Company, in whole or in part, for United States Federal income tax purposes, or
(iii) Advanta Capital Trust is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
"Special Event Redemption Price" shall mean, with respect to any
redemption of the Securities pursuant to Section 14.01 hereof, an amount in cash
equal to the greater of (i) 100% of the principal amount of the Securities or
(ii) the sum, as determined by a Quotation Agent, of the present values of
104.4950% of the principal amount of the Securities, together with scheduled
payments of interest on the Securities for the Remaining Life, discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case, any
accrued and unpaid interest thereon, including Compounded Interest and
Additional Interest, if any, to the date of such redemption.
"Subsidiary" shall mean, with respect to any Person, (i) any
corporation at least a majority of whose outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any
general partnership, joint venture or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner. For the purposes of this
definition, "voting stock" means shares, interests, participations or other
equivalents in the equity interest (however designated) in such Person having
ordinary voting power for the election of a majority of the directors (or the
equivalent) of such Person, other than shares, interests, participations or
other equivalents having such power only by reason of the occurrence of a
contingency.
"Trustee" shall mean the Person identified as "Trustee" in the first
paragraph hereof, and, subject to the provisions of Article Six hereof, shall
also include its successors and assigns as Trustee hereunder.
"Trust Indenture Act of 1939" shall mean the Trust Indenture Act of
1939 as in force at the date of execution of this Indenture except as provided
in Section 9.03; provided,
9
<PAGE> 18
however, that, in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" shall mean, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Securities" shall mean the Capital Securities and the Common
Securities, collectively.
"U.S. Government Obligations" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A, the terms of which are incorporated
in and made a part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule, agreements to which the
Company is subject or usage. Each Security shall be dated the date of its
authentication. The Securities shall be issued in denominations of $1,000 and
integral multiples thereof.
SECTION 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. If an Officer whose signature is on a Security no longer
holds that office at the time the Security is authenticated, the Security shall
nevertheless be valid.
10
<PAGE> 19
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The form
of Trustee's certificate of authentication to be borne by the Securities shall
be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a Company Order, authenticate for original
issue up to, and the aggregate principal amount of Securities outstanding at any
time may not exceed, $103,093,000 aggregate principal amount of the Securities,
except as provided in Sections 2.07, 2.08, 2.10 and 14.05.
SECTION 2.03. Form and Payment.
Except as provided in Section 2.05, the Securities shall be issued
in fully registered certificated form without interest coupons. Principal of and
premium, if any, and interest on the Securities issued in certificated form will
be payable, the transfer of such Securities will be registrable and such
Securities will be exchangeable for Securities bearing identical terms and
provisions at the office or agency of the Trustee or at the office of such
paying agent(s) as the Company may designate from time to time; provided,
however, that payment of interest may be made at the option of the Company (i)
by check mailed to the holder at such address as shall appear in the Security
Register or (ii) by transfer to an account maintained by the Person entitled
thereto, provided that proper transfer instructions have been received in
writing by the relevant record date. Notwithstanding the foregoing, so long as
the holder of any Securities is the Property Trustee, the payment of the
principal of and premium, if any, and interest (including Compounded Interest
and Additional Interest, if any) on such Securities held by the Property Trustee
will be made in immediately available funds at such place and to such account as
may be designated by the Property Trustee.
SECTION 2.04. Legends.
(a) Except as permitted by subsection (b) of this Section 2.04
or as otherwise determined by the Company in accordance with applicable law,
each Security shall bear the applicable legends relating to restrictions on
transfer pursuant to the securities laws in substantially the form set forth on
Exhibit A hereto.
(b) The Company shall issue and the Trustee shall authenticate
Series B Securities in exchange for Series A Securities accepted for exchange in
the Exchange Offer, which Series B Securities shall not bear the legends
required by subsection (a) above, in each case unless the Trustee is notified in
writing by the Company that the holder of such Series A Securities is either (A)
a broker-dealer who purchased such Series A Securities directly from the Company
for resale pursuant to Rule 144A or any other available exemption under the
Securities Act, (B) a Person participating in the distribution of the Series A
Securities or (C) a Person who is an affiliate (as defined in Rule 144 under the
Securities Act) of the Company.
SECTION 2.05. Global Security.
11
<PAGE> 20
(a) In connection with a Dissolution Event,
(i) if any Capital Securities are held in book-entry
form, the related Definitive Securities shall be presented to the
Trustee (if an arrangement with the Depositary has been maintained)
by the Property Trustee in exchange for one or more Global
Securities (as may be required pursuant to Section 2.07) in an
aggregate principal amount equal to the aggregate principal amount
of all outstanding Securities, to be registered in the name of the
Depositary, or its nominee, and delivered by the Trustee to the
Depositary, or a custodian therefor, for crediting to the accounts
of its participants pursuant to the instructions of the
Administrative Trustees; the Company upon any such presentation
shall execute one or more Global Securities in such aggregate
principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with this Indenture; and
payments on the Securities issued as a Global Security will be made
to the Depositary; and
(ii) if any Capital Securities are held in certificated
form, the related Definitive Securities may be presented to the
Trustee by the Property Trustee and any Capital Security certificate
which represents Capital Securities other than Capital Securities in
book-entry form ("Non Book-Entry Capital Securities") will be deemed
to represent beneficial interests in Securities presented to the
Trustee by the Property Trustee having an aggregate principal amount
equal to the aggregate liquidation amount of the Non Book-Entry
Capital Securities until such Capital Security certificates are
presented to the Security Registrar for transfer or reissuance, at
which time such Capital Security certificates will be canceled and a
Security, registered in the name of the holder of the Capital
Security certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the
Capital Security certificate canceled, will be executed by the
Company and delivered to the Trustee for authentication and delivery
in accordance with the Indenture. Upon the issuance of such
Securities, Securities with an equivalent aggregate principal amount
that were presented by the Property Trustee to the Trustee will be
deemed to have been canceled.
(b) The Global Securities shall represent the aggregate amount
of outstanding Securities from time to time endorsed thereon; provided, that the
aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Trustee, in accordance with instructions given by the
Company as required by this Section 2.05.
12
<PAGE> 21
(c) The Global Securities may be transferred, in whole but not
in part, only to another nominee of the Depositary or to a successor Depositary
selected or approved by the Company, or to a nominee of such successor
Depositary.
(d) If at any time the Depositary notifies the Company that it
is unwilling or unable to continue as Depositary or the Depositary has ceased to
be a clearing agency registered under the Exchange Act, and a successor
Depositary is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such condition, as the case may be, the
Company will execute, and the Trustee, upon written notice from the Company,
will authenticate and make available for delivery, the Definitive Securities, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Security, in exchange for such Global Security.
If there is an Event of Default, the Depositary shall have the right to exchange
the Global Securities for Definitive Securities. In addition, the Company may at
any time determine that the Securities shall no longer be represented by a
Global Security. In the event of such an Event of Default or such a
determination, the Company shall execute, and, subject to Section 2.07, the
Trustee, upon receipt of an Officers' Certificate evidencing such determination
by the Company, will authenticate and make available for delivery, the
Definitive Securities, in authorized denominations, and in an aggregate
principal amount equal to the principal amount of the Global Security, in
exchange for such Global Security. Upon the exchange of the Global Security for
such Definitive Securities, in authorized denominations, the Global Security
shall be canceled by the Trustee. Such Definitive Securities issued in exchange
for the Global Security shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Definitive Securities to the Depositary for delivery to the
Persons in whose names such Definitive Securities are so registered.
SECTION 2.06. Interest.
(a) Each Security will bear interest at the rate of 8.99% per
annum (the "Coupon Rate") from the most recent date to which interest has been
paid or, if no interest has been paid, from December 17, 1996, until the
principal thereof becomes due and payable, and on any overdue principal and (to
the extent that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the Coupon Rate, compounded
semi-annually, payable (subject to the provisions of Article XVI) semi-annually
in arrears on June 17 and December 17of each year (each, an "Interest Payment
Date"); commencing on June 17, 1997, to the Person in whose name such Security
or any predecessor Security is registered, at the close of business on the
regular record date for such interest installment, which shall be the first day
of the month in which the relevant Interest Payment Date falls.
(b) Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. In the event that any Interest Payment Date
falls on a day that is not a Business Day, then payment of interest payable on
such date will be made on the next
13
<PAGE> 22
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 such date.
(c) During such time as the Property Trustee is the holder of
any Securities, the Company shall pay any additional amounts on the Securities
as may be necessary in order that the amount of Distributions then due and
payable by the Advanta Capital Trust on the outstanding Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which Advanta Capital Trust has become subject as a result of a
Special Event ("Additional Interest").
SECTION 2.07. Transfer and Exchange.
(a) Transfer Restrictions. The Series A Securities, and those
Series B Securities with respect to which any Person described in Section
2.04(b)(A), (B) or (C) is the beneficial owner, may not be transferred except in
compliance with any legend contained in Exhibit A unless otherwise determined by
the Company in accordance with applicable law. Upon any distribution of the
Securities following a Dissolution Event, the Company and the Trustee shall
enter into a supplemental indenture pursuant to Section 9.01 to provide for the
transfer restrictions and procedures with respect to the Securities
substantially similar to those contained in the Declaration to the extent
applicable in the circumstances existing at such time.
(b) General Provisions Relating to Transfers and Exchanges. To
permit registrations of transfers and exchanges, the Company shall execute, and
the Trustee shall authenticate Definitive Securities and Global Securities. All
Definitive Securities and Global Securities issued upon any registration of
transfer or exchange of Definitive Securities or Global Securities shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Definitive Securities or Global
Securities surrendered upon such registration of transfer or exchange.
No service charge shall be made to a holder for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
The Company shall not be required to (i) issue, register the
transfer of or exchange Securities during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption or any
notice of selection of Securities for redemption under Article Fifteen hereof
and ending at the close of business on the day of such mailing; or (ii) register
the transfer of or exchange any Security so selected for redemption in whole or
in part, except the unredeemed portion of any Security being redeemed in part.
Prior to due presentment for the registration of a transfer of
any Security, the Company, the Trustee and any agent of the Company or the
Trustee may deem and treat the Person in whose name any Security is registered
as the absolute owner of such Security for the purpose of receiving payment of
principal of and premium, if any, and interest on such
14
<PAGE> 23
Securities, and neither the Company or the Trustee nor any agent of the Company
or the Trustee shall be affected by notice to the contrary.
(c) Exchange of Series A Securities for Series B Securities.
The Series A Securities may be exchanged for Series B Securities pursuant to the
terms of the Exchange Offer. The Trustee shall make the exchange as follows:
The Company shall present the Trustee with an Officers'
Certificate certifying the following:
(A) upon issuance of the Series B Securities, the
transactions contemplated by the Exchange Offer
have been consummated; and
(B) the principal amount of Series A Securities
properly tendered in the Exchange Offer that are
represented by a Global Security and the principal
amount of Series A Securities properly tendered in
the Exchange Offer that are represented by
Definitive Securities, the name of each holder of
such Definitive Securities, the principal amount,
at maturity, properly tendered in the Exchange
Offer by each such holder and the name and address
to which Definitive Securities for Series B
Securities shall be registered and sent for each
such holder.
The Trustee, upon receipt of (i) such Officers' Certificate,
(ii) an Opinion of Counsel (x) to the effect that the Series B Securities have
been registered under Section 5 of the Securities Act and the Indenture has been
qualified under the Trust Indenture Act and (y) with respect to the matters set
forth in Section 3(p) of the Registration Rights Agreement and (iii) a Company
Order, shall authenticate (A) a Global Security for Series B Securities in an
aggregate principal amount equal to the aggregate principal amount of Series A
Securities represented by a Global Security indicated in such Officers'
Certificate as having been properly tendered and (B) Definitive Securities
representing Series B Securities registered in the names of, and in the
principal amounts indicated in, such Officers' Certificate.
If the principal amount at maturity of the Global Security for
the Series B Securities is less than the principal amount at maturity of the
Global Security for the Series A Securities, the Trustee shall make an
endorsement on such Global Security for the Series A Securities indicating a
reduction in the principal amount at maturity represented thereby.
The Trustee shall deliver such Definitive Securities for
Series B Securities to the holders thereof as indicated in such Officers'
Certificate.
SECTION 2.08. Replacement Securities.
15
<PAGE> 24
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. An indemnity bond must be supplied by
the holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent or any authenticating agent from any
loss that any of them may suffer if a Security is replaced. The Company or the
Trustee may charge for its expenses in replacing a Security.
Every replacement Security is an obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Securities duly issued hereunder.
SECTION 2.09. Treasury Securities.
In determining whether the holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company or any Affiliate of the Company shall be considered as
though not outstanding, except that for purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities that a Responsible Officer of the Trustee actually knows to be
so owned shall be so considered.
SECTION 2.10. Temporary Securities.
Pending the preparation of Definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company shall cause
Definitive Securities to be prepared without unreasonable delay. The Definitive
Securities shall be printed, typewritten, lithographed or engraved, or provided
by any combination thereof, or in any other manner permitted by the rules and
regulations of any applicable securities exchange, all as determined by the
officers executing such Definitive Securities. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at the office
or agency maintained by the Company for such purpose pursuant to Section 3.02
hereof, without charge to the holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute, and the Trustee shall
authenticate and make available for delivery in exchange therefor, the same
aggregate principal amount of Definitive Securities of authorized denominations.
Until so
16
<PAGE> 25
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as Definitive Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall retain or destroy canceled Securities in accordance with
its normal practices (subject to the record retention requirement of the
Exchange Act) unless the Company directs them to be returned to it. The Company
may not issue new Securities to replace Securities that have been redeemed or
paid or that have been delivered to the Trustee for cancellation. All canceled
Securities not destroyed by the Trustee shall be delivered to the Company.
SECTION 2.12. Defaulted Interest.
Any interest on any Security that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the holder on the
relevant regular record date by virtue of having been such holder; and such
Defaulted Interest shall be paid by the Company, at its election, as provided in
clause (a) or clause (b) below:
(a) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their respective
Predecessor Securities) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be fixed in
the following manner: the Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each such Security and the
date of the proposed payment, and at the same time the 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 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 not be more than 15 nor less than 10 days prior
to the date of the proposed payment and not less than 10 days after the receipt
by the 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 Securityholder at his or her address as it
appears in the Security Register, not less than 10 days prior to such special
record date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered on such special record date
and shall be no longer payable pursuant to the following clause (b).
17
<PAGE> 26
(b) The Company may make payment of any Defaulted Interest on
any Securities in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustees of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
SECTION 2.13. 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 Securityholders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest.
The Company covenants and agrees, for the benefit of the holders of
the Securities, that it will duly and punctually pay or cause to be paid the
principal of and premium, if any, and interest on the Securities at the place,
at the respective times and in the manner provided herein. The Company further
covenants to pay any and all amounts including, without limitation, Liquidated
Damages, if any, on the dates and in the manner required under the Registration
Rights Agreement.
SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Securities remains outstanding, the Company
will maintain in the Borough of Manhattan, The City of New York, an office or
agency where the Securities may be presented for payment, an office or agency
where the Securities may be presented for registration of transfer and for
exchange as in this Indenture provided and an office or agency where notices and
demands to or upon the Company in respect of the Securities or of this Indenture
may be served. The Company will give to the Trustee written notice of the
location of any such office or agency and of any change of location thereof.
Until otherwise designated from time to time by the Company in a notice to the
Trustee, any such office or agency for all of the above purposes shall be the
office or agency of the Trustee. In case the Company shall fail to maintain any
such office or agency in the Borough of Manhattan, The City of New York, or
shall fail to give such notice of the location or of any change in the location
thereof, presentations and
18
<PAGE> 27
demands may be made and notices may be served at the principal corporate trust
office of the Trustee.
In addition to any such office or agency, the Company may from time
to time designate one or more offices or agencies outside the Borough of
Manhattan, The City of New York, where the Securities may be presented for
registration of transfer and for exchange in the manner provided in this
Indenture, and the Company may from time to time rescind such designation, as
the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Borough of Manhattan,
The City of New York, for the purposes above mentioned. The Company will give to
the Trustee prompt written notice of any such designation or rescission thereof;
provided, further, that the Company shall at all times maintain a paying agent
in each such office or agency.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee with respect to the Securities, it will cause such paying agent to
execute and deliver to the Trustee an instrument in which such agent shall agree
with the Trustee, subject to the provisions of this Section 3.04,
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and
premium, if any, or interest on the Securities
(whether such sums have been paid to it by the
Company or by any other obligor on the Securities
of such series) in trust for the benefit of the
holders of the Securities; and
(2) that it will give the Trustee notice of any
failure by the Company (or by any other obligor on
the Securities) to make any payment of the
principal of and premium or interest on the
Securities when the same shall be due and payable.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of and premium, if any, or interest
on the Securities, set aside, segregate and hold in trust for the benefit of the
holders of the Securities a sum sufficient to pay such principal, premium or
interest so becoming due and will notify the Trustee of any
19
<PAGE> 28
failure to take such action and of any failure by the Company (or by any other
obligor under the Securities) to make any payment of the principal of and
premium, if any, or interest on the Securities when the same shall become due
and payable.
(c) Anything in this Section 3.04 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge with respect to the Securities hereunder, or for any
other reason, pay or cause to be paid to the Trustee all sums held in trust for
the Securities by any paying agent hereunder, as required by this Section 3.04,
such sums to be held by the Trustee upon the trusts herein contained.
(d) Anything in this Section 3.04 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
3.04 is subject to Sections 11.03 and 11.04.
SECTION 3.05. Certificate to Trustee.
The Company will deliver to the Trustee on or before 120 days after
the end of each fiscal year in each year, commencing with the first fiscal year
ending after the date hereof, so long as Securities are outstanding hereunder,
an Officers' Certificate, one of the signers of which shall be the principal
executive, principal financial or principal accounting officer of the Company,
stating that (i) in the course of the performance by the signers of their duties
as officers of the Company they would normally have knowledge of any default by
the Company in the performance of any covenants contained herein and (ii)
whether or not they have knowledge of any such default and, if so, specifying
each such default of which the signers have knowledge and the nature thereof.
SECTION 3.06. Compliance with Consolidation Provisions.
The Company will not, while any of the Securities remain
outstanding, consolidate with, or merge into any other Person, or sell or convey
all or substantially all of its property to any other Person unless the
provisions of Article Ten hereof are complied with.
SECTION 3.07. Limitation on Dividends.
The Company will not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (which includes common and
preferred stock) or (ii) make any payment of principal, interest or premium, if
any, on or repay or repurchase or redeem any debt securities of the Company
(including any Other Debentures) that rank pari passu with or junior in right of
payment to the Securities or (iii) make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any Subsidiary of the
Company (including Other Guarantees) if such guarantee ranks pari passu or
junior in right of payment to the Securities (other than (a) dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Common Stock of the Company, (b) any declaration of a
dividend in
20
<PAGE> 29
connection with the implementation of a stockholder's rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Capital
Securities Guarantee, (d) as a result of a reclassification of the Company's
capital stock or the exchange or the conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (e) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, and (f) purchases of Common
Stock related to the issuance of Common Stock or rights under any of the
Company's benefit plans for its directors, officers or employees or any of the
Company's dividend reinvestment plans) if at such time (i) there shall have
occurred any event of which the Company has actual knowledge that (a) with the
giving of notice or the lapse of time, or both, would constitute an Event of
Default and (b) in respect of which the Company shall not have taken reasonable
steps to cure, (ii) if such Securities are held by the Property Trustee, the
Company shall be in default with respect to its payment of any obligations under
the Capital Securities Guarantee or (iii) the Company shall have given notice of
its election of the exercise of its right to extend the interest payment period
pursuant to Section 16.01 and any such extension shall be continuing.
SECTION 3.08. Covenants as to Advanta Capital Trust.
In the event Securities are issued to Advanta Capital Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
Advanta Capital Trust, for so long as such Trust Securities remain outstanding,
the Company will (i) maintain 100% direct ownership of the Common Securities of
Advanta Capital Trust; provided, however, that any successor of the Company,
permitted pursuant to Article Ten, may succeed to the Company's ownership of
such Common Securities, (ii) use its reasonable efforts to cause Advanta Capital
Trust (a) to remain a business trust, except in connection with a distribution
of Securities, the redemption of all of the Trust Securities of Advanta Capital
Trust or certain mergers, consolidations or amalgamations, each as permitted by
the Declaration of Advanta Capital Trust, and (b) to continue to be treated as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes and (iii) to use its reasonable efforts to
cause each holder of Trust Securities to be treated as owning an individual
beneficial interest in the Securities.
SECTION 3.09. Payment of Expenses.
In connection with the offering, sale and issuance of the Securities
to the Advanta Capital Trust and in connection with the sale of the Trust
Securities by the Advanta Capital Trust, the Company, in its capacity as
borrower with respect to the Securities, shall:
(a) pay all costs and expenses relating to the offering, sale
and issuance of the Securities, including commissions to the initial purchasers
payable pursuant to the Purchase Agreement, fees and expenses in connection with
any exchange offer or other
21
<PAGE> 30
action to be taken pursuant to the Registration Rights Agreement and
compensation of the Trustee in accordance with the provisions of Section 6.06;
(b) pay all costs and expenses of the Advanta Capital Trust
(including, but not limited to, costs and expenses relating to the organization
of the Advanta Capital Trust, the offering, sale and issuance of the Trust
Securities (including commissions to the initial purchasers in connection
therewith), the fees and expenses of the Property Trustee and the Delaware
Trustee, the costs and expenses relating to the operation of Advanta Capital
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 Advanta Capital Trust assets;
(c) be primarily and fully liable for any indemnification
obligations arising with respect to the Declaration;
(d) pay any and all taxes (other than United States
withholding taxes attributable to Advanta Capital Trust or its assets) and all
liabilities, costs and expenses with respect to such taxes of Advanta Capital
Trust; and
(e) pay all other fees, expenses, debts and obligations (other
than the Trust Securities) related to Advanta Capital Trust.
SECTION 3.10. Payment Upon Resignation or Removal.
Upon termination of this Indenture or the removal or resignation of
the Trustee, unless otherwise stated, the Company shall pay to the Trustee all
amounts accrued and owing to the date of such termination, removal or
resignation. Upon termination of the Declaration or the removal or resignation
of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to
Section 5.7 of the Declaration, the Company shall pay to the Delaware Trustee or
the Property Trustee, as the case may be, all amounts accrued and owing to the
date of such termination, removal or resignation.
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists.
The Company covenants and agrees that it will furnish or cause to be
furnished to the Trustee:
22
<PAGE> 31
(a) on a semi-annual basis on each regular record date for the
Securities, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Securityholders as of such record date; 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;
provided, however, that no such lists need be furnished so long as the Trustee
is in possession thereof by reason of its acting as Security registrar.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of the Securities (1) contained in the most recent list furnished to it
as provided in Section 4.01 or (2) received by it in the capacity of Securities
registrar (if so acting) hereunder. The Trustee may destroy any list furnished
to it as provided in Section 4.01 upon receipt of a new list so furnished
(b) In case three or more holders of Securities (hereinafter
referred to as "applicants") apply in writing to the Trustee and furnish to the
Trustee reasonable proof that each such applicant has owned a Security for a
period of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other holders
of Securities or with holders of all Securities with respect to their rights
under this Indenture and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall
within five Business Days after the receipt of such application, at its
election, either:
(1) afford such applicants access to the information
preserved at the time by the Trustee in accordance
with the provisions of subsection (a) of this
Section 4.02; or
(2) inform such applicants as to the approximate
number of holders of all Securities, whose names
and addresses appear in the information preserved
at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 4.02,
and as to the approximate cost of mailing to such
Securityholders the form of proxy or other
communication, if any, specified in such
application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Securityholder whose name and address appears in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 4.02 a copy of the
23
<PAGE> 32
form of proxy or other communication which is specified in such request with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender, the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the holders
of Securities of such series or all Securities, as the case may be, or would be
in violation of applicable law. Such written statement shall specify the basis
of such opinion. If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Securityholders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Each and every holder of Securities, by receiving and
holding the same, agrees with Company and the Trustee that neither the Company
nor the Trustee nor any paying agent shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the holders
of Securities in accordance with the provisions of subsection (b) of this
Section 4.02, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under said subsection (b).
SECTION 4.03 Reports of the Company.
(a) The Company covenants and agrees to file with the Trustee,
within 15 days after the date on which the Company is required to file the same
with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe) that
the Company may be required to file with the Commission pursuant to Section 13
or Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee
and the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such additional information, documents and
reports with respect to compliance by the Company with the conditions and
covenants provided for in this Indenture as may be required from time to time by
such rules and regulations.
24
<PAGE> 33
(c) The Company covenants and agrees to transmit by mail to
all holders of Securities, as the names and addresses of such holders appear
upon the Security Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to subsections (a) and (b) of this Section 4.03 as
may be required by rules and regulations prescribed from time to time by the
Commission.
(d) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(e) So long as is required for an offer or sale of the
Securities to qualify for an exemption under Rule 144A under the Securities Act,
the Company shall, upon request, provide the information required by clause
(d)(4) thereunder to each holder and to each beneficial owner and prospective
purchaser of Securities identified by any holder of Restricted Securities,
unless such information is furnished to the Commission pursuant to Section 13 or
15(d) of the Exchange Act.
SECTION 4.04. Reports by the Trustee.
(a) The Trustee shall transmit to Securityholders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the
Trustee shall, within sixty days after each May 15 following the date of this
Indenture, commencing May 15, 1997, deliver to Securityholders a brief report,
dated as of such May 15, which complies with the provisions of such Section
313(a).
(b) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with each stock
exchange, if any, upon which the Securities are listed, with the Commission and
with the Company. The Company will promptly notify the Trustee when the
Securities are listed on any stock exchange.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. Events of Default.
One or more of the following events of default shall constitute an
Event of Default hereunder (whatever the reason for such Event of Default and
whether it shall be
25
<PAGE> 34
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
or Other Debenture when it becomes due and payable, and continuance of such
default for a period of 30 days; provided, however, that a valid extension of an
interest payment period by the Company in accordance with the terms hereof shall
not constitute a default in the payment of interest for this purpose;
(b) default in the payment of all or any part of the principal
of (or premium, if any, on) any Security or Other Debenture as and when the same
shall become due and payable either at maturity, upon redemption, by declaration
of acceleration of maturity or otherwise;
(c) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in the performance of which or the breach of which is elsewhere in this
Section specifically dealt with), and continuance of such default or breach for
a period of 90 days after there has been given, by registered or certified mail,
to the Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the outstanding Securities, a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder;
(d) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs and such decree or order shall remain unstayed and in effect for a
period of 90 consecutive days; or
(e) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
shall make any general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due.
If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in every such case the Trustee or the
holders of not less than 25% in aggregate principal amount of the Securities
then outstanding may declare the principal amount of all Securities to be due
and payable immediately, by a notice in writing to the Company (and
26
<PAGE> 35
to the Trustee if given by the holders of the outstanding Securities), and upon
any such declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition
that, if at any time after the principal of the Securities shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, (i)
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
(A) all matured installments of interest upon all the Securities and the
principal of and premium, if any, on any and all Securities that shall have
become due otherwise than by acceleration (with interest upon such principal and
premium, if any, and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest specified in the Securities to the date of such payment or
deposit) and (B) such amount as shall be sufficient to cover reasonable
compensation to the Trustee and each predecessor Trustee, their respective
agents, attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by the Trustee and each predecessor Trustee except as a
result of negligence or bad faith, and (ii) any and all Events of Default under
the Indenture shall have been cured, waived or otherwise remedied as provided
herein, then, in every such case, the holders of a majority in aggregate
principal amount of the Securities then outstanding, by written notice to the
Company and to the Trustee, may rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right consequent
thereon.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission and annulment or for any other reason, or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Securities shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor.
The Company covenants that (a) in case default shall be made in the
payment of any installment of interest upon any of the Securities as and when
the same shall become due and payable, and such default shall have continued for
a period of 30 days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Securities as and when the same
shall have become due and payable, whether at maturity of the Securities or upon
redemption or by declaration or otherwise, then, upon demand of the Trustee, the
Company will pay to the Trustee, for the benefit of the holders of the
Securities, the whole amount that then shall have become due and payable on all
such Securities for principal and premium, if any, or interest, or both, as the
case may be, with interest upon the overdue principal and premium, if any, and
(to the extent that payment of such interest is enforceable under applicable law
and, if the Securities are held by Advanta Capital Trust or a trustee of such
trust, without duplication of
27
<PAGE> 36
any other amounts paid by Advanta Capital Trust or trustee in respect thereof)
upon the overdue installments of interest at the rate borne by the Securities;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including a reasonable compensation to the
Trustee, its agents, attorneys and counsel, and any expenses or liabilities
incurred by the Trustee hereunder other than through its negligence or bad
faith.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any actions or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or any other obligor on the
Securities and collect in the manner provided by law out of the property of the
Company or any other obligor on the Securities wherever situated the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Securities under
Title 11, United States Code, or any other applicable law, or in case a receiver
or trustee shall have been appointed for the property of the Company or such
other obligor, or in the case of any other similar judicial proceedings relative
to the Company or other obligor upon the Securities, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 5.02,
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of principal
and interest owing and unpaid in respect of the Securities and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the Trustee and each
predecessor Trustee, and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Securityholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Securities, or to the
creditors or property of the Company or such other obligor, unless prohibited by
applicable law and regulations, to vote on behalf of the holders of the
Securities in any election of a trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency proceedings or
person performing similar functions in comparable proceedings, and to collect
and receive any moneys or other property payable or deliverable on any such
claims, and to distribute the same after the deduction of its charges and
expenses; and any receiver, assignee or trustee in bankruptcy or reorganization
is hereby authorized by each of the Securityholders to make such payments to the
Trustee, and, in the event that the Trustee shall consent to the making of such
payments directly to the Securityholders, to pay to the Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee except as a result of negligence or bad faith.
28
<PAGE> 37
Nothing herein contained shall be construed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any holder thereof or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
All rights of action and of asserting claims under this Indenture,
or under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities, or the production thereof on any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall be for the ratable benefit of the holders of the
Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Securities, and it shall not be necessary to make any holders of the
Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee.
Any moneys collected by the Trustee shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution of
such moneys, upon presentation of the Securities in respect of which moneys have
been collected, and stamping thereon the payment, if only partially paid, and
upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section
6.06, including the costs and expenses of collection applicable to the
Securities and reasonable compensation to the Trustee, its agents, attorneys and
counsel, and of all other expenses and liabilities incurred, and all advances
made, by the Trustee except as a result of its negligence or bad faith;
Second: To the payment of all Senior Indebtedness of the Company if
and to the extent required by Article Fifteen;
Third: In case the principal of the outstanding Securities in
respect of which moneys have been collected shall not have become due and be
unpaid, to the payment of the amounts then due and unpaid upon Securities for
principal of (and premium, if any) and interest on the Securities, in respect of
which or for the benefit of which money has been collected, ratably, without
preference of priority of any kind, according to the amounts due on such
Securities for principal (and premium, if any) and interest, respectively; and
Fourth: To the Company.
29
<PAGE> 38
SECTION 5.04. Proceedings by Securityholders.
No holder of any Security shall have any right by virtue of or by
availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof with respect to the
Securities specifying such Event of Default, as hereinbefore provided, and
unless also the holders of not less than 25% in aggregate principal amount of
the Securities then outstanding shall have made written request upon the Trustee
to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity shall have failed to institute any such action,
suit or proceeding, it being understood and intended, and being expressly
covenanted by the taker and holder of every Security with every other taker and
holder and the Trustee, that no one or more holders of Securities shall have any
right in any manner whatever by virtue of or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of any other holder of
Securities, or to obtain or seek to obtain priority over or preference to any
other such holder, or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of all
holders of Securities.
Notwithstanding any other provisions in this Indenture, however, the
right of any holder of any Security to receive payment of the principal of
(premium, if any) and interest on such Security, on or after the same shall have
become due and payable, or to institute suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder,
and by accepting a Security hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Security with every other such taker
and holder and the Trustee, that no one or more holders of Securities shall have
any right in any manner whatsoever by virtue or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of the holders of any
other Securities, or to obtain or seek to obtain priority over or preference to
any other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of all
holders of Securities. For the protection and enforcement of the provisions of
this Section , each and every Securityholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
The Company and the Trustee acknowledge that pursuant to the
Declaration, the holders of Capital Securities are entitled, in the
circumstances and subject to the limitations set forth therein, to commence a
Direct Action with respect to any Event of Default under this Indenture and the
Securities.
SECTION 5.05. Proceedings by Trustee.
30
<PAGE> 39
In case an Event of Default occurs with respect to Securities and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
All powers and remedies given by this Article V to the Trustee or to
the Securityholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of any other powers and remedies available to the Trustee or
the holders of the Securities, by judicial proceedings or otherwise, to enforce
the performance or observance of the covenants and agreements contained in this
Indenture or otherwise established with respect to the Securities, and no delay
or omission of the Trustee or of any holder of any of the Securities to exercise
any right or power accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or an acquiescence therein, and, subject to the
provisions of Section 5.04, every power and remedy given by this Article V or by
law to the Trustee or to the Securityholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders.
The holders of a majority in aggregate principal amount of the
Securities at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided,
however, that (subject to the provisions of Section 6.01) the Trustee shall have
the right to decline to follow any such direction if the Trustee shall determine
that the action so directed would be unjustly prejudicial to the holders not
taking part in such action or proceeding so directed, if the Trustee being
advised by counsel determines that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith by its board of directors or
trustees, executive committee, or a trust committee of directors or trustees
and/or Responsible Officers shall determine that the action or proceedings so
directed would involve the Trustee in personal liability. Prior to any
declaration accelerating the maturity of the Securities, the holders of a
majority in aggregate principal amount of the Securities at the time outstanding
may on behalf of the holders of all of the Securities waive any past default or
Event of Default and its consequences, except a default (a) in the payment of
principal of or premium, if any, or interest on any of the Securities or (b) in
respect of covenants or provisions hereof that cannot be modified or amended
without the consent of the holder of each Security affected; provided, however,
that if the Securities are held by the Property Trustee, such waiver or
modification to such waiver shall not be effective until the holders of a
majority in aggregate
31
<PAGE> 40
liquidation amount of Trust Securities shall have consented to such waiver or
modification to such waiver; provided further, that if the consent of the holder
of each outstanding Security is required, such waiver shall not be effective
until each holder of the Trust Securities shall have consented to such waiver.
Upon any such waiver, the default covered thereby shall be deemed to be cured
for all purposes of this Indenture, and the Company, the Trustee and the holders
of the Securities shall be restored to their former positions and rights
hereunder, respectively; no such waiver, however, shall extend to any subsequent
or other default or impair any right consequent thereon. Whenever any default or
Event of Default hereunder shall have been waived as permitted by this Section
5.07, said default or Event of Default shall for all purposes of the Securities
and this Indenture be deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults.
The Trustee shall, within 90 days after the occurrence of a default
with respect to the Securities, mail to all Securityholders, as the names and
addresses of such holders appear upon the Security register, notice of all
defaults known to the Trustee, unless such defaults shall have been cured before
the giving of such notice (the term "defaults" for the purpose of this Section
5.08 being hereby defined to be the events specified in clauses (a), (b), (c),
(d) and (e) of Section 5.01, not including periods of grace, if any, provided
for therein, and irrespective of the giving of written notice specified in
clause (c) of Section 5.01); provided that, except in the case of default in the
payment of the principal of or premium, if any, or interest on any of the
Securities, 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 determines in good faith
that the withholding of such notice is in the interests of the Securityholders;
provided further, that in the case of any default of the character specified in
Section 5.01(c) no such notice to Securityholders shall be given until at least
60 days after the occurrence thereof, but shall be given within 90 days after
such occurrence.
SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
provided, however, that the provisions of this Section 5.09 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any
Securityholder, or group of Securityholders, holding in the aggregate more than
10% in aggregate principal amount of the Securities outstanding, or to any suit
instituted by any Securityholder for the enforcement of the payment of the
principal of (or premium, if any) or interest on any Security against the
Company on or after the same shall have become due and payable.
32
<PAGE> 41
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of the Trustee.
With respect to the holders of the Securities issued hereunder, the
Trustee, prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default that may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default has occurred (that has not been cured or
waived) 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.
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) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of
this Indenture, and the Trustee shall not be
liable except for the performance of such duties
and obligations as are specifically set forth in
this Indenture, and no implied covenants or
obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on the part of the
Trustee, the 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 Trustee
and conforming to the requirements of this
Indenture; provided, however, that in the case of
any such certificates or opinions that by any
provision hereof are specifically required to be
furnished to the 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) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee, unless
it shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
33
<PAGE> 42
(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 the Securityholders pursuant to Section 5.07, 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.
None of the provisions contained in this Indenture shall require the
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 there is reasonable ground for believing that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Indenture and that adequate indemnity against such risk is not
reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, note, debenture or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein may be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof be herein specifically prescribed),
and any Board Resolution may be evidenced to the Trustee by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel of its selection and
any advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture; provided,
however, that nothing contained herein shall relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (that has not been cured
or waived), to exercise such of the rights and powers vested in it by this
Indenture,
34
<PAGE> 43
and to 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;
(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, consent, order, approval, bond,
debenture, coupon or other paper or document, unless requested in writing to do
so by the holders of a majority in aggregate principal amount of the outstanding
Securities; provided, however, that if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents (including any Authenticating Agent) or attorneys, and the Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney appointed by it with due care;
(h) the Trustee shall not be charged with knowledge of any
Default or Event of Default with respect to the Securities unless either (1) a
Responsible Officer shall have actual knowledge of such Default or Event of
Default or (2) written notice of such Default or Event of Default shall have
been given to the Trustee by the Company or any other obligor on the Securities
or by any holder of the Securities; and
(i) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith, without negligence or willful
misconduct and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture.
SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Securities (except in the
certificate of authentication of the Trustee or the Authenticating Agent) shall
be taken as the statements of the Company, and the Trustee and the
Authenticating Agent assume no responsibility for the correctness of the same.
The Trustee and the Authenticating Agent make no representations as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee and
the Authenticating Agent shall not be accountable for the use or application by
the Company of any Securities or the proceeds of any Securities authenticated
and delivered by the Trustee or the Authenticating Agent in conformity with the
provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer
Agents or Registrar May Own Securities.
The Trustee or any Authenticating Agent or any paying agent or any
transfer agent or any Security registrar, in its individual or any other
capacity, may become the owner or
35
<PAGE> 44
pledgee of Securities with the same rights it would have if it were not Trustee,
Authenticating Agent, paying agent, transfer agent or Security registrar.
SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 11.04, all moneys received by
the Trustee or any paying agent shall, until used or applied as herein provided,
be held in trust for the purpose for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
and any paying agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
SECTION 6.06. Compensation and Expenses of Trustee.
The Company, as borrower, covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, such compensation as
shall be agreed to in writing between the Company and the Trustee (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company will pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Company also covenants to indemnify each of the
Trustee or any predecessor Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Trustee) incurred without negligence or bad faith on the part of
the Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Company under this Section 6.06 to compensate and indemnify the Trustee and to
pay or reimburse the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder. Such additional indebtedness shall
be secured by a lien prior to that of the Securities upon all property and funds
held or collected by the Trustee as such, except funds held in trust for the
benefit of the holders of particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.01(d) or Section 5.01(e), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the resignation or
removal of the Trustee and the defeasance or other termination of this
Indenture.
36
<PAGE> 45
SECTION 6.07. Officers' Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02, whenever in
the administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action hereunder, such matter (unless other evidence in respect
thereof is herein specifically prescribed) may, in the absence of negligence or
bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee, and such
certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture upon the faith thereof.
SECTION 6.08. Conflicting Interest of Trustee.
If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and
the Company shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act.
SECTION 6.09. Eligibility of Trustee.
The Trustee hereunder shall at all times be a corporation organized
and doing business under the laws of the United States of America or any state
or territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000) and subject to supervision or
examination by federal, state, territorial, or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 6.09 the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee.
(a) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign by giving written notice of such resignation
to the Company and by mailing notice thereof to the holders of the Securities at
their addresses as they shall appear on the Security register. Upon receiving
such notice of resignation, the Company shall promptly
37
<PAGE> 46
appoint a successor trustee or trustees by written instrument, in duplicate, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 60 days after the mailing of such
notice of resignation to the affected Securityholders, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide holder of a Security for
at least six months may, subject to the provisions of Section 5.09, on behalf of
himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur --
(1) the Trustee shall fail to comply with the
provisions of Section 6.08 after written request
therefor by the Company or by any Securityholder
who has been a bona fide holder of a Security or
Securities for at least six months;
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 6.09 and
shall fail to resign after written request
therefor by the Company or by any such
Securityholder; or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall
be appointed, or any public officer shall take
charge or control of the Trustee or of its
property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 5.09, any
Securityholder who has been a bona fide holder of a Security for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Securities at the time outstanding may at any time remove the Trustee and
nominate a successor trustee, which shall be deemed appointed as successor
trustee unless within 10 days after such nomination the Company objects thereto;
provided, however, that if no successor trustee shall have been so appointed and
shall have accepted appointment within 30 days after such removal,
38
<PAGE> 47
the Trustee so removed or any Securityholder, upon the terms and conditions and
otherwise as in subsection (a) of this Section 6.10 provided, may petition any
court of competent jurisdiction for an appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 6.10
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee.
Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the retiring trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; provided,
however, that on the written request of the Company or of the successor trustee,
the trustee ceasing to act shall, upon payment of any amounts then due it
pursuant to the provisions of Section 6.06, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring trustee thereunder. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.06.
No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided in
this Section 6.11, the Company shall mail notice of the succession of such
trustee hereunder to the holders of Securities at their addresses as they shall
appear on the Security register. If the Company fails to mail such notice within
10 days after the acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
SECTION 6.12. Successor by Merger, etc.
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
39
<PAGE> 48
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Securities so authenticated. If at such time any of the Securities shall not
have been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor trustee, and in all such cases such certificates shall have the full
force that the Securities or this Indenture elsewhere provides that the
certificate of the Trustee shall have; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a Creditor.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be subject
to Section 311(a) of the Trust Indenture Act to the extent included therein.
SECTION 6.14. Authenticating Agents.
There may be one or more Authenticating Agents appointed by the
Trustee upon the request of the Company with power to act on its behalf and
subject to its direction in the authentication and delivery of Securities issued
upon exchange or registration of transfer thereof as fully to all intents and
purposes as though any such Authenticating Agent had been expressly authorized
to authenticate and deliver Securities; provided, that the Trustee shall have no
liability to the Company for any acts or omissions of the Authenticating Agent
with respect to the authentication and delivery of Securities. Any such
Authenticating Agent shall at all times be a corporation organized and doing
business under the laws of the United States or of any state or territory
thereof or of the District of Columbia authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of at least
$5,000,000 and being subject to supervision or examination by federal, state,
territorial or District of Columbia authority. If such corporation publishes
reports of condition at least annually pursuant to law or the requirements of
such authority, then for the purposes of this Section 6.14 the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section , it shall resign immediately in the manner and
with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger,
40
<PAGE> 49
consolidation or conversion to which any Authenticating Agent shall be a party,
or any corporation succeeding to the corporate trust business of any
Authenticating Agent, shall be the successor of such Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section 6.14, without the execution or filing of any paper or any further act on
the part of the parties hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible under this Section 6.14, the
Trustee may, and upon the request of the Company shall, promptly appoint a
successor Authenticating Agent eligible under this Section 6.14, shall give
written notice of such appointment to the Company and shall mail notice of such
appointment to all Securityholders as the names and addresses of such holders
appear on the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent herein.
The Company, as borrower, agrees to pay to any Authenticating Agent
from time to time reasonable compensation for its services. Any Authenticating
Agent shall have no responsibility or liability for any action taken by it as
such in accordance with the directions of the Trustee.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate principal amount of the Securities may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action) the fact that at
the time of taking any such action the holders of such specified percentage have
joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by such Securityholders in person or by
agent or proxy appointed in writing, or (b) by the record of such holders of
Securities voting in favor thereof at any meeting of such Securityholders duly
called and held in accordance with the provisions of Article Eight, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of such Securityholders.
If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of
41
<PAGE> 50
Securityholders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other action, but the Company shall have no
obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the Securityholders of record at the
close of business on the record date shall be deemed to be Securityholders for
the purposes of determining whether Securityholders of the requisite proportion
of outstanding Securities have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the outstanding Securities shall be computed as of
the record date; provided, however, that no such authorization, agreement or
consent by such Securityholders on the record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Section 6.01, 6.02 and 8.05, proof of
the execution of any instrument by a Securityholder or his agent or proxy shall
be sufficient if made in accordance with such reasonable rules and regulations
as may be prescribed by the Trustee or in such manner as shall be satisfactory
to the Trustee. The ownership of Securities shall be proved by the Security
Register or by a certificate of the Security registrar. The Trustee may require
such additional proof of any matter referred to in this Section as it shall deem
necessary.
The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any
Security, the Company, the Trustee, any Authenticating Agent, any paying agent,
any transfer agent and any Security registrar may deem the Person in whose name
such Security shall be registered upon the Security Register to be, and may
treat him as, the absolute owner of such Security (whether or not such Security
shall be overdue) for the purpose of receiving payment of or on account of the
principal of and premium, if any, and interest on such Security and for all
other purposes; and neither the Company nor the Trustee nor any Authenticating
Agent nor any paying agent nor any transfer agent nor any Security registrar
shall be affected by any notice to the contrary. All such payments so made to
any holder for the time being or upon his order shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Security.
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding.
In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities that are owned by the Company or any
other obligor on the Securities or by any Person directly
42
<PAGE> 51
or indirectly controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the Securities shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided, that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver,
only Securities that a Responsible Officer of the Trustee actually knows are so
owned shall be so disregarded. Securities so owned that have been pledged in
good faith may be regarded as outstanding for the purposes of this Section 7.04
if the pledgee shall establish to the satisfaction of the Trustee the pledgee's
right to vote such Securities and that the pledgee is not the Company or any
such other obligor or person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any such other
obligor. In the case of a dispute as to such right, any decision by the Trustee
taken upon the advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the Trustee,
as provided in Section 7.01, of the taking of any action by the holders of the
percentage in aggregate principal amount of the Security specified in this
Indenture in connection with such action, any holder of a Security (or any
Security issued in whole or in part in exchange or substitution therefor) the
serial number of which is shown by the evidence to be included in the Securities
the holders of which have consented to such action may, by filing written notice
with the Trustee at its principal office and upon proof of holding as provided
in Section 7.02, revoke such action so far as concerns such Security (or so far
as concerns the principal amount represented by any exchanged or substituted
Security). Except as aforesaid any such action taken by the holder of any
Security shall be conclusive and binding upon such holder and upon all future
holders and owners of such Security, and of any Security issued in exchange or
substitution therefor, irrespective of whether or not any notation in regard
thereto is made upon such Security or any Security issued in exchange or
substitution therefor.
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purpose of Meetings.
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article Eight for any of the
following purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to be
taken by Securityholders pursuant to any of the provisions of Article Five;
43
<PAGE> 52
(b) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article Six;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of such
Securities under any other provision of this Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Securityholders to
take any action specified in Section 8.01, to be held at such time and at such
place in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed to holders of Securities at their
addresses as they shall appear on the Security Register. Such notice shall be
mailed not less than 20 nor more than 180 days prior to the date fixed for the
meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders.
In case at any time the Company, pursuant to a resolution of the
Board of Directors, or the holders of at least 10% in aggregate principal amount
of the Securities then outstanding, shall have requested the Trustee to call a
meeting of Securityholders, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or such Securityholders may determine the time and the
place in the Borough of Manhattan, City of New York for such meeting and may
call such meeting to take any action authorized in Section 8.01, by mailing
notice thereof as provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
To be entitled to vote at any meeting of Securityholders a Person
shall (a) be a holder of one or more Securities or (b) a Person appointed by an
instrument in writing as proxy by a holder of one or more Securities. The only
Persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the Persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Securityholders, in
44
<PAGE> 53
regard to proof of the holding of Securities and of the appointment of proxies,
and in regard to the appointment and duties of inspectors of votes, the
submission and examination of proxies, certificates and other evidence of the
right to vote, and such other matters concerning the conduct of the meeting as
it deems appropriate.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.
Subject to the provisions of Section 8.04, at any meeting each
holder of Securities or proxy therefor shall be entitled to one vote for each
$1,000 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
Security challenged as not outstanding and ruled by the chairman of the meeting
to be not outstanding. The chairman of the meeting shall have no right to vote
other than by virtue of Securities held by him or instruments in writing as
aforesaid duly designating him as the person to vote on behalf of other
Securityholders. Any meeting of Securityholders duly called pursuant to the
provisions of Section 8.02 or 8.03 may be adjourned from time to time by a
majority of those present, whether or not constituting a quorum, and the meeting
may be held as so adjourned without further notice.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of such holders or of their representatives by proxy and the serial
number or numbers of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
triplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 8.02. The record shall show the serial numbers of the
Securities voting in favor of or against any resolution. The record shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting. The holders of the Securities shall
vote for all purposes as a single class.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
45
<PAGE> 54
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders.
The Company and the Trustee may from time to time and at any time
amend the Indenture, without the consent of the Securityholders, for one or more
of the following purposes:
(a) to evidence the succession of another Person to the
Company, or successive successions, and the assumption by the successor Person
of the covenants, agreements and obligations of the Company pursuant to Article
Ten hereof;
(b) to add to the covenants of the Company such further
covenants, restrictions or conditions for the protection of the Securityholders
as the Board of Directors and the Trustee shall consider to be for the
protection of the Securityholders, and to make the occurrence, or the occurrence
and continuance, of a default in any of such additional covenants, restrictions
or conditions a default or an Event of Default permitting the enforcement of all
or any of the remedies provided in this Indenture as herein set forth; provided,
however, that in respect of any such additional covenant, restriction or
condition such amendment may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default;
(c) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities registrable as to principal
only) and to provide for exchangeability of such Securities with the Securities
issued hereunder in fully registered form and to make all appropriate changes
for such purpose;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to matters or
questions arising under this Indenture; provided, that any such action shall
not, as evidenced by an Opinion of Counsel delivered to the Trustee, materially
adversely affect the interests of the holders of the Securities;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities;
(f) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if any, to be
placed on Securities, and all other matters required pursuant to Section 2.07 or
otherwise necessary, desirable or appropriate in connection with the issuance of
Securities to holders of Capital Securities in the event of a distribution of
Securities by Advanta Capital Trust following a Dissolution Event;
46
<PAGE> 55
(g) to qualify or maintain qualification of this Indenture
under the Trust Indenture Act; or
(h) to make any change that does not adversely affect the
rights of any Securityholder in any material respect.
The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture to effect such amendment, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any amendment to the Indenture authorized by the provisions of this
Section 9.01 may be executed by the Company and the Trustee without the consent
of the holders of any of the Securities at the time outstanding, notwithstanding
any of the provisions of Section 9.02.
SECTION 9.02. With Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding, the Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time amend the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the holders of the Securities; provided, however, that no such amendment shall
without the consent of the holders of each Security then outstanding and
affected hereby (i) extend the Maturity Date of any Security, or reduce the rate
or extend the time of payment of interest thereon (except as contemplated by
Article Sixteen), or reduce the principal amount thereof, or change any of the
redemption provisions applicable thereto, or make the principal thereof or any
interest or premium thereon payable in any coin or currency other than that
provided in the Securities, or impair or affect the right of any Securityholder
to institute suit for payment thereof, or (ii) reduce the aforesaid percentage
of Securities the holders of which are required to consent to any such amendment
to the Indenture; provided, however, that if the Securities are held by Advanta
Capital Trust, such amendment shall not be effective until the holders of a
majority in liquidation amount of Trust Securities shall have consented to such
amendment; provided, further, that if the consent of the holder of each
outstanding Security is required, such amendment shall not be effective until
each holder of the Trust Securities shall have consented to such amendment.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any supplemental indenture affecting such
amendment, and upon the filing with the Trustee of evidence of the consent of
Securityholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture, unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this
47
<PAGE> 56
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such supplemental indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section , the Trustee
shall transmit by mail, first class postage prepaid, a notice, prepared by the
Company, setting forth in general terms the substance of such supplemental
indenture, to the Securityholders as their names and addresses appear upon the
Security Register. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures.
Any supplemental indenture executed pursuant to the provisions of
this Article Nine shall comply with the Trust Indenture Act. Upon the execution
of any supplemental indenture pursuant to the provisions of this Article Nine,
this Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. Notation on Securities.
Securities authenticated and delivered after the execution of any
supplemental indenture affecting such series pursuant to the provisions of this
Article Nine may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Securities so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may be prepared and
executed by the Company, authenticated by the Trustee or the Authenticating
Agent and delivered in exchange for the Securities then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be
Furnished Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02,
may receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any supplemental
48
<PAGE> 57
indenture executed pursuant to this Article is authorized or permitted by, and
conforms to, the terms of this Article and that it is proper for the Trustee
under the provisions of this Article to join in the execution thereof.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01 Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of the Company with or into any other
Person (whether or not affiliated with the Company, as the case may be), or
successive consolidations or mergers in which the Company, as the case may be,
or its successor or successors shall be a party or parties, or shall prevent any
sale, conveyance, transfer or lease of the property and assets as an entirety or
substantially as an entirety to any Person if the securities issued in exchange
for the Securities in such transaction 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 Indentures had been issued at the date of the execution hereof;
provided, however, that 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 sell, convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to the
Company, unless (i) in case the Company consolidates with or merges into another
Person or conveys or transfers its properties and assets substantially as an
entirety to any Person, the successor Person is organized under the laws of the
United States or any State or the District of Columbia, and such successor
Person expressly assumes the Company's obligations on the Securities and (ii)
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 occurred and be continuing.
SECTION 10.02. Opinion of Counsel to be Given Trustee
The Trustee, subject to the provisions of Sections 6.01 and 6.02,
may receive an Opinion of Counsel as conclusive evidence that any consolidation,
merger, sale, conveyance, transfer or lease, and any assumption, permitted or
required by the terms of this Article Ten complies with the provisions of this
Article Ten.
49
<PAGE> 58
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture.
When (a) the Company shall deliver to the Trustee for cancellation
all Securities theretofore authenticated (other than any Securities which shall
have been destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 2.08) and not theretofore canceled, or (b) all the
Securities not theretofore canceled or delivered to the Trustee for cancellation
shall have become due and payable, or are by their terms to become due and
payable within one year or are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption,
and the Company shall deposit with the Trustee, in trust, funds sufficient to
pay on the Maturity Date or upon redemption all of the Securities (other than
any Securities which shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 2.08) not theretofore canceled
or delivered to the Trustee for cancellation, including principal and premium,
if any, and interest due or to become due to the Maturity Date or redemption
date, as the case may be, but excluding, however, the amount of any moneys for
the payment of principal of or premium, if any, or interest on the Securities
(1) theretofore repaid to the Company in accordance with the provisions of
Section 11.04, or (2) paid to any State or to the District of Columbia pursuant
to its unclaimed property or similar laws, and if in either case the Company
shall also pay or cause to be paid all other sums payable hereunder by the
Company, then this Indenture shall cease to be of further effect except for the
provisions of Sections 2.02, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04
hereof shall survive until such Securities shall mature and be paid. Thereafter,
Sections 6.06, 6.10 and 11.04 shall survive, and the Trustee, on demand of the
Company accompanied by any Officers' Certificate and an Opinion of Counsel to
the effect that all conditions to the satisfaction and discharge of this
Indenture pursuant to this Section 11.01 have been satisfied, and at the cost
and expense of the Company, shall execute proper instruments acknowledging
satisfaction of and discharging this Indenture, the Company, however, hereby
agreeing to reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred by the Trustee in connection with this
Indenture or the Securities.
SECTION 11.02. Deposited Moneys and U.S. Government Obligations to
be Held in Trust by Trustee.
Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Trustee pursuant to Sections 11.01 or
11.05 shall be held in trust and applied by it to the payment, either directly
or through any paying agent (including the Company if acting as its own paying
agent), to the holders of the particular Securities for the payment of which
such moneys or U.S. Government Obligations have been deposited with the Trustee,
of all sums due and to become due thereon for principal, premium, if any, and
interest.
50
<PAGE> 59
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 11.05 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the holders of outstanding Securities.
SECTION 11.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture all moneys
then held by any paying agent of the Securities (other than the Trustee) shall,
upon written demand of the Company, be repaid to it or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such moneys.
SECTION 11.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any paying agent
for payment of the principal of or premium, if any, or interest on Securities
and not applied but remaining unclaimed by the holders of Securities for two
years after the date upon which the principal of or premium, if any, or interest
on such Securities, as the case may be, shall have become due and payable, shall
be repaid to the Company by the Trustee or such paying agent on written demand;
and the holder of any of the Securities shall thereafter look only to the
Company for any payment which such holder may be entitled to collect and all
liability of the Trustee or such paying agent with respect to such moneys shall
thereupon cease.
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government
Obligations.
The Company shall be deemed to have been Discharged (as defined
below) from its respective obligations with respect to the Securities on the
91st day after the applicable conditions set forth below have been satisfied
with respect to the Securities any time after the applicable conditions set
forth below have been satisfied:
(a) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee or the Defeasance Agent (as defined below) as trust
funds in trust, specifically pledged as security for, and dedicated solely to,
the benefit of the holders of the Securities (i) money in an amount, or (ii)
U.S. Government Obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide, not later than
one day before the due date of any payment, money in an amount, or (iii) a
combination of (i) and (ii), sufficient, in the opinion (with respect to (ii)
and (iii)) of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee and the
Defeasance Agent, if any, to pay and discharge each installment of principal of
and interest and premium, if any, on the outstanding Securities on the dates
such installments of principal, interest or premium are due;
51
<PAGE> 60
(b) if the Securities are then listed on any national
securities exchange, the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the effect that the exercise
of the option under this Section 11.05 would not cause such Securities to be
delisted from such exchange;
(c) no Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit;
(d) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the effect that holders of
the Securities will not recognize income, gain or loss for United States federal
income tax purposes as a result of the exercise of the option under this Section
11.05 and will be subject to United States federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
option had not been exercised, and such opinion shall be accompanied by a
private letter ruling to that effect received from the United States Internal
Revenue Service or a revenue ruling pertaining to a comparable form of
transaction to that effect published by the United States Internal Revenue
Service; and
(e) the Company has delivered to the Trustee and the
Defeasance Agent, if any, 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.
"Discharged" means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities and to have satisfied all the obligations under this
Indenture relating to the Securities (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except (i)
the rights of holders of Securities to receive, from the trust fund described in
clause (a) above, payment of the principal of and the premium, if any, and
interest on the Securities when such payments are due; (ii) the Company's
obligations with respect to the Securities under Sections 2.07, 2.08, 5.02 and
11.04; and (iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder.
"Defeasance Agent" means another financial institution which
is eligible to act as Trustee hereunder and which assumes all of the obligations
of the Trustee necessary to enable the Trustee to act hereunder. In the event
such a Defeasance Agent is appointed pursuant to this Section , the following
conditions shall apply:
(1) The Trustee shall have approval rights over the
document appointing such Defeasance Agent and the
document setting forth such Defeasance Agent's rights
and responsibilities;
52
<PAGE> 61
(2) The Defeasance Agent shall provide verification to
the Trustee acknowledging receipt of sufficient money
and/or U.S. Government Obligations to meet the
applicable conditions set forth in this Section 11.05.
SECTION 11.06. Reinstatement.
If the Trustee or any Defeasance Agent is unable to apply any money
in accordance with Section 11.05 by reason of any legal proceeding or by reason
of any order or judgement of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to 11.05 until such time as the Trustee
or any Defeasance Agent is permitted to apply all such money in accordance with
Section 11.05.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations.
No recourse for the payment of the principal of or premium, if any,
or interest on any Security, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture, or in any Security, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person to the Company, either
directly or through the Company under any constitution, statute or rule of law,
or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.
All the covenants, stipulations, promises and agreements in this
Indenture contained by the Company shall bind its successors and assigns whether
so expressed or not.
53
<PAGE> 62
SECTION 13.02. Official Acts by Successor Corporation.
Any act or proceeding by any provision of this Indenture authorized
or required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the time be
the lawful sole successor of the Company.
SECTION 13.03. Surrender of Company Powers.
The Company by instrument in writing executed by authority of 2/3
(two-thirds) of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company, as the case may be, and as
to any successor Person.
SECTION 13.04. Address for Notices, etc.
Any notice or demand that by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Securities on the Company may be given or served by being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee for the purpose)
to the Company, Welsh and McKean Road, P.O. Box 844, Spring House, Pennsylvania
19477, Attention: Gene S. Schneyer, Esquire. Any notice, direction, request or
demand by any Securityholder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made in writing at the
office of the Trustee, addressed to the Trustee, 450 West 33rd Street, 15th
Floor, New York, New York 10001, Attention:
Corporate Trustee Administration Department.
SECTION 13.05. Governing Law.
This Indenture and each Security shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State, without
regard to conflicts of laws principles thereof.
SECTION 13.06. Evidence of Compliance with Conditions Precedent.
Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the opinion of
the signers all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture
54
<PAGE> 63
shall include (a) a statement that the person making such certificate or opinion
has read such covenant or condition; (b) 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; (c) a statement that, in the
opinion of such person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and (d) a statement as to whether
or not, in the opinion of such person, such condition or covenant has been
complied with.
SECTION 13.07. Business Days.
In any case where the date of payment of principal of or premium, if
any, or interest on the Securities will not be a Business Day, the payment of
such principal of or premium, if any, or interest on the Securities need not be
made on such date but may be made on the next succeeding Business Day, with the
same force and effect as if made on the date of payment and no interest shall
accrue for the period from and after such date.
SECTION 13.08. Trust Indenture Act to Control.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture which
is required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, such required provision shall
control.
SECTION 13.09. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the articles
and sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 13.10. Execution in Counterparts.
This Indenture may be executed in any number of counterparts, each
of which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
SECTION 13.11. Separability
In case any one or more of the provisions contained in this
Indenture or in the Securities shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
the Securities, but this Indenture and the Securities shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
55
<PAGE> 64
SECTION 13.12. Assignment.
The Company will have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company, as the case may be, will remain liable for all such
obligations. Subject to the foregoing, the Indenture is binding upon and inures
to the benefit of the parties thereto and their respective successors and
assigns. This Indenture may not otherwise be assigned by the parties thereto.
SECTION 13.13. Acknowledgment of Rights.
The Company acknowledges that, with respect to any Securities held
by Advanta Capital Trust or a trustee of such trust, if the Property Trustee of
such trust fails to enforce its rights under this Indenture as the holder of the
Securities held as the assets of Advanta Capital Trust any holder of Capital
Securities may institute legal proceedings directly against the Company to
enforce such Property Trustee's rights under this Indenture without first
instituting any legal proceedings against such Property Trustee or any other
Person. Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and such event is attributable to the failure of the Company to
pay principal of or premium, if any, or interest on the Securities when due, the
Company acknowledges that a holder of Capital Securities may directly institute
a Direct Action against the Company for enforcement of payment to such holder of
the principal of or premium, if any, or interest on the Securities having a
principal amount equal to the aggregate liquidation amount of the Capital
Securities of such holder on or after the respective due date specified in the
Securities.
ARTICLE XIV
REDEMPTION OF SECURITIES; NO SINKING FUND
SECTION 14.01. Special Event Redemption.
Subject to the provisions of this Article Fourteen, if a Special
Event has occurred and is continuing prior to the Initial Optional Redemption
Date, then the Company shall have the right, upon (i) not less than 45 days
written notice to the Trustee and (ii) not less than 30 days nor more than 60
days written notice to the Securityholders, to redeem the Securities, in whole
(but not in part), within 90 days following the occurrence of such Special Event
at the Special Event Redemption Price. Following a Special Event, the Company
shall take such action as is necessary to promptly determine the Special Event
Redemption Price, including without limitation the appointment by the Company of
a Quotation Agent. The Special Event Redemption Price shall be paid prior to
12:00 noon, New York City time, on the date of such redemption or such earlier
time as the Company determines, provided that the Company shall deposit with the
Trustee an amount sufficient to pay the Special Event Redemption Price by 10:00
a.m., New York City time, on the date such Special Event Redemption Price is to
be paid.
56
<PAGE> 65
SECTION 14.02. Optional Redemption by Company.
(a) Subject to the provisions of this Article Fourteen, the
Company shall have the right to redeem the Securities, in whole or in part, from
time to time, on or after the Initial Optional Redemption Date, at a redemption
price set forth below (expressed as a percentage of the outstanding principal
amount to be redeemed) plus, in each case, accrued and unpaid interest thereon
(including Additional Interest and Compounded Interest, if any) to the
applicable date of redemption (the "Optional Redemption Price") if redeemed
during the 12-month period beginning December 17 of the year indicated below.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2006 104.4950%
2007 104.0455%
2008 103.5960%
2009 103.1465%
2010 102.6970%
2011 102.2475%
2012 101.7980%
2013 101.3485%
2014 100.8990%
2015 100.4995%
2016 and thereafter 100.000%
--------
</TABLE>
If the Securities are only partially redeemed pursuant to this
Section 14.02, the Securities will be redeemed pro rata or by lot or by any
other method as the Trustee shall determine; provided, that if at the time of
redemption the Securities are registered as a Global Security, the Depositary
shall determine, in accordance with its procedures, the principal amount of such
Securities held by each participant (and, indirectly, beneficial owner) of a
Security to be redeemed. The Optional Redemption Price shall be paid prior to
12:00 noon, New York City time, on the date of such redemption or at such
earlier time as the Company determines, provided that the Company shall deposit
with the Trustee an amount sufficient to pay the Optional Redemption Price by
10:00 a.m., New York City time, on the date such Optional Redemption Price is to
be paid.
(b) Notwithstanding the first sentence of Section 14.02(a),
upon the entry of an order for dissolution of the Advanta Capital Trust by a
court of competent jurisdiction, the Securities thereafter will be subject to
optional redemption, in whole only, but not in part, on or after the Initial
Optional Redemption Date, at the applicable optional
57
<PAGE> 66
redemption price set forth in Section 14.02(a) and otherwise in accordance with
this Article Fourteen.
SECTION 14.03. No Sinking Fund.
The Securities are not entitled to the benefit of any sinking fund.
SECTION 14.04. Notice of Redemption; Selection of Securities.
In case the Company shall desire to exercise the right to redeem
all, or, as the case may be, any part of the Securities in accordance with their
terms, it shall fix a date for redemption and shall mail a notice of such
redemption at least 30 and not more than 60 days prior to the date fixed for
redemption to the holders of Securities so to be redeemed as a whole or in part
at their last addresses as the same appear on the Security Register. Such
mailing shall be by first class mail. The notice if mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives such notice. In any case, failure to give such notice by
mail or any defect in the notice to the holder of any Security designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Security.
Each such notice of redemption shall specify the CUSIP number, if
any, of the Securities to be redeemed, the date fixed for redemption, the
redemption price at which the Securities are to be redeemed (or the method by
which such redemption price is to be calculated), the place or places of payment
that payment will be made upon presentation and surrender of the Securities,
that interest accrued to the date fixed for redemption will be paid as specified
in said notice, and that on and after said date interest thereon or on the
portions thereof to be redeemed will cease to accrue. If less than all the
Securities are to be redeemed the notice of redemption shall specify the numbers
of the Securities to be redeemed. In case any Security is to be redeemed in part
only, the notice of redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the date fixed for
redemption, upon surrender of such Security, a new Security or Securities in
principal amount equal to the unredeemed portion thereof will be issued.
Prior to 10:00 a.m., New York City time, on the redemption date
specified in the notice of redemption given as provided in this Section , the
Company will deposit with the Trustee or with one or more paying agents an
amount of money sufficient to redeem on the redemption date all the Securities
so called for redemption at the appropriate Redemption Price, together with
accrued interest to the date fixed for redemption.
The Company will give the Trustee notice not less than 45 days prior
to the redemption date as to the aggregate principal amount of Securities to be
redeemed and the Trustee shall select, in such manner as in its sole discretion
it shall deem appropriate and fair, the Securities or portions thereof (in
integral multiples of $1,000, except as otherwise set forth in the applicable
form of Security) to be redeemed.
58
<PAGE> 67
SECTION 14.05. Payment of Securities Called for Redemption.
If notice of redemption has been given as provided in Section 14.04,
the Securities or portions of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable Redemption Price, together with interest
accrued to the date fixed for redemption (subject to the rights of holders of
Securities on the close of business on a regular record date in respect of an
Interest Payment Date occurring on or prior to the redemption date), and on and
after said date (unless the Company shall default in the payment of such
Securities at the Redemption Price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for redemption
shall cease to accrue. On presentation and surrender of such Securities at a
place of payment specified in said notice, the said Securities or the specified
portions thereof shall be paid and redeemed by the Company at the applicable
Redemption Price, together with interest accrued thereon to the date fixed for
redemption (subject to the rights of holders of Securities on the close of
business on a regular record date in respect of an Interest Payment Date
occurring on or prior to the redemption date).
Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and make available for delivery
to the holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Company covenants and agrees, and each holder of Securities
issued hereunder likewise covenants and agrees, that the Securities shall be
issued subject to the provisions of this Article Fifteen, and each holder of a
Security, whether upon original issue or upon transfer or assignment thereof,
accepts and agrees to be bound by such provisions.
The payment by the Company of the principal of and premium, if any,
and interest on all Securities issued hereunder shall, to the extent and in the
manner hereinafter set forth, be subordinated and junior in right of payment to
the prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter incurred.
No provision of this Article Fifteen shall prevent the occurrence of
any Default or Event of Default hereunder.
59
<PAGE> 68
SECTION 15.02. Default on Senior Indebtedness.
In the event and during the continuation of any default by the
Company in the payment of principal, premium, interest or any other payment due
on any Senior Indebtedness, or in the event that the maturity of any Senior
Indebtedness has been accelerated because of a default, then, in either case, no
payment shall be made by the Company with respect to the principal (including
redemption payments) of or premium, if any, or interest on the Securities.
In the event of the acceleration of the maturity of the Securities,
then no payment shall be made by the Company with respect to the principal
(including redemption payments) of or premium, if any, or interest on the
Securities until the holders of all Senior Indebtedness outstanding at the time
of such acceleration shall receive payment in full of all Senior Indebtedness
(including any amounts due upon acceleration).
In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 15.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing, within 90 days of
such payment, of the amounts then due and owing on such Senior Indebtedness and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of such Senior Indebtedness.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness of the Company shall
first be paid in full, or payment thereof provided for in money in accordance
with its terms, before any payment is made by the Company on account of the
principal (and premium, if any) or interest on the Securities; and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the Securityholders or the
Trustee would be entitled to receive from the Company, except for the provisions
of this Article Fifteen, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the Securityholders or by the Trustee under the
Indenture if received by them or it, directly to the holders of Senior
Indebtedness of the Company (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued,
60
<PAGE> 69
as their respective interests may appear, to the extent necessary to pay all
such Senior Indebtedness in full, in money or money's worth, after giving effect
to any concurrent payment or distribution to or for the holders of such Senior
Indebtedness, before any payment or distribution is made to the Securityholders
or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness is paid in full, or provision is made for
such payment in money in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of and shall be paid over or delivered to
the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
and their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness in full in money in accordance
with its terms, after giving effect to any concurrent payment or distribution to
or for the benefit of the holders of such Senior Indebtedness.
For purposes of this Article Fifteen, the words "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, the payment of which
is subordinated at least to the extent provided in this Article Fifteen with
respect to the Securities to the payment of Senior Indebtedness that may at the
time be outstanding, provided that (i) such Senior Indebtedness is assumed by
the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the sale, conveyance, transfer or lease of its property as an
entirety, or substantially as an entirety, to another Person upon the terms and
conditions provided for in Article Ten of this Indenture shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 15.03 if such other Person shall, as a part of such consolidation,
merger, sale, conveyance, transfer or lease, comply with the conditions stated
in Article Ten of this Indenture. Nothing in Section 15.02 or in this Section
15.03 shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 6.06 of this Indenture.
SECTION 15.04. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the
rights of the Securityholders shall be subrogated to the rights of the holders
of such Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company, as the case may be, applicable to such
Senior Indebtedness until the principal of (and premium, if any) and interest on
the Securities shall be paid in full; and, for the purposes of such subrogation,
no payments or distributions to the holders of such Senior Indebtedness of any
cash, property or
61
<PAGE> 70
securities to which the Securityholders or the Trustee would be entitled except
for the provisions of this Article Fifteen, and no payment over pursuant to the
provisions of this Article Fifteen to or for the benefit of the holders of such
Senior Indebtedness by Securityholders or the Trustee, shall, as between the
Company, its creditors other than holders of Senior Indebtedness of the Company,
and the holders of the Securities, be deemed to be a payment by the Company to
or on account of such Senior Indebtedness. It is understood that the provisions
of this Article Fifteen are and are intended solely for the purposes of defining
the relative rights of the holders of the Securities, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
Nothing contained in this Article Fifteen or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness of the
Company, and the holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the holders of the Securities the
principal of (and premium, if any) and interest on the Securities as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Securities
and creditors of the Company, as the case may be, other than the holders of
Senior Indebtedness of the Company, as the case may be, nor shall anything
herein or therein prevent the Trustee or the holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
the Indenture, subject to the rights, if any, under this Article Fifteen of the
holders of such Senior Indebtedness in respect of cash, property or securities
of the Company, as the case may be, received upon the exercise of any such
remedy.
Upon any payment or distribution of assets of the Company referred
to in this Article Fifteen, the Trustee, subject to the provisions of Article
Six of this Indenture, and the Securityholders shall be entitled to conclusively
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding-up, liquidation or reorganization proceedings
are pending, or a certificate of the receiver, trustee in bankruptcy,
liquidation trustee, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Securityholders, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other indebtedness of the Company, as the
case may be, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Fifteen.
SECTION 15.05. Trustee to Effectuate Subordination.
Each Securityholder by such Securityholder's acceptance thereof
authorizes and directs the Trustee on such Securityholder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article Fifteen and appoints the Trustee such Securityholder's
attorney-in-fact for any and all such purposes.
62
<PAGE> 71
SECTION 15.06. Notice by the Company
The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Fifteen. Notwithstanding
the provisions of this Article Fifteen or any other provision of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
that would prohibit the making of any payment of monies to or by the Trustee in
respect of the Securities pursuant to the provisions of this Article Fifteen,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder or holders of Senior
Indebtedness or from any trustee therefor; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Article Six of this
Indenture, shall be entitled in all respects to assume that no such facts exist;
provided, however, that if the Trustee shall not have received the notice
provided for in this Section 15.06 at least two Business Days prior to the date
upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (or premium, if
any) or interest on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purposes for which they were
received, and shall not be affected by any notice to the contrary that may be
received by it within two Business Days prior to such date.
The Trustee, subject to the provisions of Article Six of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company, as the case may be (or a trustee or representative
on behalf of such holder), to establish that such notice has been given by a
holder of such Senior Indebtedness or a trustee or representative on behalf of
any such holder or holders. 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 such Senior Indebtedness to participate in any payment or
distribution pursuant to this Article Fifteen, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of such Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article Fifteen,
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.
Upon any payment or distribution of assets of the Company referred
to in this Article Fifteen, the Trustee and the Securityholders shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
Person making such payment or distribution, delivered to the Trustee or to the
Securityholders, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness
and
63
<PAGE> 72
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 Fifteen.
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Fifteen in respect of any Senior Indebtedness
at any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Fifteen, and no
implied covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of such Senior
Indebtedness and, subject to the provisions of Article Six of this Indenture,
the Trustee shall not be liable to any holder of such Senior Indebtedness if it
shall pay over or deliver to Securityholders, the Company or any other Person
money or assets to which any holder of such Senior Indebtedness shall be
entitled by virtue of this Article Fifteen or otherwise.
Nothing in this Article Fifteen shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Indebtedness
of the Company 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, as the case may be, or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company, as the case may be,
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof that any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
Securityholders, without incurring responsibility to the Securityholders and
without impairing or releasing the subordination provided in this Article
Fifteen or the obligations hereunder of the holders of the Securities to the
holders of such Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in
any manner such Senior Indebtedness or any instrument evidencing the same or any
agreement under which such Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Indebtedness; (iii) release any Person liable in
any manner for the
64
<PAGE> 73
collection of such Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company, as the case may be, and any other
Person.
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the term
of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 10 consecutive
semiannual periods, including the first such semi-annual period during such
extension period (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided, that no
Extended Interest Payment Period may extend beyond the Maturity Date. To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 16.01, will bear interest thereon at the Coupon Rate compounded
semi-annually for each semi-annual period of the Extended Interest Payment
Period ("Compounded Interest"). At the end of the Extended Interest Payment
Period, the Company shall pay all interest accrued and unpaid on the Securities,
including any Additional Interest and Compounded Interest (together, "Deferred
Interest") that shall be payable to the holders of the Securities in whose names
the Securities are registered in the Security Register on the first record date
after the end of the Extended Interest Payment Period. Before the termination of
any Extended Interest Payment Period, the Company may further defer payments of
interest by further extending such period; provided, that such period, together
with all such previous and further extensions within such Extended Interest
Payment Period, shall not exceed 10 consecutive semi-annual periods, including
the first such semi-annual period during such Extended Interest Payment Period,
or extend beyond the Maturity Date of the Securities. Upon the termination of
any Extended Interest Payment Period and the payment of all Deferred Interest
then due, the Company may commence a new Extended Interest Payment Period,
subject to the foregoing requirements. No interest shall be due and payable
during an Extended Interest Payment Period, except at the end thereof, but the
Company may prepay at any time all or any portion of the interest accrued during
an Extended Interest Payment Period.
SECTION 16.02. Notice of Extension.
(a) If the Property Trustee is the only registered holder of
the Securities at the time the Company selects an Extended Interest Payment
Period, the Company shall give written notice to the Administrative Trustees,
the Property Trustee and the Trustee of its election of such Extended Interest
Payment Period at least five Business Days before the earlier of (i) the next
succeeding date on which distributions on the Trust Securities issued by Advanta
Capital Trust would have been payable except for such election, or (ii) the date
the Advanta Capital Trust is required to give notice of the record date, or the
date such Distributions
65
<PAGE> 74
are payable, to any national securities exchange or to holders of the Capital
Securities issued by Advanta Capital Trust, but in any event at least five
Business Days before such record date.
(b) If the Property Trustee is not the only holder of the
Securities at the time the Company elects an Extended Interest Payment Period,
the Company shall give the holders of the Securities and the Trustee written
notice of its election of such Extended Interest Payment Period at least 10
Business Days before the earlier of (i) the next succeeding Interest Payment
Date, or (ii) the date the Company is required to give notice of the record or
payment date of such interest payment to any national securities exchange.
(c) The semi-annual period in which any notice is given
pursuant to paragraphs (a) or (b) of this Section 16.02 shall be counted as one
of the 10 semi-annual periods permitted in the maximum Extended Interest Payment
Period permitted under Section 16.01.
The Chase Manhattan Bank hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture
66
<PAGE> 75
to be duly executed by their respective officers thereunto duly authorized, as
of the day and year first above written.
ADVANTA CORP.
By: /s/ David D. Wesselink
----------------------------------------
Name: David D. Wesselink
Title: Senior Vice President & Chief
Financial Officer
THE CHASE MANHATTAN BANK, AS
TRUSTEE
By: /s/ Sheik Wiltshire
----------------------------------------
Name: Sheik Wiltshire
Title: Second Vice President
67
<PAGE> 76
EXHIBIT A
(FORM OF FACE OF SECURITY)
[IF THE SECURITY IS A GLOBAL SECURITY, INSERT: THIS SECURITY
IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY
A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
A-I
<PAGE> 77
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
CORPORATION PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D)
OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
OTHER INFORMATION SATISFACTORY TO THE CORPORATION, AND (ii) PURSUANT TO CLAUSE
(D), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE
REVERSE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
COMPANY. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.
A-II
<PAGE> 78
No.
ADVANTA CORP.
8.99% SERIES A JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE DECEMBER 17, 2026
Advanta Corp., a Delaware corporation (the "Company," which
term includes any successor Person under the Indenture hereinafter referred to),
for value received, hereby promises to pay to or registered assigns, the
principal sum of One Hundred Three Million Ninety-Three Thousand Dollars
($103,093,000) on December 17, 2026 (the "Maturity Date"), unless previously
redeemed, and to pay interest on the outstanding principal amount hereof from
December 17, 1996, or from the most recent interest payment date (each such
date, an "Interest Payment Date") to which interest has been paid or duly
provided for, semi-annually (subject to deferral as set forth herein) in arrears
on June 17 and December 17 of each year, commencing June 17, 1997, at the rate
of 8.99% per annum until the principal hereof shall have become due and payable,
and on any overdue principal and premium, if any, and (without duplication and
to the extent that payment of such interest is enforceable under applicable law)
on any overdue installment of interest at the same rate per annum compounded
semi-annually. The amount of interest payable on any Interest Payment Date shall
be computed on the basis of a 360-day year of twelve 30-day months and, for any
period less than a full calendar month, the number of days elapsed in such
month. In the event that any date on which the principal of (or premium, if any)
or interest on this Security is payable is not a Business Day, then payment
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
with the same force and effect as if made on such date.
The interest installment so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities, as defined in said Indenture) is registered at the close
of business on the regular record date for such interest installment, which
shall be the first day of the month in which the relevant interest payment date
falls. Any such interest installment not punctually paid or duly provided for
shall forthwith cease to be payable to the holders on such regular record date
and may be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a special
record date to be fixed by the Trustee for the payment of such defaulted
interest, notice whereof shall be given to the holders of Securities not less
than 10 days prior to such special record date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.
The principal of (and premium, if any) and interest on this
Security shall be payable at the office or agency of the Trustee in New York,
New York maintained for that purpose in any coin or currency of the United
States of America that at the time of payment is legal tender for payment of
public and private debts; provided, however, that, payment of
A-III
<PAGE> 79
interest may be made at the option of the Company by (i) check mailed to the
holder at such address as shall appear in the Security Register or (ii) by
transfer to an account maintained by the Person entitled thereto, provided that
proper written transfer instructions have been received by the relevant record
date. Notwithstanding the foregoing, so long as the Holder of this Security is
the Property Trustee, the payment of the principal of (and premium, if any) and
interest on this Security will be made in immediately available funds at such
place and to such account as may be designated by the Property Trustee.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
This Security shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any purpose
until the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
The provisions of this Security are continued on the reverse
side hereof and such provisions shall for all purposes have the same effect as
though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to
be executed.
ADVANTA CORP.
Dated: By: ______________________________
Name:
Title:
Attest:
By: ______________________________
Name:
Title:
A-IV
<PAGE> 80
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
The Chase Manhattan Bank, as Trustee
By: ______________________________
Authorized Officer
A-V
<PAGE> 81
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Company (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of December
17, 1996 (the "Indenture"), duly executed and delivered between the Company and
The Chase Manhattan Bank, as Trustee (the "Trustee"), to which Indenture
reference is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Securities.
Upon the occurrence and continuation of a Special Event prior
to December 17, 2006, the Company shall have the right to redeem this Security
in whole (but not in part) at the Special Event Redemption Price. "Special Event
Redemption Price" shall mean an amount in cash equal to the greater of (i) 100%
of the principal amount hereof or (ii) the sum, as determined by a Quotation
Agent, of the present values of 104.4950% of the principal amount hereof,
together with scheduled payments of interest hereon for the Remaining Life,
discounted to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in
each case, any accrued and unpaid interest thereon, including Compounded
Interest and Additional Interest, if any, to the date of such redemption.
In addition, the Company shall have the right to redeem this
Security, in whole or in part, at any time on or after December 17, 2006, at the
Optional Redemption Price as set forth below (expressed as a percentage of the
outstanding principal amount to be redeemed) plus, in each case, accrued and
unpaid interest thereon (including Additional Interest and Compounded Interest,
if any) to the applicable date of redemption if redeemed during the 12-month
period beginning December 17 of the year indicated below.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2006 104.4950%
2007 104.0455%
2008 103.5960%
2009 103.1465%
2010 102.6970%
2011 102.2475%
2012 101.7980%
2013 101.3485%
2014 100.8990%
2015 100.4495%
</TABLE>
A-VI
<PAGE> 82
<TABLE>
<S> <C> <C>
2016 and thereafter 100.000%
--------
</TABLE>
The Optional Redemption Price or the Special Event Redemption
Price, as the case requires, shall be paid prior to 12:00 noon, New York City
time, on the date of such redemption or at such earlier time as the Company
determines, provided, that the Company shall deposit with the Trustee an amount
sufficient to pay the applicable Redemption Price by 10:00 a.m., New York City
time, on the date such Redemption Price is to be paid. Any redemption pursuant
to this paragraph will be made upon not less than 30 days nor more than 60 days
notice. If the Securities are only partially redeemed by the Company pursuant to
an Optional Redemption, the Securities will be redeemed pro rata or by lot or by
any other method as the Trustee shall determine.
In the event of redemption of this Security in part only, a
new Security or Securities for the unredeemed portion hereof will be issued in
the name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture,
shall have occurred and be continuing, the principal of all of the Securities
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of a majority in aggregate
principal amount of the Securities at the time outstanding, as defined in the
Indenture, to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the holders of the
Securities; provided, however, that no such supplemental indenture shall,
without the consent of each holder of Securities then outstanding and affected
thereby, (i) extend the Maturity Date of any Securities, or reduce the principal
amount thereof, or change any redemption provisions applicable thereto, or
reduce the rate or extend the time of payment of interest thereon (subject to
Article Sixteen of the Indenture), or make the principal of, or interest or
premium on, the Securities payable in any coin or currency other than U.S.
dollars, or impair or affect the right of any holder of Securities to institute
suit for the payment thereof, or (ii) reduce the aforesaid percentage of
Securities, the holders of which are required to consent to any such
supplemental indenture. The Indenture also contains provisions permitting the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding affected thereby, on behalf of all of the holders of the
Securities, to waive any past default in the performance of any of the covenants
contained in the Indenture, or established pursuant to the Indenture, and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest on any of the Securities or a default in respect of any
covenant or provision under which the Indenture cannot be modified or amended
without the consent of each holder of Securities then outstanding. Any such
consent or waiver by the holder of this Security (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future
A-VII
<PAGE> 83
holders and owners of this Security and of any Security issued in exchange
heretofore or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the time and place and at the
rate and in the money herein prescribed.
The Company shall have the right, at any time and from time to
time during the term of the Securities, to defer payments of interest by
extending the interest payment period of such Securities for a period not
exceeding 10 consecutive semi-annual periods, including the first such
semi-annual period during such extension period, and not to extend beyond the
Maturity Date of the Securities (an "Extended Interest Payment Period" ), at the
end of which period the Company shall pay all interest then accrued and unpaid
together with interest thereon at the rate specified for the Securities to the
extent that payment of such interest is enforceable under applicable law).
Before the termination of any such Extended Interest Payment Period, the Company
may further defer payments of interest by further extending such Extended
Interest Payment Period, provided that such Extended Interest Payment Period,
together with all such previous and further extensions within such Extended
Interest Payment Period, shall not exceed 10 consecutive semi-annual periods,
including the first semi-annual period during such Extended Interest Payment
Period, or extend beyond the Maturity Date of the Securities. Upon the
termination of any such Extended Interest Payment Period and the payment of all
accrued and unpaid interest and any additional amounts then due, the Company may
commence a new Extended Interest Payment Period, subject to the foregoing
requirements.
The Company has agreed that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Securities or make any guarantee payments with respect to any
guarantee by the Company of the debt securities or any Subsidiary of the Company
if such guarantee ranks pari passu or junior in right of payment to the
Securities (other than (a) dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock of the
Company, (b) any declaration of a dividend in connection with the implementation
of a stockholder's rights plan, or the issuance of stock under any such plan in
the future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Capital Securities Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or the
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (e) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the exchange or
conversion of such capital stock or the security being exchanged or converted
and (f) purchases of Common Stock related to the issuance of Common Stock or
rights under any of the Company's benefit plans for its directors,
A-VIII
<PAGE> 84
officers or employees or any of the Company's dividend reinvestment plans) if at
such time (i) there shall have occurred any event of which the Company has
actual knowledge that (a) is, or with the giving of notice or the lapse of time,
or both, would be, an Event of Default and (b) in respect of which the Company
shall not have taken reasonable steps to cure, (ii) if such Securities are held
by Advanta Capital Trust, the Company shall be in default with respect to its
payment of any obligations under the Capital Securities Guarantee or (iii) the
Company shall have given notice of its election of the exercise of its right to
extend the interest payment period and any such extension shall be continuing.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to the transfer restrictions limitations
as may be contained herein and therein from time to time, this Security is
transferable by the holder hereof on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Trustee in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly executed by the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of authorized denominations
and for the same aggregate principal amount and series will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this
Security, the Company, the Trustee, any paying agent and the registrar may deem
and treat the holder hereof as the absolute owner hereof (whether or not this
Security shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Security Registrar) for the purpose of
receiving payment of or on account of the principal hereof and premium, if any,
and interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any registrar shall be affected by any
notice to the contrary.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest on this Security, or for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture,
against any incorporator, stockholder, officer or director, past, present or
future, as such, of the Company or of any predecessor or successor Person,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issuance
hereof, expressly waived and released.
All terms used in this Security that are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAW PROVISIONS THEREOF.
A-IX
<PAGE> 1
EXHIBIT 4-h
DECLARATION OF TRUST
Dated as of December 5, 1996
<PAGE> 2
DECLARATION OF TRUST
OF
December 5, 1996
DECLARATION OF TRUST ("Declaration") dated and effective as of
December 5, 1996 by the Trustees (as defined herein), the Sponsor (as defined
herein), and by the holders, from time to time, of undivided beneficial
interests in the Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor desire to establish a trust (the
"Trust") pursuant to the Business Trust Act (as defined herein) for the sole
purpose of (i) issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust (ii) holding certain Debentures
of the Debenture Issuer (each as defined herein) and (iii) engaging in only
those other activities necessary, advisable or incidental thereto; and
NOW, THEREFORE, it being the intention of the parties hereto that the
Trust constitute a business trust under the Business Trust Act and that this
Declaration constitutes the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to
them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration" are
to this Declaration of Trust as modified, supplemented or
amended from time to time;
1
<PAGE> 3
(d) all reference in this Declaration to Articles and Sections are
to Articles and Sections of this Declaration unless otherwise
specified;
(e) a reference to the singular includes the plural and vice
versa;
(f) a reference to any Person shall include its successors and
assigns;
(g) a reference to any agreement or instrument shall mean such
agreement or instrument as supplemented, modified, amended and
restated and in effect from time to time; and
(h) a reference to any statute, law, rule or regulation, shall
include any amendments thereto and any successor, statute,
law, rule or regulation.
"Administrative Trustee" means any Trustee other than the Delaware
Trustee and the Property Trustees (and which are sometimes referred to herein
and in the Certificate of Trust as the "Regular Trustees").
"Advanta" means Advanta Corp., a Delaware Corporation or any successor
entity in a merger.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or in Wilmington, Delaware are authorized or
required by any applicable law or executive order to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. Sections 3801 et seq., as it may be amended from time to
time, or any successor legislation.
"Capital Security" means a security representing an undivided interest
in the assets of the Trust with such terms as may be set out in any amendment
to this Declaration.
"Certificate of Trust" has the meaning set forth in Section 2.7.
"Commission" means the Securities and Exchange Commission.
"Common Security" means a security representing an undivided
beneficial interest in the assets of the Trust with such terms as may be set
out in any amendment to this Declaration.
2
<PAGE> 4
"Company Indemnified Person" means (a) any Administrative Trustee; (b)
any Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any employee or agent of the Trust or its
Affiliates.
"Covered Person" means any officer, director, shareholder, partner,
member, representative, employee or agent of the Trust or the Trust's
Affiliates.
"Debenture Issuer" means Advanta in its capacity as the issuer of the
Debentures under the Indenture.
"Debentures" means Debentures to be issued by the Debenture Issuer and
acquired by the Trust.
"Debenture Trustee" means the original trustee under the Indenture
until a successor is appointed thereunder, and thereafter means any such
successor trustee.
"Delaware Trustee" has the meaning set forth in Section 3.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
4.3(b).
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the indenture to be entered into between Advanta and
the Debenture Trustee pursuant to which the Debentures are to be issued.
"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.
"Property Trustee" has the meaning set forth in Section 3.1.
"Securities" means collectively the Common Securities and the Capital
Securities.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"Sponsor" means Advanta in its capacity as sponsor of the Trust.
3
<PAGE> 5
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with
the provisions hereof, and reference herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name
The Trust created by this Declaration is named "Advanta Capital Trust
I". The Trust's activities may be conducted under the name of the Trust or any
other name deemed advisable by the Administrative Trustees.
SECTION 2.2 Office
The address of the principal office of the Trust is 501 Carr Road,
Wilmington, Delaware, 19809, Attention: David D. Wesselink, Administrative
Trustee. On ten Business Days written notice to the holders of Securities, the
Administrative Trustees may designate another principal office.
SECTION 2.3 Purpose
The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities, (b) purchase and hold certain Debentures of the Debenture
Issuer and (c) engage in only those other activities necessary, advisable or
incidental thereto. The Trust shall not borrow money, issue debt or reinvest
proceeds derived from investments, pledge any of its assets, or otherwise
undertake (or permit to be undertaken) any activity that would cause the Trust
not to be classified for United States federal income tax purposes as a grantor
Trust.
SECTION 2.4 Authority
Subject to the limitations provided in this Declaration, the
Administrative Trustees shall have exclusive and complete authority to carry
out the purposes of the Trust. An action taken by the Administrative Trustees
in accordance with their powers shall constitute the act of and serve to bind
the Trust. In dealing with the Administrative Trustees acting on behalf of the
Trust, no person shall be required to inquire into the authority of the
Administrative Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Administrative
Trustees as set forth in this Declaration.
4
<PAGE> 6
SECTION 2.5 Title to Property of the Trust
Legal title to all assets of the Trust shall be vested in the Trust.
SECTION 2.6 Powers of the Trustees
The Administrative Trustees shall have the exclusive power and
authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Capital Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
Trust may issue no more than one series of Capital Securities and no more than
one series of Common Securities, and, provided further, that there shall be no
interests in the Trust other than the Securities;
(b) in connection with the issue and sale of the Capital Securities,
at the direction of the Sponsor, to:
(i) execute, if necessary, an offering memorandum (the
"Offering Memorandum") in preliminary and final form prepared by the
Sponsor, in relation to the offering and sale of Capital Securities
(i) to qualified institutional buyers in reliance on Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), (ii) to
institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act), and (iii) outside the
United States to non-U.S. persons in offshore transactions in reliance
on Regulation S under the Securities Act;
(ii) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be necessary
in order to qualify or register all or part of the Capital Securities
in any State or foreign jurisdiction in which the Sponsor has
determined to qualify or register such Capital Securities for sale;
(iii) execute and deliver letters, documents, or
instruments with The Depository Trust Company relating to the Capital
Securities;
(iv) execute and enter into subscription agreements,
purchase agreements, registration rights agreements and other related
agreements providing for the sale of the Common Securities and the
Capital Securities;
(c) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and provide for reasonable compensation for such services;
5
<PAGE> 7
(d) to incur expenses that are necessary or incidental to carry out
any of the purposes of this Declaration, which expenses shall be paid for by
the Sponsor in all respects; and
(e) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.
SECTION 2.7 Filing of Certificate of Trust
On or after the date of execution of this Declaration, the Trustees
shall cause the filing of the Certificate of Trust for the Trust in the form
attached hereto as Exhibit A (the "Certificate of Trust") with the Secretary of
State of the State of Delaware.
SECTION 2.8 Duration of Trust
The Trust, absent termination pursuant to the provisions of Section
5.2, shall have existence for thirty-one (31) years from the date hereof.
SECTION 2.9 Responsibilities of the Sponsor
In connection with the issue and sale of the Capital Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare the Offering Memorandum, including any amendments or
supplements thereto;
(b) to determine the State and foreign jurisdictions in which to take
appropriate action to qualify or register for sale all or part of the Capital
Securities and to do any and all such acts, other than actions which must be
taken by the Trust, and advise the Trust of actions it must take, and prepare
for execution and filing any documents to be executed and filed by the Trust,
as the Sponsor deems necessary or advisable in order to comply with the
applicable laws of any such States and foreign jurisdictions; and
(c) to negotiate the terms of subscription agreements, purchase
agreements, registration rights and other related agreements providing for the
sale of the Common Securities and Capital Securities.
SECTION 2.10 Declaration Binding on Holders of Securities
Every Person by virtue of having become a holder of a Security or any
interest therein in accordance with the terms of this Declaration, shall be
deemed to have expressly assented and agreed to the terms of, and shall be
bound by, this Declaration.
6
<PAGE> 8
ARTICLE III
TRUSTEES
SECTION 3.1 Trustees
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 Sponsor. The Sponsor is entitled to appoint
or remove without cause any Trustee at any time; provided, however that the
number of Trustees shall in no event be less than two (2); provided further
that one (1) Trustee, in the case of a natural person, shall be a person who is
a resident of the State of Delaware or which, if not a natural person, is an
entity which has its principal place of business in the State of Delaware (the
"Delaware Trustee") and (2) there shall be at least one Administrative Trustee
who is an employee or officer of, or is affiliated with, the Sponsor.
Except as expressly set forth in this Declaration, if there are more
than two Administrative Trustees, any power of such Administrative Trustees may
be exercised by, or with the consent of, a majority of such Administrative
Trustees; provided that if there are two Administrative Trustees, any power of
such Administrative Trustees shall be exercised by both Administrative
Trustees; provided further that if there is only one Administrative Trustee,
all powers of the Administrative Trustees shall be exercised by such one
Administrative Trustee.
The initial Administrative Trustees shall be:
Richard A. Greenawalt
William A. Rosoff
David D. Wesselink
The initial Delaware Trustee shall be:
Chase Manhattan Bank Delaware
Prior to the issuance of the Capital Securities and Common Securities,
the Sponsor shall appoint another trustee (the "Property Trustee") meeting the
requirements of the Trust Indenture Act of 1939, as amended, by the execution
of an amendment to this Declaration executed by the Administrative Trustees,
the Sponsor, the Property Trustee and the Delaware Trustee.
SECTION 3.2 Delaware Trustee.
Notwithstanding any other provision of this Declaration, the Delaware
Trustee shall not be entitled to exercise any of the powers, nor shall the
Delaware Trustee have any of the duties and responsibilities of the
Administrative Trustees described in this Declaration. The Delaware Trustee
shall be a Trustee for the sole and limited purpose of
7
<PAGE> 9
fulfilling the requirements of Section 3807 of the Business Trust Act.
Notwithstanding anything herein to the contrary, the Delaware Trustee shall not
be liable for the acts or omissions to act of the Trust or of the
Administrative Trustees and shall not be liable for its own acts of omissions
to act except such acts as the Delaware Trustee is expressly obligated or
authorized to undertake under this Declaration or the Business Trust Act and
except for the negligence or willful misconduct of the Delaware Trustee. The
Delaware Trustee may resign by giving ten days' prior written notice of such
resignation to the Sponsor; provided, however, that no such resignation shall
be effective until a successor Delaware trustee has been appointed and accepted
such appointment.
SECTION 3.3 Execution of Documents.
(a) Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act, any Administrative
Trustee is, or if there are more than two Administrative Trustees, any two
Administrative Trustees are, authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 2.6; and
(b) an Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21
his or her power for the purposes of signing any documents shish the
Administrative Trustees have power and authority to cause the Trust to execute
pursuant to Section 2.6.
SECTION 3.4 Not Responsible for Recitals or Sufficiency of
Declaration.
The recitals contained in this Declaration shall be taken as the
statements of the Sponsor, and the Trustees do not assume any responsibility
for their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make
no representations as to the validity or sufficiency of this Declaration.
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in
a manner such Indemnified Person reasonably believed to be within the scope of
the authority conferred on such Indemnified Person by this Declaration or by
law, except that an Indemnified Person shall be liable for
8
<PAGE> 10
any such loss, damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions; and
(b) an Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Trust, including information, opinions, reports or
statement as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which distributions to holders of Securities might properly be paid.
SECTION 4.2 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity,
are agreed by the parties hereto to replace such other duties and liabilities
of such Indemnified Person;
(b) unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest of
each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise; and
(c) whenever in this Declaration an Indemnified Person is permitted
or required to make a decision;
9
<PAGE> 11
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own interests, and
shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall
not be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 4.3 Indemnification.
(a) (i) The Sponsor shall indemnify, to the full extent permitted
by law, any Company Indemnified Person who was or is a party or is threatened
to be made a party to any threatened, pending or completed actions, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Trust) by reason of the fact that he
is or was a Company Indemnified Person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and incurred by
him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contneendere or its equivalent, shall not,
of itself, create a presumption that the Company Indemnified Person did not act
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(ii) The Sponsor shall indemnify, to the full extent permitted by
law, any Company Indemnified Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Trust to procure a judgment in its favor by reason of the fact
that he is or was a Company Indemnified Person against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust, except that no such indemnification shall be made in respect of any
claim, issue or matter as to which such Company Indemnified Person shall have
been adjudged to be liable to the Trust unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
10
<PAGE> 12
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action without
prejudice or the settlement of an action without admission of liability) in
defense of any action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 4.3(a), or in defense of any claim, issue or matter
therein, he shall be indemnified, to the full extent permitted by law, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 4.3(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set forth
in paragraphs (i) and (ii). Such determination shall be made (1) by the
Administrative Trustees by a majority vote of a quorum consisting of such
Administrative Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if
a quorum of disinterested Administrative Trustees so directs, by independent
legal counsel in a written opinion, or (3) by the Common Security holder of the
Trust.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 4.3(a) shall be paid by the Debenture Issuer in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Company Indemnified Person to repay such
amount if it shall ultimately be determined that he is not entitle to be
indemnified by the Debenture Issuer as authorized in this Section 4.3(a)
Notwithstanding the foregoing , no advance shall be make by the Debenture
Issuer if a determination is reasonably and promptly made (i) by the
Administrative Trustees by a majority vote of a quorum of disinterested
Administrative Trustees, (ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion or (iii) the Common Security
holder of the Trust, that based upon the facts known to the Administrative
Trustees, counsel or the Common Security holder at the time such determination
is made, such Company Indemnified Person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of
the Trust, or, with respect to any criminal proceeding, that such Company
Indemnified Person believed or had reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in instances where the
Administrative Trustees, independent legal counsel or the Common Security
holder reasonably determine that such person deliberately breached his duty to
the Trust or the Common Security or Capital Security holders.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 4.3(a) shall not be
deemed exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors of
11
<PAGE> 13
the Debenture Issuer or Capital Security holders of the Trust or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office. All rights to indemnification under this Section
4.3(a) shall be deemed to be provided by a contract between the Debenture
Issuer and each Company Indemnified Person who serves in such capacity at any
time while this Section 4.3(a) is in effect. Any repeal or modification of
this Section 4.3(a) shall not affect any rights or obligations then existing.
(vii) The Sponsor or the Trust may purchase and maintain insurance on
behalf of any person who is or was a Company Indemnified Person against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Debenture Issuer would
have the power to indemnify him against such liability under the provisions of
this Section 4.3(a).
(viii) For purposes of this Section 4.3(a), references to "the Trust"
shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in a
consolidation or merger, so that any Person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was serving at the
request of such constituent entity as a director, trustee, officer, employee or
agent of another entity, shall stand in the same position under the provisions
of this Section 4.3(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its separate existence
had continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 4.3(a) shall, unless otherwise provided when
authorized or ratified, continue as to a Person who has ceased to be a Company
Indemnified Person and shall insure to the benefit of the heirs, executors and
administrators of such a Person.
(b) The Sponsor agrees to indemnify the (i) the Delaware Trustee,
(ii) any Affiliate of the Delaware Trustee, and (iii) any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Delaware Trustee (each of the Persons in (i)
through (iii) being referred to as a "Fiduciary Indemnified Person") for, and
to hold each Fiduciary Indemnified Person harmless against, any loss, liability
or expense incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees
and expenses) of defending itself against, or investigating, any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligation to indemnify as set forth in this Section
4.3(b) shall survive the resignation or removal of the Delaware Trustee and the
termination of this Declaration.
SECTION 4.4 Outside Businesses.
Any Covered Person, the Sponsor and the Delaware Trustee may engage in
or possess an interest in other business ventures of any nature or description,
independently
12
<PAGE> 14
or with others, similar or dissimilar to the business of the Trust, and the
Trust and the holders of Securities shall have no rights by virtue of this
Declaration in and to such independent ventures or the income or profits
derived therefrom and the pursuit of any such venture, even if competitive with
the business of the Trust, shall not be deemed wrongful or improper. No
Covered Person, the Sponsor or the Delaware Trustee shall be obligated to
present any particular investment or other opportunity to the Trust even if
such opportunity is of a character that, if presented to the Trust, could be
taken by the Trust, and any Covered Person, the Sponsor and the Delaware
Trustee shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Covered Person and the Delaware Trustee may engage
or be interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depositary for, trustee or agent for or
may act on any committee or body of holders of, securities or other obligations
of the Sponsor or its Affiliates.
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.1 Amendments.
At any time before the issue of any Securities, this Declaration may
be amended by, and only by, a written instrument executed by all of the
Administrative Trustees and the Sponsor.
SECTION 5.2 Termination of Trust.
(a) The Trust shall terminate and be of no further force or effect:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor or the revocation of the
Sponsor's charter or of the Trust's certificate of trust;
(iii) upon the entry of a decree of judicial dissolution of
the Sponsor or the Trust; and
(iv) before the issuance of any Securities, with the consent
of all of the Administrative Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 5.2(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
13
<PAGE> 15
SECTION 5.3 Governing Law.
THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS.
SECTION 5.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 5.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 5.6 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder
of this Declaration, or the application of such provision to persons or
circumstances other than those to which its is held invalid, shall not be
affected thereby.
SECTION 5.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as through one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
14
<PAGE> 16
IN WITNESS WHEREOF, the undersigned have caused this Declaration to be
executed as of the day and year first above written.
/s/ Richard A. Greenawalt
-------------------------
Name: Richard A. Greenawalt
As Administrative Trustee
/s/ William A. Rosoff
---------------------
Name: William A. Rosoff
As Administrative Trustee
/s/ David D. Wesselink
----------------------
Name: David D. Wesselink
As Administrative Trustee
Chase Manhattan Bank Delaware
By: /s/ John J. Casin
-----------------
Name: John J. Cashin
Title: Senior Trust Officer
Advanta Corp.,
as Sponsor
By: /s/ William A. Rosoff
---------------------
Name: William A. Rosoff
Title: Vice Chairman
15
<PAGE> 17
Exhibit I
CERTIFICATE OF TRUST
The undersigned, the trustees of Advanta Capital Trust I, desiring to
form a business trust pursuant to Delaware Business Trust Act, 12 Del. C.
Section 3810, hereby certify as follows:
(a) The name of the business trust being formed hereby (the "Trust") is
"Advanta Capital Trust I."
(b) The name and business address of the trustee of the Trust which has its
principal place of business in the State of Delaware is as follows:
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
(c) This Certificate of Trust shall be effective as of the date of the filing.
Dated: December 4, 1996
----------------------------------
Name: William A. Rosoff
Title: Regular Trustee
----------------------------------
Name: Richard A. Greenawalt
Title: Regular Trustee
----------------------------------
Name: David D. Wesselink
Title: Regular Trustee
Chase Manhattan Bank Delaware
By:
-------------------------------
Name: John J. Cashin
Title: Senior Trust Officer
16
<PAGE> 1
Exhibit 4-i
AMENDED AND RESTATED DECLARATION
OF TRUST
OF
ADVANTA CAPITAL TRUST I
Dated as of December 17, 1996
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
<S> <C>
310(c)..........................................................................Section 5.3
311(a)..........................................................................Section 2.2
311(b)..........................................................................Section 2.2
312(b)..........................................................................Section 2.2
313.............................................................................Section 2.3
314.............................................................................Section 2.4
314(a)..........................................................................Section 3.6
314(c)..........................................................................Section 2.5
316(a)..........................................................................Section 2.6
316(c)..........................................................................Section 3.6
317(a)..........................................................................Section 3.8
317(b)..........................................................................Section 3.8
</TABLE>
- -------------------
* This Cross-Reference Table does not constitute part of the Declaration
and shall not affect the interpretation of any of its terms or
provisions.
<PAGE> 3
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
ADVANTA CAPITAL TRUST I
Dated as of December 17, 1996
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration")
dated and effective as of December 17, 1996, by the Trustees (as defined
herein), the Sponsor (as defined herein) and by the holders, from time to time,
of undivided beneficial interests in the Trust to be issued pursuant to this
Declaration;
WHEREAS, the Withdrawing Trustees (as defined herein) and the
Sponsor established Advanta Capital Trust I (the "Trust"), a trust formed under
the Delaware Business Trust Act pursuant to a Declaration of Trust dated as of
December 5, 1996 (the "Original Declaration"), and a Certificate of Trust filed
with the Secretary of State of the State of Delaware on December 5, 1996, for
the sole purpose of issuing and selling certain securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in certain Debentures of the Debenture Issuer (each as
hereinafter defined);
WHEREAS, as of the date hereof, no interests in the Trust have
been issued;
WHEREAS, the Withdrawing Trustees are resigning as Trustees
upon the execution of this Declaration and the Administrative Trustees (as
defined herein) are being appointed as Trustees upon the execution of this
Declaration.
WHEREAS, all of the Trustees and the Sponsor, by this
Declaration, amend and restate each and every term and provision of the Original
Declaration; and
NOW, THEREFORE, it being the intention of the parties hereto
to continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration and, in consideration
of the mutual covenants contained herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Trustees,
intending to be legally bound hereby, agree as follows:
<PAGE> 4
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined
in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration"
are to this Declaration as modified, supplemented or amended from time
to time;
(d) all references in this Declaration to Articles and
Sections and Annexes and Exhibits are to Articles and Sections of and
Annexes and Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice
versa.
"Administrative Trustee" has the meaning set forth in Section
5.1.
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent, Registrar or Exchange Agent.
"Authorized Officer" of a Person means any other Person that
is authorized to legally bind such former Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday or a Sunday
or a day on which banking institutions in the City of New York or Wilmington,
Delaware are authorized or required by law or executive order to close.
-2-
<PAGE> 5
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code 3801 et seq., as it may be amended from time to time
or any successor legislation.
"Capital Security Beneficial Owner" means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Capital Securities" means, collectively, the Series A Capital
Securities and the Series B Capital Securities.
"Capital Securities Guarantee" means, collectively, the Series
A Capital Securities Guarantee and the Series B Capital Securities Guarantee.
"Capital Security Certificate" has the meaning set forth in
Section 9.4.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Capital Securities and in whose name or in the name of a
nominee of that organization shall be registered a Global Certificate and which
shall undertake to effect book entry transfers and pledges of the Capital
Securities.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time the
Clearing Agency effects book entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Time" means the "Closing Time" under the Purchase
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the United States Securities and Exchange
Commission as from time to time constituted, or if any time after the execution
of this Declaration such Commission is not existing and performing the duties
now assigned to it under applicable Federal securities laws, then the body
performing such duties at such time.
"Common Securities" has the meaning specified in Section
7.1(a).
"Common Securities Guarantee" means the Common Securities
Guarantee Agreement dated as of December 17, 1996 of the Sponsor in respect of
the Common Securities.
"Company Indemnified Person" means (a) any Administrative
Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers,
directors, shareholders, members,
-3-
<PAGE> 6
partners, employees, representatives or agents of any Administrative Trustee; or
(d) any officer, employee or agent of the Trust or its Affiliates.
"Corporate Trust Office" means the office of the Property
Trustee at which the corporate trust business of the Property Trustee shall, at
any particular time, be principally administered, which office at the date of
execution of this Agreement is located at 450 W. 33rd Street, 15th Floor, New
York, New York 10001.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the Trust
or (ii) the Trust's Affiliates; and (b) any Holders of Securities.
"Debenture Issuer" means Advanta Corp., a Delaware
corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"Debenture Trustee" means The Chase Manhattan Bank, a New York
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
"Debentures" means, collectively, the Series A Debentures and
the Series B Debentures.
"Default" means an event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Definitive Capital Securities" shall have the meaning set
forth in Section 7.3(d).
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Direct Action" shall have the meaning set forth in Section
3.8(e).
"Distribution" means a distribution payable to Holders of
Securities in accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" in respect of the Securities means an Event
of Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Exchange Agent" has the meaning set forth in Section 7.4.
-4-
<PAGE> 7
"Exchange Offer" means the offer that may be made pursuant to
the Registration Rights Agreement (i) by the Trust to exchange Series B Capital
Securities for Series A Capital Securities and (ii) by the Debenture Issuer to
exchange Series B Debentures for Series A Debentures and the Series B Capital
Securities Guarantee for the Series A Capital Securities Guarantee.
"Exchange Offer Registration Statement" has the meaning set
forth in Section 14.1.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10. 4(b).
"Global Capital Security" has the meaning set forth in Section
7.3(b).
"Holder" means a Person in whose name a Security is
registered, such Person being a beneficial owner within the meaning of the
Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of December 17, 1996,
among the Debenture Issuer and the Debenture Trustee, as amended from time to
time.
"Initial Optional Redemption Date" has the meaning set forth
in Section 4(b) of Annex I hereto.
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Like Amount" has the meaning set forth in Section 3 of Annex
I hereto.
"Majority in liquidation amount" means, with respect to the
Trust Securities, except as provided in the terms of the Capital Securities or
by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting
together as a single class or, as the context may require, Holders of
outstanding Capital Securities or Holders of outstanding Common Securities
voting separately as a class, who are the record owners of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
-5-
<PAGE> 8
"Offering Memorandum" has the meaning set forth in Section
3.6(b).
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President, the Treasurer, the Comptroller, or the
Secretary or an Assistant Secretary of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include:
(a) a statement that each officer signing the Certificate has
read the covenant or condition and the definitions relating thereto:
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering the
Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" shall mean a written opinion of counsel,
who may be an employee of the Sponsor, and who shall be acceptable to the
Property Trustee.
"Participants" has the meaning set forth in Section 7.3(b).
"Paying Agent" has the meaning specified in Section 7.4.
"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.
"Property Trustee" has the meaning set forth in Section
5.3(a).
"Property Trustee Account" has the meaning set forth in
Section 3.8(c).
"Purchase Agreement" means the Purchase Agreement for the
initial offering and sale of Capital Securities in the form of Exhibit C.
"QIBs" shall mean qualified institutional buyers as defined in
Rule 144A.
"Quorum" means a majority of the Administrative Trustees or,
if there are only two Administrative Trustees, both of them.
-6-
<PAGE> 9
"Registrar" has the meaning set forth in Section 7.4.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of December 11, 1996 by and among the Trust, the Debenture
Issuer and the Initial Purchasers named therein, as amended from time to time.
"Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Responsible Officer" means, with respect to the Property
Trustee, any officer within the Corporate Trust Office of the Property Trustee
with direct responsibility for the administration of this Declaration and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Restricted Definitive Capital Securities" has the meaning set
forth in Section 7.3(d).
"Restricted Capital Security" means a Capital Security
required by Section 9.2 to contain a Restricted Securities Legend.
"Restricted Securities Legend" has the meaning set forth in
Section 9.2.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act,
or any successor rule or regulation.
"Rule 144" means Rule 144 under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Rule 144A" means Rule 144A under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Securities" or "Trust Securities" means the Common Securities
and the Capital Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee
and the Capital Securities Guarantee.
"Series A Capital Securities" has the meaning specified in
Section 7.1(a).
-7-
<PAGE> 10
"Series A Capital Securities Guarantee" means the Series A
Capital Securities Guarantee Agreement dated as of December 17, 1996 between the
Sponsor and The Chase Manhattan Bank, as guarantee trustee, in respect of the
Series A Capital Securities.
"Series A Debentures" means the 8.99% Series A Junior
Subordinated Deferrable Interest Debentures due December 17, 2026 of the
Debenture Issuer issued pursuant to the Indenture.
"Series B Capital Securities" has the meaning specified in
Section 7.1(a).
"Series B Capital Securities Guarantee" means the Guarantee
Agreement to be entered in connection with the Exchange Offer by the Sponsor in
respect of the Series B Capital Securities.
"Series B Debentures" means the 8.99 % Series B Junior
Subordinated Deferrable Interest Debentures due December 17 , 2026 of the
Debenture Issuer issued pursuant to the Indenture.
"Special Event" has the meaning set forth in Section 4(c) of
Annex I hereto.
"Special Event Redemption Price" has the meaning set forth in
Section 4(c) of Annex I hereto.
"Sponsor" means Advanta Corp., a Delaware corporation, or any
successor Person resulting from any merger, consolidation, amalgamation or other
business combination, in its capacity as sponsor of the Trust.
"Successor Entity" has the meaning specified in Section
3.15(b).
"Successor Property Trustee" has the meaning specified in
Section 3.8(f).
"Successor Securities" has the meaning specified in Section
3.15(b).
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
"10% in liquidation amount" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% or more of the aggregate liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.
-8-
<PAGE> 11
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue as trustee of
the Trust in accordance with the terms hereof, and all other Persons who may
from time to time be duly appointed, qualified and serving as Trustees in
accordance with the provisions hereof, and references herein to a Trustee or the
Trustees shall refer to such Person or Persons solely in their capacity as
trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
"Unrestricted Global Capital Security" has the meaning set
forth in Section 9.2(b).
"Withdrawing Trustees" means the Trustees other than the
Delaware Trustee who executed the Original Declaration.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee that is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this
Declaration limits, qualifies or conflicts with the duties imposed by Sections
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
-9-
<PAGE> 12
(a) Each of the Sponsor and the Administrative Trustees on
behalf of the Trust shall provide the Property Trustee, unless the Property
Trustee is Registrar for the Securities (i) within five (5) days after each
record date for payment of Distributions, a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders") as of such record date, provided that neither the
Sponsor nor the Administrative Trustees on behalf of the Trust shall be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Property Trustee by
the Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at
any other time, within 30 days of receipt by the Trust of a written request for
a List of Holders as of a date no more than 14 days before such List of Holders
is given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations
under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year, commencing May
15,1997, the Property Trustee shall provide to the Holders of the Capital
Securities such reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form and in the manner provided by Section 313 of the Trust
Indenture Act. The Property Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such documents, reports and
information as are required by Section 314 (if any) 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.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent provided for in this Declaration that relate to
any of the matters set forth in 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 may be given in the form of an Officers'
Certificate.
SECTION 2.6 Events of Default; Waiver.
-10-
<PAGE> 13
(a) The Holders of a Majority in liquidation amount of Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital Securities
and its consequences, provided that, if the underlying Event of Default under
the Indenture:
(i) is not waivable under the Indenture, the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a
majority in aggregate principal amount of the holders of the Debentures
(a "Super Majority") to be waived under the Indenture, the Event of
Default under the Declaration may only be waived by the vote of the
Holders of at least the proportion in aggregate liquidation amount of
the Capital Securities that the relevant Super Majority represents of
the aggregate principal amount of the Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
Default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other Default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Capital Securities of an Event of Default with respect to the Capital
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in liquidation amount of the
Common Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where
the Holders of the Common Securities are deemed to have waived such
Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration shall also
not be waivable; or
(ii) requires the consent or vote of a Super Majority to
be waived, except where the Holders of the Common Securities are deemed
to have waived such Event of Default under the Declaration as provided
below in this Section 2.6(b), the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least
the proportion in aggregate liquidation amount of the Common Securities
that the relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding;
-11-
<PAGE> 14
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences if all Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated, and until
such Events of Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the Holders of
the Capital Securities and only the Holders of the Capital Securities will have
the right to direct the Property Trustee in accordance with the terms of the
Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby
expressly excluded from this Declaration and the Securities, as permitted by the
Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b),
upon such waiver, any such default shall cease to exist and any Event of Default
with respect to the Common Securities arising therefrom shall be deemed to have
been cured for every purpose of this Declaration, but no such waiver shall
extend to any subsequent or other default or Event of Default with respect to
the Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of
the Trust Indenture Act is hereby expressly excluded from this Declaration and
the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after a
Responsible Officer obtains knowledge of the occurrence of an Event of Default,
transmit by mail, first class postage prepaid, to the Holders of the Securities,
notices of all Defaults with respect to the Securities actually known to a
Responsible Officer of the Property Trustee, unless such Defaults have been
cured before the giving of such notice; provided that, except for a Default in
the payment of principal of (or premium, if any) or interest on any of the
Debentures, the Property Trustee shall be protected in withholding such notice
if and so long as a Responsible Officer of the Property Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge
of any Default or Event of Default except:
(i) a default under Sections 5.01(a) and 5.01(b) of the
Indenture; or
(ii) any Default or Event of Default as to which the
Property Trustee shall have received written notice or of which a
Responsible Officer of the Property Trustee charged with the
administration of the Declaration shall have actual knowledge.
-12-
<PAGE> 15
(c) Within five Business Days after the occurrence of any
Event of Default actually known to the Property Trustee, the Property Trustee
shall transmit notice of such Event of Default to the holders of the Capital
Securities, the Administrative Trustees and the Sponsor, unless such Event of
Default shall have been cured or waived. The Sponsor and the Administrative
Trustees shall file annually with the Property Trustee a certification as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under this Declaration.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named "Advanta Capital Trust I" as such name may
be modified from time to time by the Administrative Trustees following written
notice to the Property Trustee, the Delaware Trustee and the Holders of
Securities. The Trust's activities may be conducted under the name of the Trust
or any other name deemed advisable by the Administrative Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o
Advanta Corp., 501 Carr Road, Wilmington, DE 19809. On ten Business Days prior
written notice to the Property Trustee, the Delaware Trustee and the Holders of
Securities, the Administrative Trustees may designate another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities, (b) use the proceeds from the sale of the Securities
to acquire the Debentures, and (c) except as otherwise limited herein, to engage
in only those other activities necessary, advisable or incidental thereto,
including without limitation, those activities specified in Section 3.6. The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, mortgage or pledge any of its assets, or otherwise undertake (or
permit to be undertaken) any activity that would cause the Trust not to be
classified for United States federal income tax purposes as a grantor trust.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Administrative Trustees shall
have exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Administrative Trustees in accordance with their powers
shall constitute the act of and serve to bind the Trust and an action taken by
the Property Trustee on behalf of the Trust in accordance with its powers shall
-13-
<PAGE> 16
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no Person shall be required to inquire into the
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the
Debentures and the Property Trustee Account or as otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.6 Powers and Duties of the Administrative Trustees.
The Administrative Trustees shall have the exclusive power,
duty and authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Capital Securities and the Common
Securities in accordance with this Declaration; provided, however, that except,
in the case of (i) and (ii), as contemplated in Section 7.1(a), (i) the Trust
may issue no more than one series of Capital Securities and no more than one
series of Common Securities, (ii) there shall be no interests in the Trust other
than the Securities, and (iii) the issuance of Securities shall be limited to a
simultaneous issuance of both Capital Securities and Common Securities at any
Closing Time,
(b) in connection with the issue and sale of the Capital
Securities and the consummation of the Exchange Offer, at the direction of the
Sponsor, to:
(i) prepare and execute, if necessary, an offering
memorandum (the "Offering Memorandum") in preliminary and final form
prepared by the Sponsor, in relation to the offering and sale of Series
A Capital Securities to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to institutional "accredited
investors" (as defined in Rule 501(i)(1), (2), (3) or (7) under the
Securities Act) and to execute and file with the Commission, at such
time as determined by the Sponsor, any Registration Statement,
including any amendments thereto, as contemplated by the Registration
Rights Agreement;
(ii) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be necessary
in order to qualify or register all or part of the Capital Securities
in any State in which the Sponsor has determined to qualify or register
such Capital Securities for sale;
(iii) at the direction of the Sponsor, execute and file
an application, prepared by the Sponsor, to the New York Stock Exchange
or any other national stock
-14-
<PAGE> 17
exchange or the Nasdaq Stock Market's National Market for listing or
inclusion of the Capital Securities;
(iv) execute and deliver letters, documents, or
instruments with DTC and other Clearing Agencies relating to the
Capital Securities;
(v) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto,
prepared by the Sponsor, relating to the registration of the Capital
Securities under Section 12(b) or 12(g) of the Exchange Act as the case
may be; and
(vi) execute and enter into the Purchase Agreement and
the Registration Rights Agreement providing for the sale of the Capital
Securities and take any and all actions necessary, advisable or
appropriate to satisfy the Trust's obligations thereunder;
it being acknowledged that Initial Individual Trustees have performed the
actions described in clauses (i), (iv) and (vi) on behalf of the Trust prior to
the date hereof and that such actions are hereby ratified, approved and
confirmed in all respects.
(c) to acquire the Series A Debentures with the proceeds of
the sale of the Series A Capital Securities and the Common Securities and to
exchange, or to direct the Property Trustee in writing to exchange, the Series A
Debentures for a like principal amount of Series B Debentures, pursuant to the
Exchange Offer; provided, however, that the Administrative Trustees shall cause
legal title to the Debentures to be held of record in the name of the Property
Trustee for the benefit of the Holders of the Capital Securities and the Holders
of Common Securities;
(d) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all actions to
be taken hereunder that require a record date be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be
required of the Administrative Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee
has the exclusive power to bring such Legal Action;
-15-
<PAGE> 18
(h) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors, advisors,
and consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of
the Trust Indenture Act to the Property Trustee, which certificate may be
executed by any Administrative Trustee;
(k) to incur expenses that are necessary or incidental to
carry out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar
and Exchange Agent for the Securities or to appoint a Paying Agent for the
Securities as provided in Section 7.4 except for such time as such power to
appoint a Paying Agent is vested in the Property Trustee;
(m) to give prompt written notice to the Property Trustee and
to Holders of the Securities of any notice received from the Debenture Issuer of
its election to defer payments of interest on the Debentures by extending the
interest payment period under the Indenture;
(n) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the laws
of the State of Delaware and of each other jurisdiction in which such existence
is necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(p) to take any action, not inconsistent with this Declaration
or with applicable law, that the Administrative Trustees determine in their
discretion to be necessary, advisable or incidental to carrying out the
activities of the Trust as set out in this Section 3.6, including, but not
limited to:
(i) causing the Trust not to be deemed to be an
Investment Company required to be registered under the Investment
Company Act;
(ii) causing the Trust to be classified for United
States federal income tax purposes as a grantor trust; and
-16-
<PAGE> 19
(iii) cooperating with the Debenture Issuer to ensure
that the Debentures will be treated as indebtedness of the Debenture
Issuer for United States federal income tax purposes;
(q) to take all action necessary to consummate the Exchange
Offer or otherwise cause the Capital Securities to be registered pursuant to an
effective registration statement in accordance with the provisions of the
Registration Rights Agreement; and
(r) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with respect
to the Trust to be duly prepared and filed by the Administrative Trustees, on
behalf of the Trust.
The Administrative Trustees must exercise the powers set forth
in this Section 3.6 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Administrative Trustees
shall not take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Administrative Trustees shall
have none of the powers or the authority of the Property Trustee set forth in
Section 3.8.
Any expenses incurred by the Administrative Trustees pursuant
to this Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
The Trust shall not, and the Trustees (including the Property
Trustee) shall not, engage in any activity other than as required or authorized
by this Declaration. The Trust shall not:
(a) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of Securities
pursuant to the terms of this Declaration and of the Securities;
(b) acquire any assets other than as expressly provided
herein:
(c) possess Trust property for other than a Trust purpose;
(d) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(e) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way whatsoever;
-17-
<PAGE> 20
(f) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the Securities; or
(g) other than as provided in this Declaration or Annex I to
this Declaration, (i) direct the time, method and place of conducting any
proceeding with respect to any remedy available to the Debenture Trustee, or
exercising any trust or power conferred upon the Debenture Trustee with respect
to the Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul any declaration that the
principal of 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 unless the Trust shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
to the effect that such modification will not cause more than an insubstantial
risk that for United States federal income tax purposes the Trust will not be
classified as a grantor trust.
SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by and
held of record in the name of the Property Trustee in trust for the benefit of
the Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.6. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title
and interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest
bearing trust account (the "Property Trustee Account") in the name of
and under the exclusive control of the Property Trustee on behalf of
the Holders of the Securities and, upon the receipt of payments of
funds made in respect of the Debentures held by the Property Trustee,
deposit such funds into the Property Trustee Account and make payments
to the Holders of the Capital Securities and Holders of the Common
Securities from the Property Trustee Account in accordance with Section
6.1. Funds in the Property Trustee Account shall be held uninvested
until disbursed in accordance with this Declaration. The Property
Trustee Account shall be an account that is maintained with a banking
institution the rating on whose long-term unsecured indebtedness is at
least equal to the rating assigned to the Capital Securities by a
"nationally recognized statistical rating organization", as that term
is defined for purposes of Rule 436(g)(2) under the Securities Act;
-18-
<PAGE> 21
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Capital
Securities and the Common Securities to the extent the Debentures are
redeemed or mature; and
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as shall be necessary or
appropriate to effect the distribution of the Debentures to Holders of
Securities upon the occurrence of certain events.
(d) The Property Trustee shall take all actions and perform
such duties as may be specifically required of the Property Trustee pursuant to
the terms of the Securities.
(e) Subject to Section 3.9(a), the Property Trustee shall take
any Legal Action which arises out of or in connection with an Event of Default
of which a Responsible Officer of the Property Trustee has actual knowledge or
the Property Trustee's duties and obligations under this Declaration or the
Trust Indenture Act and if the Property Trustee shall have failed to take such
Legal Action, the Holders of the Capital Securities may take such Legal Action,
to the same extent as if such Holders of Capital Securities held an aggregate
principal amount of Debentures equal to the aggregate liquidation amount of such
Capital Securities, without first proceeding against the Property Trustee or the
Trust; provided however, that if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay the principal of or premium, if any, or interest on the Debentures on the
date such principal, premium, if any, or interest is otherwise payable (or in
the case of redemption, on the redemption date), then a Holder of Capital
Securities may directly institute a proceeding for enforcement of payment to
such Holder of the principal of or premium, if any, or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Capital Securities of such Holder (a "Direct Action") on or after the
respective due date specified in the Debentures. In connection with such Direct
Action, the rights of the Holders of the Common Securities will be subrogated to
the rights of such Holder of Capital Securities to the extent of any payment
made by the Debenture Issuer to such Holder of Capital Securities in such Direct
Action. Except as provided in the preceding sentences, the Holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Debentures.
(f) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the
proceeds of the liquidation distributed to the Holders of Securities
pursuant to the terms of the Securities; or
(ii) a successor Trustee possessing the qualifications
to act as Property Trustee under Section 5.3 (a "Successor Property
Trustee") has been appointed and has accepted that appointment in
accordance with Section 5.6(b).
-19-
<PAGE> 22
(g) The Property Trustee shall have the legal power to
exercise all of the rights, powers and privileges of a holder of Debentures
under the Indenture and, if an Event of Default actually known to a Responsible
Officer of the Property Trustee occurs and is continuing, the Property Trustee
shall, for the benefit of Holders of the Securities, enforce its rights as
holder of the Debentures subject to the rights of the Holders pursuant to the
terms of the Securities.
(h) The Property Trustee shall be authorized to undertake any
actions set forth in Section 317(a) of the Trust Indenture Act.
(i) For such time as the Property Trustee is the Paying Agent,
the Property Trustee may authorize one or more Persons to act as additional
Paying Agents and to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all securities and any such
Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any
such additional Paying Agent may be removed by the Property Trustee at any time
the Property Trustee remains as Paying Agent and a successor Paying Agent or
additional Paying Agents may be (but are not required to be) appointed at any
time by the Property Trustee.
(j) Subject to this Section 3.8, the Property Trustee shall
have none of the duties, liabilities, powers or the authority of the
Administrative Trustees set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in
this Section 3.8 in a manner that is consistent with the purposes and functions
of the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event
of Default and after the curing or waiving of all Events of Default that may
have occurred, shall undertake to perform only such duties as are specifically
set forth in this Declaration and in the Securities and no implied covenants
shall be read into this Declaration against the Property Trustee. In case an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) of which a Responsible Officer of the Property Trustee has actual
knowledge, the Property Trustee shall exercise such of the rights and powers
vested in it by this Declaration, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of Default that may have
occurred:
-20-
<PAGE> 23
(A) the duties and obligations of the Property
Trustee shall be determined solely by the express provisions
of this Declaration and in the Securities and the Property
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Declaration and in the Securities, and no implied covenants or
obligations shall be read into this Declaration against the
Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely,
as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee and conforming to the
requirements of this Declaration; provided, however, that in
the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to
the Property Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or not they
conform to the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Property Trustee, unless it shall be proved that the Property Trustee
was negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Declaration or indemnity reasonably satisfactory to the Property
Trustee against such risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to
the custody, safe keeping and physical preservation of the Debentures
and the Property Trustee Account shall be to deal with such property in
a similar manner as the Property Trustee deals with similar property
for its own account, subject to the protections and limitations on
liability afforded to the Property Trustee under this Declaration and
the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or
liability for or with
-21-
<PAGE> 24
respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or
in connection therewith;
(vii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree
in writing with the Sponsor. Money held by the Property Trustee need
not be segregated from other funds held by it except in relation to the
Property Trustee Account maintained by the Property Trustee pursuant to
Section 3.8(c)(i) and except to the extent otherwise required by law;
and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor
with their respective duties under this Declaration, nor shall the
Property Trustee be liable for any default or misconduct of the
Administrative Trustees or the Sponsor.
SECTION 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and
shall be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the
Administrative Trustees contemplated by this Declaration may be
sufficiently evidenced by an Officers' Certificate;
(iii) whenever in the administration of this
Declaration, the Property Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting any
action hereunder, the Property Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which, upon
receipt of such request, shall be promptly delivered by the Sponsor or
the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to
any recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or
other experts of its selection and the advice or opinion of such
counsel and experts with respect to legal matters or advice within the
scope of such experts' area of expertise shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted
-22-
<PAGE> 25
by it hereunder in good faith and in accordance with such advice or
opinion, such counsel may be counsel to the Sponsor or any of its
Affiliates, and may include any of its employees, and the Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this
Declaration at the request or direction of any Holder, unless such
Holder shall have provided to the Property Trustee security and
indemnity, reasonably satisfactory to the Property Trustee, against the
costs, expenses (including reasonable attorneys' fees and expenses and
the expenses of the Property Trustee's agents, nominees or custodians)
and liabilities that might be incurred by it in complying with such
request or direction, including such reasonable advances as may be
requested by the Property Trustee; provided, that, nothing contained in
this Section 3.10(a)(vi) shall be taken to relieve the Property
Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or
by or through agents, custodians, nominees or attorneys and the
Property Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder;
(ix) any action taken by the Property Trustee or its
agents hereunder shall bind the Trust and the Holders of the
Securities, and the signature of the Property Trustee or its agents
alone shall be sufficient and effective to perform any such action and
no third party shall be required to inquire as to the authority of the
Property Trustee to so act or as to its compliance with any of the
terms and provisions of this Declaration, both of which shall be
conclusively evidenced by the Property Trustee's or its agent's taking
such action;
(x) whenever in the administration of this Declaration
the Property Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other
action hereunder, the Property Trustee (i) may request instructions
from the Holders of the Securities which instructions may only be given
by the Holders of the same proportion in liquidation amount of the
Securities as
-23-
<PAGE> 26
would be entitled to direct the Property Trustee under the terms of the
Securities in respect of such remedy, right or action, (ii) may refrain
from enforcing such remedy or right or taking such other action until
such instructions are received and (iii) shall be protected in
conclusively relying on or acting in or accordance with such
instructions;
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any obligation to
take any action that is discretionary under the provisions of this
Declaration; and
(xii) the Property Trustee shall not be liable for any
action taken, suffered, or omitted to be taken by it in good faith,
without negligence or willful misconduct, and reasonably believed by it
to be authorized or within the discretion or rights or powers conferred
upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose
any duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other
than Section 5.2, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Administrative Trustees or the Property Trustee
described in this Declaration. Except as set forth in Section 5.2, the Delaware
Trustee shall be a Trustee for the sole and limited purpose of fulfilling the
requirements of Section 3807 of the Business Trust Act. In the event the
Delaware Trustee shall at any time be required to take any action or perform any
duty hereunder, the Delaware Trustee shall be entitled to the benefits of
Section 3.9(b)(ii)-(vii) and Section 3.10 as if such sections referred to the
Delaware Trustee rather than the Property Trustee. No implied covenants or
obligations shall be read into this Declaration against the Delaware Trustee.
SECTION 3.12 Execution of Documents.
Unless otherwise determined by the Administrative Trustees,
and except as otherwise required by the Business Trust Act, any Administrative
Trustee is authorized to execute on behalf of the Trust any documents that the
Administrative Trustees have the power and authority to execute pursuant to
Section 3.6; provided that, the Registration Statement referred to in Section
3.6(b)(i), including any amendments thereto, shall be signed by all of the
Administrative Trustees.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
-24-
<PAGE> 27
The recitals contained in this Declaration and the Securities
shall be taken as the statements of the Sponsor, and the Trustees do not assume
any responsibility for their correctness. The Trustees make no representations
as to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of
Article VIII hereof, shall have existence up to December 17, 2027.
-25-
<PAGE> 28
SECTION 3.15 Mergers.
(a) The Trust may not merge with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, except as described in
Section 3.15(b) and (c).
(b) The Trust may, at the request of the Sponsor, with the
consent of the Administrative Trustees or, if there are more than two, a
majority of the Administrative Trustees and without the consent of the Holders
of the Securities, the Delaware Trustee or the Property Trustee, merge with or
into, consolidate, amalgamate or be replaced by, or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to, a
trust organized as such under the laws of any State; provided that:
(i) such successor entity (the "Successor Entity")
either:
(A) expressly assumes all of the obligations of the
Trust under the Securities; or
(B) substitutes for the Securities other securities
having substantially the same terms as the Securities (the
"Successor Securities") so long as the Successor Securities
rank the same as the Securities rank with respect to
Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Sponsor expressly appoints a trustee of the
Successor Entity that possesses the same powers and duties as the
Property Trustee as the holder of the Debentures;
(iii) the Successor Securities are listed or included
for trading, or any Successor Securities will be listed or included for
trading upon notification of issuance, on any national securities
exchange or with another organization on which the Capital Securities
are then listed or included;
(iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the Holders of the Securities
(including any Successor Securities) in any material respect (other
than with respect to any dilution of such Holders' interests in the new
entity);
(vi) such Successor Entity has a purpose identical to
that of the Trust;
-26-
<PAGE> 29
(vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Sponsor has received an
opinion of an independent counsel to the Trust experienced in such
matters to the effect that:
(A) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders
of the Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of
the Holders' interest in the new entity); and
(B) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease,
neither the Trust nor the Successor Entity will be required to
register as an Investment Company; and
(viii) the Sponsor or any permitted successor or
assignee owns all of the common securities of such Successor Entity and
guarantees the obligations of such Successor Entity under the Successor
Securities at least to the extent provided by the Capital Securities
Guarantee and the Common Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not,
except with the consent of Holders of 100% in liquidation amount of the
Securities, consolidate, amalgamate, merge with or into, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, any other Person or permit any other Person to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or the Successor Entity not to be classified as a grantor
trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
At the Closing Time, the Sponsor will purchase all of the
Common Securities then issued by the Trust, in an amount at least equal to 3% of
the capital of the Trust, at the same time as the Series A Capital Securities
are issued and sold.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Capital
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare the Offering Memorandum and to prepare for
filing by the Trust with the Commission any Registration Statement, including
any amendments thereto as contemplated by the Registration Rights Agreement;
-27-
<PAGE> 30
(b) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Capital Securities and
to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Trust, as the Sponsor
deems necessary or advisable in order to comply with the applicable laws of any
such States;
(c) if deemed necessary or advisable by the Sponsor, to
prepare for filing by the Trust an application to the New York Stock Exchange or
any other national stock exchange or the Nasdaq National Market for listing or
inclusion of the Capital Securities:
(d) if deemed necessary or advisable by the Sponsor, to
prepare for filing by the Trust with the Commission 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, as the case may be, including any amendments
thereto; and
(e) to negotiate the terms of the Purchase Agreement and the
Registration Rights Agreement providing for the sale of the Capital Securities.
SECTION 4.3 Right to Proceed.
The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on the
Capital Securities is attributable to the failure of the Company to pay interest
or principal on the Debentures, to institute a proceeding directly against the
Debenture Issuer for enforcement of its payment obligations on the Debentures.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the
Sponsor may, by written instrument, increase or decrease the number of Trustees;
and
(b) after the issuance of any Securities, the number of
Trustees may be increased or decreased by vote of the Holders of a Majority in
liquidation amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities;
provided however that, the number of Trustees shall in no event be less than two
(2); provided further that (1) one Trustee shall be the Delaware Trustee; (2)
there shall be at least one Trustee who is an employee or officer of, or is
affiliated with, the Sponsor (an "Administrative Trustee");
-28-
<PAGE> 31
and (3) one Trustee shall be the Property Trustee for so long as this
Declaration is required to qualify as an indenture under the Trust Indenture
Act, and such Trustee may also serve as Delaware Trustee if it meets the
applicable requirements. Notwithstanding the above, unless an Event of Default
shall have occurred and be continuing, at any time or times, for the purpose of
meeting the legal requirements of the Trust Indenture Act or of any jurisdiction
in which any part of the Trust's property may at the time be located, the
Holders of a Majority in liquidation amount of the Common Securities acting as a
class at a meeting of the Holders of the Common Securities, and the
Administrative Trustees shall have power to appoint one or more Persons either
to act as a co-trustee, jointly with the Property Trustee, of all or any part of
the Trust's property, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such Person or Persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of this Declaration. In case an Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make any such
appointment of a co-trustee.
SECTION 5.2 Delaware Trustee.
For so long as required by the Business Trust Act, one Trustee
(the "Delaware Trustee") shall be:
(a) a natural person who is a resident of the State of
Delaware; or
(b) if not a natural person, an entity which has its principal
place of business in the State of Delaware, and otherwise meets the requirements
of applicable law,
provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application. The initial Delaware Trustee shall be:
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, DE 19801
Attention: Corporate Trustee
Administration Department
SECTION 5.3 Property Trustee: Eligibility.
(a) There shall at all times be one Trustee (the "Property
Trustee") which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
-29-
<PAGE> 32
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or other
Person permitted by the Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000), and subject to supervision
or examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then for the purposes of this
Section 5.3(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
(b) If at any time the Property Trustee shall cease to be
eligible to so act under Section 5.3(a), the Property Trustee shall immediately
resign in the manner and with the effect set forth in Section 5.6(c).
(c) If the Property Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Property Trustee and the Holder of the Common Securities (as
if it were the obligor referred to in Section 310(b) of the Trust Indenture Act)
shall in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
proviso contained in paragraph (1) of Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attention: Corporate Trustee
Administration Department
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
Trustee Generally.
Each Administrative Trustee and the Delaware Trustee (unless
the Property Trustee also acts as Delaware Trustee) shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more Authorized Officers.
-30-
<PAGE> 33
SECTION 5.5 Administrative Trustees.
(a) The Withdrawing Trustees shall cease to be Trustees as of
the execution of this Declaration and, effective as of such time, the
Administrative Trustees shall be the Persons identified as such on the signature
pages of this Declaration.
(b) Except as expressly set forth in this Declaration and
except if a meeting of the Administrative Trustees is called with respect to any
matter over which the Administrative Trustees have power to act, any power of
the Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(c) Unless otherwise determined by the Administrative
Trustees, and except as otherwise required by the Business Trust Act or
applicable law, any Administrative Trustee is authorized to execute on behalf of
the Trust any documents which the Administrative Trustees have the power and
authority to cause the Trust to execute pursuant to Section 3.6; provided, that,
the Registration Statement referred to in Section 3.6, including any amendments
thereto, shall be signed by all of the Administrative Trustees; and
(d) An Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purposes of signing any documents which the
Administrative Trustees have power and authority to cause the Trust to execute
pursuant to Section 3.6.
SECTION 5.6 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.6(b), Trustees may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) unless an Event of Default shall have occurred and
be continuing after the issuance of any Securities, by vote of the
Holders of a Majority in liquidation amount of the Common Securities
voting as a class at a meeting of the Holders of the Common Securities;
and
(iii) if an Event of Default shall have occurred and be
continuing after the issuance of the Securities, with respect to the
Property Trustee or the Delaware Trustee, by vote of Holders of a
Majority in liquidation amount of the Capital Securities voting as a
class at a meeting of Holders of the Capital Securities.
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.6(a) until a Successor Property Trustee has
been appointed and has
-31-
<PAGE> 34
accepted such appointment by written instrument executed by such Successor
Property Trustee and delivered to the removed Property Trustee, the
Administrative Trustees and the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not
be removed in accordance with this Section 5.6(a) until a successor
Trustee possessing the qualifications to act as Delaware Trustee under
Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been
appointed and has accepted such appointment by written instrument
executed by such Successor Delaware Trustee and delivered to the
removed Delaware Trustee, the Administrative Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument
executed by such Successor Property Trustee and delivered to
the Trust, the Sponsor and the resigning Property Trustee; or
(B) until the assets of the Trust have been
completely liquidated and the proceeds thereof distributed to
the holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the Trust,
the Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use their best
efforts to promptly appoint a Successor Delaware Trustee or Successor Property
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with this Section 5.6.
(e) If no Successor Property Trustee or Successor Delaware
Trustee shall have been appointed and accepted appointment as provided in this
Section 5.6 within 60 days after delivery of an instrument of resignation or
removal, the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
-32-
<PAGE> 35
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable
for the acts or omissions to act of any Successor Property Trustee or successor
Delaware Trustee, as the case may be.
SECTION 5.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the
number of Trustees is not reduced pursuant to Section 5.1, or if the number of
Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A
resolution certifying the existence of such vacancy by the Administrative
Trustees or, if there are more than two, a majority of the Administrative
Trustees shall be conclusive evidence of the existence of such vacancy. The
vacancy shall be filled with a Trustee appointed in accordance with Section 5.6.
SECTION 5.8 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to annul the Trust. Whenever a vacancy in the number
of Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 5.6, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Declaration.
SECTION 5.9 Meetings.
If there is more than one Administrative Trustee, meetings of
the Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting. Notice of
any telephonic meetings of the Administrative Trustees or any committee thereof
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided
-33-
<PAGE> 36
that a Quorum is present, or without a meeting by the unanimous written consent
of the Administrative Trustees. In the event there is only one Administrative
Trustee, any and all action of such Administrative Trustee shall be evidenced by
a written consent of such Administrative Trustee.
SECTION 5.10 Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney, to
the extent permitted by applicable law, delegate to any other natural person
over the age of 21 his or her power for the purpose of executing any documents
contemplated in Section 3.6, including any registration statement or amendment
thereto filed with the Commission, or making any other governmental filing; and
(b) the Administrative Trustees shall have power to delegate
from time to time to such of their number or to officers of the Trust the doing
of such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the Trust, as set
forth herein.
Section 5.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Property Trustee or the
Delaware Trustee or any Administrative Trustee that is not a natural person, as
the case may be, may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article V, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
Holders shall receive Distributions in accordance with the
applicable terms of the relevant Holder's Securities. If and to the extent that
the Debenture Issuer makes a payment of interest (including Compounded Interest
(as defined in the Indenture) and Additional Interest (as defined in the
Indenture)), premium and/or principal on the Debentures held by the Property
Trustee or Liquidated Damages (as defined in the Registration Rights Agreement)
or any other payments pursuant to the Registration Rights Agreement with respect
to the Debentures held by the Property Trustee (the amount of any such payment
being a "Payment Amount"), the Property
-34-
<PAGE> 37
Trustee shall and is directed, to the extent funds are available for that
purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
(a) The Administrative Trustees shall on behalf of the Trust
issue one class of capital securities representing undivided beneficial
interests in the assets of the Trust having such terms as are set forth in Annex
I (the "Series A Capital Securities") and one class of common securities
representing undivided beneficial interests in the assets of the Trust having
such terms as are set forth in Annex I (the "Common Securities"). The
Administrative Trustees shall on behalf of the Trust issue one class of capital
securities representing undivided beneficial interests in the Trust having such
terms as set forth in Annex I (the "Series B Capital Securities") in exchange
for Series A Capital Securities accepted for exchange in the Exchange Offer,
which Series B Capital Securities shall not bear the legends required by Section
9.2(i) unless the Holder of such Series A Capital Securities is either (A) a
broker-dealer who purchased such Series A Capital Securities directly from the
Trust for resale pursuant to Rule 144A or any other available exemption under
the Securities Act, (B) a Person participating in the distribution of the Series
A Capital Securities or (C) a Person who is an affiliate (as defined in Rule
144A) of the Trust. The Trust shall issue no securities or other interests in
the assets of the Trust other than the Capital Securities and the Common
Securities.
(b) The consideration received by the Trust for the issuance
of the Securities shall constitute a contribution to the capital of the Trust
and shall not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable.
(d) Every Person, by virtue of having become a Holder or a
Capital Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by, this Declaration.
SECTION 7.2 Execution and Authentication.
(a) The Securities shall be signed on behalf of the Trust by
an Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the Person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such persons who, at the actual date of
execution of such
-35-
<PAGE> 38
Security, shall be the Administrative Trustees of the Trust, although at the
date of the execution and delivery of the Declaration any such person was not
such a Administrative Trustee.
(b) One Administrative Trustee shall sign the Capital
Securities for the Trust by manual or facsimile signature. Unless otherwise
determined by the Trust, such signature shall, in the case of Common Securities,
be a manual signature.
A Capital Security shall not be valid until authenticated by
the manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in Annex I hereto except as provided
in Section 7.6.
The Property Trustee may appoint an authenticating agent
acceptable to the Trust to authenticate Capital Securities. An authenticating
agent may authenticate Capital Securities whenever the Property Trustee may do
so. Each reference in this Declaration to authentication by the Property Trustee
includes authentication by such agent. An authenticating agent has the same
rights as the Property Trustee to deal with the Sponsor or an Affiliate.
SECTION 7.3 Form and Dating.
(a) The Capital Securities and the Property Trustee's
certificate of authentication shall be substantially in the form of Exhibit A-1
and the Common Securities shall be substantially in the form of Exhibit A-2,
each of which is hereby incorporated in and expressly made a part of this
Declaration. Certificates representing the Securities may be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Trust, as evidenced by the execution thereof by one or more
Administrative Trustees. The Securities may have letters, "CUSIP" or other
numbers, notations or other marks of identification or designation and such
legends or endorsements required by law, stock exchange rule, agreements to
which the Trust is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the one or more Administrative
Trustees, as evidenced by their execution thereof). The Trust at the direction
of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the
Property Trustee in writing. Each Capital Security shall be dated the date of
its authentication. The terms and provisions of the Securities set forth in
Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part
of the terms of this Declaration and to the extent applicable, the Property
Trustee and the Sponsor, by their execution and delivery of this Declaration,
expressly agree to such terms and provisions and to be bound thereby.
(b) Global Securities. Securities offered and sold to QIBs in
reliance on Rule 144A, as provided in the Purchase Agreement, shall be issued in
the form of one or more
-36-
<PAGE> 39
permanent global Securities in definitive, fully registered form without
Distribution coupons with the appropriate global legends and Restricted
Securities Legend set forth in Exhibit A-1 hereto (a "Global Capital Security"),
which shall be deposited on behalf of the purchasers of the Capital Securities
represented thereby with the Property Trustee, as custodian for the Clearing
Agency, and registered in the name of the Clearing Agency or a nominee of the
Clearing Agency, duly executed by the Trust and authenticated by the Property
Trustee as hereinafter provided. The number of Capital Securities represented by
the Global Capital Security may from time to time be increased or decreased by
adjustments made on the records of the Property Trustee and the Clearing Agency
or its nominee as hereinafter provided.
(c) Book-Entry Provisions. This Section 7.3(c) shall apply
only to the Global Capital Securities and such other Capital Securities in
global form as may be authorized by the Trust to be deposited with or on behalf
of the Clearing Agency.
The Administrative Trustees shall execute and the Property
Trustee shall, in accordance with this Section 7.3, authenticate and make
available for delivery initially one or more Global Capital Securities that (i)
shall be registered in the name of Cede & Co. or other nominee of such Clearing
Agency and (ii) shall be delivered by the Trustee to such Clearing Agency or
pursuant to such Clearing Agency's written instructions or held by the Property
Trustee as custodian for the Clearing Agency.
Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Declaration with respect to any
Global Capital Security held on their behalf by the Clearing Agency or by the
Property Trustee as the custodian of the Clearing Agency or under such Global
Capital Security, and the Clearing Agency may be treated by the Trust, the
Property Trustee and any agent of the Trust or the Property Trustee as the
absolute owner of such Global Capital Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in any
Global Capital Security.
(d) Definitive Capital Securities. Except as provided in
Section 7.9, owners of beneficial interests in a Global Capital Security will
not be entitled to receive physical delivery of certificated Capital Securities
("Definitive Capital Securities"). Purchasers of Securities who are "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) and who are not QIBs will receive Capital Securities in the form of
individual certificates in definitive, fully registered form without
distribution coupons and with the Restricted Securities Legend set forth in
Exhibit A-1 hereto ("Restricted Definitive Capital Securities"); provided,
however, that upon registration of transfer of such Restricted Definitive
Capital Securities to a QIB, such Restricted Definitive Capital Securities will,
unless the Global Capital Security has previously been exchanged, be exchanged
for an interest in a Global Capital Security pursuant to the provisions of
Section 9.2. Restricted Definitive Capital Securities will bear the Restricted
-37-
<PAGE> 40
Securities Legend set forth on Exhibit A-1 unless removed in accordance with
this Section 7.3 or Section 9.2.
SECTION 7.4 Registrar, Paying Agent and Exchange Agent.
The Trust shall maintain in the Borough of Manhattan, The City
of New York, (i) an office or agency where Capital Securities may be presented
for registration of transfer ("Registrar"), (ii) an office or agency where
Capital Securities may be presented for payment ("Paying Agent") and (iii) an
office or agency where Securities may be presented for exchange ("Exchange
Agent"). The Registrar shall keep a register of the Capital Securities and of
their transfer. The Trust may appoint the Registrar, the Paying Agent and the
Exchange Agent and may appoint one or more co-registrars, one or more additional
paying agents and one or more additional exchange agents in such other locations
as it shall determine. The term "Registrar" includes any additional registrar,
"Paying Agent" includes any additional paying agent and the term "Exchange
Agent" includes any additional exchange agent. The Trust may change any Paying
Agent, Registrar, co-registrar or Exchange Agent without prior notice to any
Holder. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Administrative Trustees. The Trust shall notify the
Property Trustee of the name and address of any Agent not a party to this
Declaration. If the Trust fails to appoint or maintain another entity as
Registrar, Paying Agent or Exchange Agent, the Property Trustee shall act as
such. The Trust or any of its Affiliates may act as Paying Agent, Registrar or
Exchange Agent. The Trust, through the Administrative Trustees, shall act as
Paying Agent, Registrar, co-registrar and Exchange Agent for the Common
Securities.
The Trust initially appoints the Property Trustee as
Registrar, Paying Agent and Exchange Agent for the Capital Securities.
SECTION 7.5 Paying Agent to Hold Money in Trust.
The Trust shall require each Paying Agent other than the
Property Trustee to agree in writing that the Paying Agent will hold in trust
for the benefit of Holders or the Property Trustee all money held by the Paying
Agent for the payment of liquidation amounts or Distributions on the Securities,
and will notify the Property Trustee if there are insufficient funds for such
purpose. While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee. The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it. Upon payment over
to the Property Trustee, the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.
SECTION 7.6 Replacement Securities.
-38-
<PAGE> 41
If the Holder of a Security claims that the Security has been
lost, destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, the Administrative Trustees on behalf of the Trust shall issue
and the Property Trustee shall authenticate a replacement Security if the
Property Trustee's requirements are met. An indemnity bond must be provided by
the Holder which, in the judgment of the Property Trustee, is sufficient to
protect the Trustees, the Sponsor or any authenticating agent from any loss
which any of them may suffer if a Security is replaced. The Trust may charge
such Holder for its expenses in replacing a Security.
Every replacement Security is an additional beneficial
interest in the Trust.
SECTION 7.7 Outstanding Capital Securities.
The Capital Securities outstanding at any time are all the
Capital Securities authenticated by the Property Trustee except for those
canceled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
If a Capital Security is replaced, paid or purchased pursuant
to Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Capital
Security is held by a bona fide purchaser.
If Capital Securities are considered paid in accordance with
the terms of this Declaration, they cease to be outstanding and Distributions on
them shall cease to accumulate.
A Capital Security does not cease to be outstanding because
one of the Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
SECTION 7.8 Capital Securities in Treasury.
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be fully
protected in relying on any such direction, waiver or consent, only Securities
which a Responsible Officer of the Property Trustee actually knows are so owned
shall be so disregarded.
-39-
<PAGE> 42
SECTION 7.9 Temporary Securities.
(a) Until Definitive Securities are ready for delivery, the
Trust may prepare and, in the case of the Capital Securities, the Property
Trustee shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of Definitive Securities but may have variations that
the Trust considers appropriate for temporary Securities. Without unreasonable
delay, the Trust shall prepare and, in the case of the Capital Securities, the
Property Trustee shall authenticate Definitive Securities in exchange for
temporary Securities.
(b) A Global Capital Security deposited with the Clearing
Agency or with the Property Trustee as custodian for the Clearing Agency
pursuant to Section 7.3 shall be transferred to the beneficial owners thereof in
the form of certificated Capital Securities only if such transfer complies with
Section 9.2 and (i) the Clearing Agency notifies the Company that it is
unwilling or unable to continue as Clearing Agency for such Global Capital
Security or if at any time such Clearing Agency ceases to be a "clearing agency"
registered under the Exchange Act and a clearing agency is not appointed by the
Sponsor within 90 days of such notice, (ii) a Default or an Event of Default has
occurred and is continuing or (iii) the Trust at its sole discretion elects to
cause the issuance of certificated Capital Securities.
(c) Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of certificated Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee located in the Borough of Manhattan, The City of New York, to
be so transferred, in whole or from time to time in part, without charge, and
the Property Trustee shall authenticate and make available for delivery, upon
such transfer of each portion of such Global Capital Security, an equal
aggregate liquidation amount of Securities of authorized denominations in the
form of certificated Capital Securities. Any portion of a Global Capital
Security transferred pursuant to this Section shall be registered in such names
as the Clearing Agency shall direct. Any Capital Security in the form of
certificated Capital Securities delivered in exchange for an interest in the
Restricted Global Capital Security shall, except as otherwise provided by
Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit
A-1 hereto.
(d) Subject to the provisions of Section 7.9(c), the Holder of
a Global Capital Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Declaration
or the Securities.
(e) In the event of the occurrence of any of the events
specified in Section 7.9(b), the Trust will promptly make available to the
Property Trustee a reasonable supply of certificated Capital Securities in fully
registered form without distribution coupons.
-40-
<PAGE> 43
SECTION 7.10 Cancellation.
The Trust at any time may deliver Capital Securities to the
Property Trustee for cancellation. The Registrar, Paying Agent and Exchange
Agent shall forward to the Property Trustee any Capital Securities surrendered
to them for registration of transfer, redemption, exchange or payment. The
Property Trustee shall promptly cancel all Capital Securities, surrendered for
registration of transfer, redemption, exchange, payment, replacement or
cancellation and shall dispose of canceled Capital Securities in accordance with
its customary procedures unless any Administrative Trustee otherwise directs the
Property Trustee in writing. The Trust may not issue new Capital Securities to
replace Capital Securities that it has paid or that have been delivered to the
Property Trustee for cancellation or that any Holder has exchanged.
SECTION 7.11 CUSIP Numbers.
The Trust in issuing the Capital Securities may use "CUSIP"
numbers (if then generally in use), and, if so, the Property Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property Trustee
of any change in the "CUSIP" numbers.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
(a) The Trust shall automatically terminate:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor; or the
revocation of the Sponsor's charter and the expiration of 90 days after
the date of revocation without a reinstatement thereof;
(iii) following the distribution of a Like Amount of the
Debentures to the Holders of the Securities, provided that the Property
Trustee has received written notice from the Sponsor directing the
Property Trustee to terminate the Trust (which direction is optional,
and except as otherwise expressly provided below, within the discretion
of the Sponsor) and provided, further, that such direction and such
distribution is conditioned on the Administrative Trustees' receipt of
an opinion of an independent tax counsel experienced in such matters (a
"No Recognition Opinion"), which opinion may
-41-
<PAGE> 44
rely on published rulings of the Internal Revenue Service, to the
effect that the Holders of the Securities will not recognize any gain
or loss for United States federal income tax purposes as a result of
the dissolution of the Trust and the distribution of Debentures;
(iv) upon the entry of a decree of judicial dissolution
of the Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called
for redemption and the amounts necessary for redemption thereof shall
have been paid to the Holders in accordance with the terms of the
Securities;
(vi) upon the repayment of the Debentures or at such
time as no Debentures are outstanding; or
(vii) the expiration of the term of the Trust provided
in Section 3.14.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), the Administrative Trustees shall file a
certificate of cancellation with the Secretary of State of the State of
Delaware.
(c) The provisions of Section 3.9 and Article X shall survive
the termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any Capital
Security not made in accordance with this Declaration shall be null and void.
(c) The Sponsor may not transfer the Common Securities.
(d) The Property Trustee shall provide for the registration of
Capital Securities and of the transfer of Capital Securities, which will be
effected without charge but only upon payment (with such indemnity as the
Property Trustee may require) in respect of any
-42-
<PAGE> 45
tax or other governmental charges that may be imposed in relation to it. Upon
surrender for registration of transfer of any Capital Securities, the Property
Trustee shall cause one or more new Capital Securities to be issued in the name
of the designated transferee or transferees. Every Capital Security surrendered
for registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Property Trustee duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Capital
Security surrendered for registration of transfer shall be delivered to the
Property Trustee and canceled in accordance with Section 7.10. A transferee of a
Capital Security shall be entitled to the rights and subject to the obligations
of a Holder hereunder upon the receipt by such transferee of a Capital Security.
By acceptance of a Capital Security, each transferee shall be deemed to have
agreed to be bound by this Declaration.
SECTION 9.2 Transfer Procedures and Restrictions.
(a) General. Except as otherwise provided in Section 9.2(b),
if Capital Securities are issued upon the registration of transfer, exchange or
replacement of Capital Securities bearing the Restricted Securities Legend set
forth in Exhibit A-1 hereto, or if a request is made to remove such Restricted
Securities Legend on Capital Securities, the Capital Securities so issued shall
bear the Restricted Securities Legend, or the Restricted Securities Legend shall
not be removed, as the case may be, unless there is delivered to the Trust and
the Property Trustee such satisfactory evidence, which shall include an Opinion
of Counsel, as may be reasonably required by the Trust and the Property Trustee,
that neither the legend nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof are made pursuant to an exception from
the registration requirements of the Securities Act or, with respect to
Restricted Securities, that such Securities are not "restricted" within the
meaning of Rule 144. Upon provision of such satisfactory evidence, the Property
Trustee, at the written direction of the Trust, shall authenticate and deliver
Capital Securities that do not bear the legend.
(b) Transfers After Effectiveness of a Registration Statement.
After the effectiveness of a Registration Statement with respect to any Capital
Securities, all requirements pertaining to legends on such Capital Securities
will cease to apply, and beneficial interests in a Capital Security in global
form without legends will be available to transferees of such Capital
Securities, upon exchange of the transferring Holder's Restricted Definitive
Capital Security or directions to transfer such Holder's beneficial interest in
the Global Capital Security. No such transfer or exchange of a Restricted
Definitive Capital Security or of an interest in the Global Capital Security
shall be effective unless the transferor delivers to the Property Trustee a
certificate in a form substantially similar to that attached hereto as the "Form
of Assignment" in Exhibit A-1. Except as otherwise provided in Section 9.2(m),
after the effectiveness of a Registration Statement, the Trust shall issue and
the Property Trustee, upon a written order of the Trust signed by one
Administrative Trustee, shall authenticate a Capital Security in global form
without the Restricted Securities Legend (the "Unrestricted Global Capital
Security") to deposit with the Clearing Agency to evidence transfers of
beneficial interests from the (i) Global Capital Security and (ii) Restricted
Definitive Capital Securities.
-43-
<PAGE> 46
(c) Transfer and Exchange of Definitive Capital Securities.
When Definitive Capital Securities are presented to the Registrar or
co-registrar
(x) to register the transfer of such Definitive
Capital securities or
(y) to exchange such Definitive Capital Securities
which became mutilated, destroyed, defaced, stolen or lost, for an
equal number of Definitive Capital Securities,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Capital Securities surrendered for
registration of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Trust and
the Registrar or co-registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing; and
(ii) in the case of Definitive Capital Securities that
are Restricted Definitive Capital Securities:
(A) if such Restricted Capital
Securities are being delivered to the Registrar by a
Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to
that effect; or
(B) if such Restricted Capital
Securities are being transferred: (i) a certification
from the transferor in a form substantially similar
to that attached hereto as the "Form of Assignment"
in Exhibit A-1, and (ii) if the Trust or Registrar so
requests, evidence reasonably satisfactory to them as
to the compliance with the restrictions set forth in
the Restricted Securities Legend.
(d) Restrictions on Transfer of a Definitive Capital Security
for a Beneficial Interest in a Global Capital Security. A Definitive Capital
Security may not be exchanged for a beneficial interest in a Global Capital
Security except upon satisfaction of the requirements set forth below. Upon
receipt by the Property Trustee of a Definitive Capital Security, duly endorsed
or accompanied by appropriate instruments of transfer, in form satisfactory to
the Property Trustee, together with:
(i) if such Definitive Capital Security is a Restricted
Capital Security, certification from the transferor in a form
substantially similar to that attached hereto as the "Form of
Assignment" in Exhibit A-1; and
(ii) whether or not such Definitive Capital Security is
a Restricted Capital Security, written instructions directing the
Property Trustee to make, or to direct
-44-
<PAGE> 47
the Clearing Agency to make, an adjustment on its books and records
with respect to the appropriate Global Capital Security to reflect an
increase in the number of the Capital Securities represented by such
Global Capital Security;
then the Property Trustee shall cancel such Definitive Capital Security and
cause, or direct the Clearing Agency to cause, the aggregate number of Capital
Securities represented by the appropriate Global Capital Security to be
increased accordingly. If no Global Capital Securities are then outstanding, the
Trust shall issue and the Property Trustee shall authenticate, upon written
order of any Administrative Trustee, an appropriate number of Capital Securities
in global form.
(e) Transfer and Exchange of Global Capital Securities.
Subject to Section 9.02(f), the transfer and exchange of Global Capital
Securities or beneficial interests therein shall be effected through the
Clearing Agency, in accordance with this Declaration (including applicable
restrictions on transfer set forth herein, if any) and the procedures of the
Clearing Agency therefor.
(f) Transfer of a Beneficial Interest in a Global Capital
Security for a Definitive Capital Security.
(i) Any Person having a beneficial interest in a Global
Capital Security may upon request, but only upon 20 days prior notice
to the Property Trustee, and if accompanied by the information
specified below, exchange such beneficial interest for a Definitive
Capital Security representing the same number of Capital Securities.
Upon receipt by the Property Trustee from the Clearing Agency or its
nominee on behalf of any Person having a beneficial interest in a
Global Capital Security of written instructions or such other form of
instructions as is customary for the Clearing Agency or the Person
designated by the Clearing Agency as having such a beneficial interest
in a Restricted Capital Security and a certification from the
transferor (in a form substantially similar to that attached hereto as
the "Form of Assignment" in Exhibit A-1), which may be submitted by
facsimile, then the Property Trustee will cause the aggregate number of
Capital Securities represented by Global Capital Securities to be
reduced on its books and records and, following such reduction, the
Trust will execute and the Property Trustee will authenticate and make
available for delivery to the transferee a Definitive Capital Security.
(ii) Definitive Capital Securities issued in exchange
for a beneficial interest in a Global Capital Security pursuant to this
Section 9.2(f) shall be registered in such names and in such authorized
denominations as the Clearing Agency, pursuant to instructions from its
Participants or indirect participants or otherwise, shall instruct the
Property Trustee in writing. The Property Trustee shall deliver such
Capital Securities to the Persons in whose names such Capital
Securities are so registered in accordance with such instructions of
the Clearing Agency.
-45-
<PAGE> 48
(g) Restrictions on Transfer and Exchange of Global Capital
Securities. Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in subsection (h) of this Section 9.2), a Global
Capital Security may not be transferred as a whole except by the Clearing Agency
to a nominee of the Clearing Agency or another nominee of the Clearing Agency or
by the Clearing Agency or any such nominee to a successor Clearing Agency or a
nominee of such successor Clearing Agency.
(h) Authentication of Definitive Capital Securities. If at any
time:
(i) there occurs a Default or an Event of Default which
is continuing; or
(ii) the Trust, in its sole discretion, notifies the
Property Trustee in writing that it elects to cause the issuance of
Definitive Capital Securities under this Declaration;
then the Trust will execute, and the Property Trustee, upon receipt of a written
order of the Trust signed by one Administrative Trustee requesting the
authentication and delivery of Definitive Capital Securities to the Persons
designated by the Trust, will authenticate and make available for delivery
Definitive Capital Securities, equal in number to the number of Capital
Securities represented by the Global Capital Securities, in exchange for such
Global Capital Securities.
(i) Legend.
(i) Except as permitted by the following paragraph (ii),
each Capital Security certificate evidencing the Global Capital
Securities and the Definitive Capital Securities (and all Capital
Securities issued in exchange therefor or substitution thereof) shall
bear a legend (the "Restricted Securities Legend") in substantially the
following form:
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES
LAW. NEITHER THIS CAPITAL SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL
SECURITY, PRIOR
-46-
<PAGE> 49
TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH
IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS CAPITAL
SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) ONLY
(A) TO THE COMPANY (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"),
TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO
THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
(ii) PURSUANT TO CLAUSE (D), TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS CAPITAL
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
-47-
<PAGE> 50
(ii) Upon any sale or transfer of a Restricted Capital
Security (including any Restricted Capital Security represented by a
Global Capital Security) pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144 under the
Securities Act after such registration statement ceases to be
effective:
(A) in the case of any Restricted Capital Security
that is a Definitive Capital Security, the Registrar shall
permit the Holder thereof to exchange such Restricted Capital
Security for a Definitive Capital Security that does not bear
the Restricted Securities Legend and rescind any restriction
on the transfer of such Restricted Capital Security; and
(B) in the case of any Restricted Capital Security
that is represented by a Global Capital Security, the
Registrar shall permit the Holder of such Global Capital
Security to exchange such Global Capital Security for another
Global Capital Security that does not bear the Restricted
Securities Legend.
(j) Cancellation or Adjustment of Global Capital Security. At
such time as all beneficial interests in a Global Capital Security have either
been exchanged for Definitive Capital Securities to the extent permitted by this
Declaration or redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Capital Security shall be canceled by the Property
Trustee. At any time prior to such cancellation, if any beneficial interest in a
Global Capital Security is exchanged for Definitive Capital Securities, Capital
Securities represented by such Global Capital Security shall be reduced and an
adjustment shall be made on the books and records of the Property Trustee (if it
is then the custodian for such Global Capital Security) with respect to such
Global Capital Security, by the Property Trustee or the Securities Custodian, to
reflect such reduction.
(k) Obligations with Respect to Transfers and Exchanges of
Capital Securities.
(i) To permit registrations of transfers and exchanges,
the Trust shall execute and the Property Trustee shall authenticate
Definitive Capital Securities and Global Capital Securities at the
Registrar's or co-registrar's request in accordance with the terms of
this Declaration.
(ii) Registrations of transfers or exchanges will be
effected without charge, but only upon payment (with such indemnity as
the Trust or the Sponsor may require) in respect of any tax or other
governmental charge that may be imposed in relation to it.
(iii) The Registrar or co-registrar shall not be required
to register the transfer of or exchange (a) Capital Securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Capital
Securities for redemption and ending at the close of business on the
-48-
<PAGE> 51
day of such mailing; or (b) any Capital Security so selected for
redemption in whole or in part, except the unredeemed portion of any
Capital Security being redeemed in part.
(iv) Prior to the due presentation for registration of
transfer of any Capital Security, the Trust, the Property Trustee, the
Paying Agent, the Registrar or any co-registrar may deem and treat the
Person in whose name a Capital Security is registered as the absolute
owner of such Capital Security for the purpose of receiving
Distributions on such Capital Security and for all other purposes
whatsoever, and none of the Trust, the Property Trustee, the Paying
Agent, the Registrar or any co-registrar shall be affected by notice to
the contrary.
(v) All Capital Securities issued upon any registration
of transfer or exchange pursuant to the terms of this Declaration shall
evidence the same security and shall be entitled to the same benefits
under this Declaration as the Capital Securities surrendered upon such
registration of transfer or exchange.
(l) No Obligation of the Property Trustee.
(i) The Property Trustee shall have no responsibility
or obligation to any beneficial owner of a Global Capital Security, a
Participant in the Clearing Agency or other Person with respect to the
accuracy of the records of the Clearing Agency or its nominee or of any
Participant thereof, with respect to any ownership interest in the
Capital Securities or with respect to the delivery to any Participant,
beneficial owner or other Person (other than the Clearing Agency) of
any notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Capital Securities. All notices
and communications to be given to the Holders and all payments to be
made to Holders under the Capital Securities shall be given or made
only to or upon the order of the registered Holders (which shall be the
Clearing Agency or its nominee in the case of a Global Capital
Security). The rights of beneficial owners in any Global Capital
Security shall be exercised only through the Clearing Agency subject to
the applicable rules and procedures of the Clearing Agency. The
Property Trustee may conclusively rely and shall be fully protected in
relying upon information furnished by the Clearing Agency or any agent
thereof with respect to its Participants and any beneficial owners.
(ii) The Property Trustee and Registrar shall have no
obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under this Declaration or
under applicable law with respect to any transfer of any interest in
any Capital Security (including any transfers between or among Clearing
Agency Participants or beneficial owners in any Global Capital
Security) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if
and when expressly required by, the terms of this Declaration, and to
examine the same to determine substantial compliance as to form with
the express requirements hereof.
-49-
<PAGE> 52
(m) Exchange of Series A Capital Securities for Series B
Capital Securities. The Series A Capital Securities may be exchanged for Series
B Capital Securities pursuant to the terms of the Exchange Offer. The Property
Trustee shall make the exchange as follows:
The Sponsor shall present the Property Trustee with an
Officers' Certificate certifying the following:
(A) upon issuance of the Series B Capital Securities,
the transactions contemplated by the Exchange Offer have been
consummated; and
(B) the number of Series A Capital Securities
properly tendered in the Exchange Offer that are represented
by a Global Capital Security and the number of Series A
Capital Securities properly tendered in the Exchange Offer
that are represented by Definitive Capital Securities, the
name of each Holder of such Definitive Capital Securities, the
liquidation amount of Capital Securities properly tendered in
the Exchange Offer by each such Holder and the name and
address to which Definitive Capital Securities for Series B
Capital Securities shall be registered and sent for each such
Holder.
The Property Trustee, upon receipt of (i) such Officers'
Certificate, (ii) an Opinion of Counsel (x) to the effect that the Series B
Capital Securities have been registered under Section 5 of the Securities Act
and the Indenture has been qualified under the Trust Indenture Act and (y) with
respect to the matters set forth in Section 3(p) of the Registration Rights
Agreement and (iii) a Company Order, shall authenticate (A) a Global Capital
Security for Series B Capital Securities in aggregate liquidation amount equal
to the aggregate liquidation amount of Series A Capital Securities represented
by a Global Capital Security indicated in such Officers' Certificate as having
been properly tendered and (B) Definitive Capital Securities representing Series
B Capital Securities registered in the names and in the liquidation amounts,
indicated in such Officers' Certificate.
If, upon consummation of the Exchange Offer, less than all the
outstanding Series A Capital Securities shall have been properly tendered and
not withdrawn, the Property Trustee shall make an endorsement on the Global
Capital Security for Series A Capital Securities indicating the reduction in the
number and aggregate liquidation amount represented thereby as a result of the
Exchange Offer.
The Trust shall deliver such Definitive Capital Securities for
Series B Capital Securities to the Holders thereof as indicated in such
Officers' Certificate.
(n) Minimum Transfers. Series A Capital Securities may only be
transferred in minimum blocks of $100,000 aggregate liquidation amount until
such Series A Capital Securities are registered pursuant to an effective
registration statement filed under the Securities Act.
-50-
<PAGE> 53
SECTION 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Security
shall be registered on the books and records of the Trust as the sole owner of
such Security for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Security on the part of any Person, whether
or not the Trust shall have actual or other notice thereof.
SECTION 9.4 Book Entry Interests.
Global Capital Securities shall initially be registered on the
books and records of the Trust in the name of Cede & Co., the nominee of the
Clearing Agency, and no Capital Security Beneficial Owner will receive a
definitive certificate for a Capital Security (a "Capital Security Certificate")
representing such Capital Security Beneficial Owner's interests in such Global
Capital Securities, except as provided in Section 9.2. Unless and until
definitive, fully registered Capital Securities certificates have been issued to
the Capital Security Beneficial Owners pursuant to Section 9.2:
(a) the provisions of this Section 9.4 shall be in full force
and effect;
(b) the Trust and the Trustees shall be entitled to deal with
the Clearing Agency for all purposes of this Declaration (including the payment
of Distributions on the Global Capital Securities and receiving approvals, votes
or consents hereunder) as the Holder of the Capital Securities and the sole
holder of the Global Certificates and shall have no obligation to the Capital
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4
conflict with any other provisions of this Declaration, the provisions of this
Section 9.4 shall control; and
(d) the rights of the Capital Security Beneficial Owners shall
be exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants. DTC will make book entry transfers among the
Clearing Agency Participants.
SECTION 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Capital
Security Holders is required under this Declaration, the Trustees shall give all
such notices and communications specified herein to be given to the Holders of
the Global Capital Security to the Clearing Agency, and shall have no notice
obligations to the Capital Security Beneficial Owners.
-51-
<PAGE> 54
SECTION 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Capital Securities.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of
the capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; and
(ii) be required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and
obligations of the Trust (other than with respect to the Securities) to the
extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Capital Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes
-52-
<PAGE> 55
are within such other Person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Trust, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, profits, losses, or any other facts pertinent to the
existence and amount of assets from which Distributions to Holders of Securities
might properly be paid.
SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to any other Covered Person, an Indemnified Person acting under
this Declaration shall not be liable to the Trust or to any other Covered Person
for its good faith reliance on the provisions of this Declaration. The
provisions of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity
(other than the duties imposed on the Property Trustee under the Trust Indenture
Act), are agreed by the parties hereto to replace such other duties and
liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between any Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Securities;
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own interests, and
shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Trust or any other Person; or
-53-
<PAGE> 56
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under such express standard
and shall not be subject to any other or different standard imposed by
this Declaration or by applicable law.
SECTION 10.4 Indemnification.
(a) (i) The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Company Indemnified Person against expenses (including
attorneys' fees and expenses), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Company
Indemnified Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a
judgment in its favor by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees and
expenses) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust and except that no such indemnification
shall be made in respect of any claim, issue or matter as to which such
Company Indemnified Person shall have been adjudged to be liable to the
Trust unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such Person is fairly
and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person
shall be successful on the merits or otherwise (including dismissal of
an action without prejudice or the settlement of an action without
admission of liability) in defense of any action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in
defense of any claim, issue or matter therein, he shall be indemnified,
to the full extent permitted by
-54-
<PAGE> 57
law, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii)
of this Section 10.4(a) (unless ordered by a court) shall be made by
the Sponsor only as authorized in the specific case upon a
determination that indemnification of the Company Indemnified Person is
proper in the circumstances because he has met the applicable standard
of conduct set forth in paragraphs (i) and (ii). Such determination
shall be made (1) by the Administrative Trustees by a majority vote of
a quorum consisting of such Administrative Trustees who were not
parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested
Administrative Trustees so directs, by independent legal counsel in a
written opinion, or (3) by the Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses)
incurred by a Company Indemnified Person in defending a civil,
criminal, administrative or investigative action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be
paid by the Sponsor in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of
such Company Indemnified Person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by
the Sponsor as authorized in this Section 10.4(a). Notwithstanding the
foregoing, no advance shall be made by the Sponsor if a determination
is reasonably and promptly made (i) by the Administrative Trustees by a
majority vote of a quorum of disinterested Administrative Trustees,
(ii) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion or (iii) the Common
Security Holder of the Trust, that, based upon the facts known to the
Administrative Trustees, counsel or the Common Security Holder at the
time such determination is made, such Company Indemnified Person acted
in bad faith or in a manner that such Person did not believe to be in
or not opposed to the best interests of the Trust, or, with respect to
any criminal proceeding, that such Company Indemnified Person believed
or had reasonable cause to believe his conduct was unlawful. In no
event shall any advance be made in instances where the Administrative
Trustees, independent legal counsel or Common Security Holder
reasonably determine that such Person deliberately breached his duty to
the Trust or its Common or Capital Security Holders.
(vi) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this
Section 10.4(a) shall not be deemed exclusive of any other rights to
which those seeking indemnification and advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested
directors of the Sponsor or Capital Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office. All rights to
indemnification under this Section 10.4(a) shall be deemed to be
provided by a contract between the Sponsor and each Company Indemnified
Person who
-55-
<PAGE> 58
serves in such capacity at any time while this Section 10.4(a) is in
effect. Any repeal or modification of this Section 10.4(a) shall not
affect any rights or obligations then existing.
(vii) The Sponsor or the Trust may purchase and maintain
insurance on behalf of any Person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or
not the Debenture Issuer would have the power to indemnify him against
such liability under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to
"the Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any Person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Section 10.4(a) with respect to the resulting or
surviving entity as he would have with respect to such constituent
entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 10.4(a) shall, unless
otherwise provided when authorized or ratified, continue as to a Person
who has ceased to be a Company Indemnified Person and shall inure to
the benefit of the heirs, executors and administrators of such a
Person.
(b) The Sponsor agrees to indemnify, to full extent permitted
by law, the (i) Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate
of the Property Trustee or the Delaware Trustee, and (iv) any officers,
directors, shareholders, members, partners, employees, representatives,
custodians, nominees or agents of the Property Trustee or the Delaware Trustee
(each of the Persons in (i) through (iv) being referred to as a "Fiduciary
Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless
against, any and all loss, liability, damage, claim or expense including taxes
(other than taxes based on the income of such Fiduciary Indemnified Person)
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against or investigating any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 10.4(b)
shall survive the resignation or removal of the Property Trustee or the Delaware
Trustee and the satisfaction and discharge of this Declaration.
SECTION 10.5 Compensation of Property Trustee and Delaware Trustee.
The Sponsor agrees to pay the Property Trustee and the
Delaware Trustee, from time to time such compensation for all services rendered
by the Property Trustee and the
-56-
<PAGE> 59
Delaware Trustee hereunder as may be mutually agreed upon in writing by the
Sponsor and the Property Trustee or the Delaware Trustee, as the case may be,
and, except as otherwise expressly provided herein, to reimburse the Property
Trustee and the Delaware Trustee upon its or their request for all reasonable
expenses, disbursements and advances incurred or made by the Property Trustee or
the Delaware Trustee, as the case may be, in accordance with the provisions of
this Declaration, except any such expense, disbursement or advance as may be
attributable to its or their negligence or bad faith.
SECTION 10.6 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee, or the Property Trustee shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and any
Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall
have the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee
may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee
or agent for, or act on any committee or body of holders of, securities or other
obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the
calendar year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust
-57-
<PAGE> 60
shall be examined by and reported upon as of the end of each Fiscal Year of the
Trust by a firm of independent certified public accountants selected by the
Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss;
(c) The Administrative Trustees shall cause to be duly
prepared and delivered to each of the Holders of Securities, any annual United
States federal income tax information statement, required by the Code,
containing such information with regard to the Securities held by each Holder as
is required by the Code and the Treasury Regulations. Notwithstanding any right
under the Code to deliver any such statement at a later date, the Administrative
Trustees shall endeavor to deliver all such information statements within 30
days after the end of each Fiscal Year of the Trust.
(d) The Administrative Trustees shall cause to be duly
prepared and filed with the appropriate taxing authority, an annual United
States federal income tax return, on a Form 1041 or such other form required by
United States federal income tax law, and any other annual income tax returns
required to be filed by the Administrative Trustees on behalf of the Trust with
any state or local taxing authority.
SECTION 11.3 Banking.
The Trust shall maintain one or more bank accounts in the name
and for the sole benefit of the Trust; provided, however, that all payments of
funds in respect of the Debentures held by the Property Trustee shall be made
directly to the Property Trustee Account and no other funds of the Trust shall
be deposited in the Property Trustee Account. The sole signatories for such
accounts shall be designated by the Administrative Trustees; provided, however,
that the Property Trustee shall designate the signatories for the Property
Trustee Account.
SECTION 11.4 Withholding.
The Trust and the Administrative Trustees shall comply with
all withholding requirements under United States federal, state and local law.
The Trust shall request, and the Holders shall provide to the Trust, such forms
or certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to Distributions or allocations to any Holder, the amount withheld shall
be deemed to be a Distribution in the amount of the withholding to the Holder.
In the event of any claimed over
-58-
<PAGE> 61
withholding, Holders shall be limited to an action against the applicable
jurisdiction. If the amount required to be withheld was not withheld from actual
Distributions made, the Trust may reduce subsequent Distributions by the amount
of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Administrative Trustees (or, if there are more
than two Administrative Trustees, a majority of the Administrative
Trustees);
(ii) if the amendment affects the rights, powers,
duties, obligations or immunities of the Property Trustee, the Property
Trustee; and
(iii) if the amendment affects the rights, powers,
duties, obligations or immunities of the Delaware Trustee, the Delaware
Trustee.
(b) No amendment shall be made, and any such purported
amendment shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an Officers' Certificate
from each of the Trust and the Sponsor that such amendment is permitted
by, and conforms to, the terms of this Declaration (including the terms
of the Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Property Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust
and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the
terms of the Securities); and
(B) an Opinion of Counsel (who may be counsel to the
Sponsor or the Trust) that
(x) such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Securities) and
-59-
<PAGE> 62
(y) all conditions precedent to the
execution and delivery of such amendment have been satisfied;
provided, however, that the Property Trustee shall not be required to
sign any such amendment, and
(iii) to the extent the result of such amendment would
be to:
(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income
taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers
of the Property Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an Investment
Company required to be registered under the Investment Company
Act;
(c) At such time after the Trust has issued any Securities
that remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities;
(e) Article Four shall not be amended without the consent of
the Holders of a Majority in liquidation amount of the Common Securities;
(f) The rights of the holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove Trustees
shall not be amended without the consent of the Holders of a Majority in
liquidation amount of the Common Securities; and
(g) Notwithstanding Section 12.1(c), this Declaration may be
amended without the consent of the Holders of the Securities to:
(i) cure any ambiguity, correct or supplement any
provision in this Declaration that may be inconsistent with any other
provision of this Declaration or to make any other provisions with
respect to matters or questions arising under this Declaration which
shall not be inconsistent with the other provisions of the Declaration;
and
(ii) to modify, eliminate or add to any provisions of
the Declaration to such extent as shall be necessary to ensure that the
Trust will be classified for United
-60-
<PAGE> 63
States federal income tax purposes as a grantor trust at all times that
any Securities are outstanding or to ensure that the Trust will not be
required to register as an Investment Company under the Investment
Company Act;
provided, however, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of the Holders of the
Securities, and any amendments of this Declaration shall become effective when
notice thereof is given to the Holders of the Securities.
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be
called at any time by the Administrative Trustees (or as provided in the terms
of the Securities) to consider and act on any matter on which Holders of such
class of Securities are entitled to act under the terms of this Declaration, the
terms of the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading. The Administrative Trustees shall
call a meeting of the Holders of such class if directed to do so by the Holders
of at least 10% in liquidation amount of such class of Securities. Such
direction shall be given by delivering to the Administrative Trustees one or
more notices in a writing stating that the signing Holders of Securities wish to
call a meeting and indicating the general or specific purpose for which the
meeting is to be called. Any Holders of Securities calling a meeting shall
specify in writing the Security certificates held by the Holders of Securities
exercising the right to call a meeting and only those Securities specified shall
be counted for purposes of determining whether the required percentage set forth
in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of
the Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all
the Holders of Securities having a right to vote thereat at least seven
days and not more than 60 days before the date of such meeting.
Whenever a vote, consent or approval of the Holders of Securities is
permitted or required under this Declaration or the rules of any stock
exchange on which the Capital Securities are listed or admitted for
trading, such vote, consent or approval may be given at a meeting of
the Holders of Securities. Any action that may be taken at a meeting of
the Holders of Securities may be taken without a meeting if a consent
in writing setting forth the action so taken is signed by the Holders
of Securities owning not less than the minimum amount of Securities in
liquidation amount that would be necessary to authorize or take such
action at a meeting at which all Holders of Securities having a right
to vote thereon were present and voting. Prompt notice of the taking of
action without a meeting shall be given to the Holders of Securities
entitled to vote who have not consented in writing. The Administrative
Trustees may specify that any written ballot submitted to the Security
Holder for the purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the Administrative
Trustees;
-61-
<PAGE> 64
(ii) each Holder of a Security may authorize any Person
to act for it by proxy on all matters in which a Holder of Securities
is entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
Holder of Securities executing it. Except as otherwise provided herein,
all matters relating to the giving, voting or validity of proxies shall
be governed by the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder, as if the
Trust were a Delaware corporation and the Holders of the Securities
were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities
shall be conducted by the Administrative Trustees or by such other
Person that the Administrative Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration,
the terms of the Securities, the Trust Indenture Act or the listing
rules of any stock exchange on which the Capital Securities are then
listed or trading, otherwise provides, the Administrative Trustees, in
their sole discretion, shall establish all other provisions relating to
meetings of Holders of Securities, including notice of the time, place
or purpose of any meeting at which any matter is to be voted on by any
Holders of Securities, waiver of any such notice, action by consent
without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking corporation
with trust powers and authority to execute and deliver, and to carry out and
perform its obligations under the terms of, this Declaration;
(b) The execution, delivery and performance by the Property
Trustee of this Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. This Declaration has been duly
executed and delivered by the Property Trustee and constitutes a legal, valid
and binding obligation of the Property Trustee, enforceable against
-62-
<PAGE> 65
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such remedies
is considered in a proceeding in equity or at law);
(c) The execution, delivery and performance of this
Declaration by the Property Trustee does not conflict with or constitute a
breach of the charter or by-laws of the Property Trustee; and
(d) No consent, approval or authorization of, or registration
with or notice to, any New York State or federal banking authority is required
for the execution, delivery or performance by the Property Trustee of this
Declaration.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is duly organized, validly existing
and in good standing under the laws of the State of Delaware, with trust power
and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration:
(b) The execution, delivery and performance by the Delaware
Trustee of this Declaration has been duly authorized by all necessary corporate
action on the part of the Delaware Trustee. This Declaration has been duly
executed and delivered by the Delaware Trustee and constitutes a legal, valid
and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law);
(c) No consent, approval or authorization of, or registration
with or notice to, any federal or Delaware banking authority is required for the
execution, delivery or performance by the Delaware Trustee of this Declaration;
and
(d) The Delaware Trustee is a natural person who is a resident
of the State of Delaware or, if not a natural person, an entity which has its
principal place of business in the State of Delaware.
-63-
<PAGE> 66
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 REGISTRATION RIGHTS AGREEMENT; LIQUIDATED DAMAGES.
The Holders of the Series A Capital Securities, the Series A
Debentures and the Series A Capital Securities Guarantee (collectively, the
"Registrable Securities") are entitled to the benefits of a Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Sponsor and the
Trust have agreed for the benefit of the Holders of Registrable Securities that,
unless otherwise provided in the Registration Rights Agreement: (i) they will,
at the Sponsor's cost, within 150 days after December 17, 1996 (the "Issue
Date"), file a Registration Statement (the "Exchange Registration Statement")
relating an Exchange Offer pursuant to which each issuer of such respective
Registrable Securities would issue amounts of such Registrable Securities as are
accepted in the Exchange Offer which shall be identical in all respects to those
exchanged, except they will have been registered under the Securities Act and
will no longer be subject to transfer restrictions under the Securities Act or
the $100,000 minimum aggregate principal or liquidation amount transfer
restriction and, if required pursuant to the terms of the Registration Rights
Agreement, file a shelf registration statement (the "Shelf Registration
Statement") with the Commission with respect to resales of the Registrable
Securities, (ii) they will use their best efforts to cause such Exchange
Registration Statement and/or Shelf Registration Statement, as the case
requires, to be declared effective by the Commission within 180 days after the
Issue Date and (iii) they will use their best efforts to maintain the Shelf
Registration Statement, if any, continuously effective under the Securities Act
until the third anniversary of the effectiveness of the Shelf Registration
Statement or such earlier date as is provided in the Registration Rights
Agreement (the "Effectiveness Period"). All references herein to such
Registrable Securities shall be deemed to include, as the context may require,
the Registrable Securities into which such Securities have been exchanged
pursuant to the Exchange Offer ("Exchange Securities") and all reference to
numbers or amounts of such Securities shall be deemed to include, as the context
may require, such Exchanged Securities. Capitalized terms used in this Article
XIV but not otherwise defined herein shall have the meanings ascribed to such
terms in the Registration Rights Agreement.
If (i) (A) neither the Exchange Offer Registration Statement
nor a Shelf Registration Statement is filed with the Commission on or prior to
the 150th day after the Issue Date or (B) notwithstanding that the Debenture
Issuer and the Trust have consummated or will consummate an Exchange Offer, the
Debenture Issuer and the Trust are required to file a Shelf Registration
Statement and such Shelf Registration Statement is not filed on or prior to the
date required by the Registration Rights Agreement, then commencing on the day
after the applicable required filing date, additional Distributions shall
accumulate on the liquidation amount of the Capital Securities at a rate of
0.25% per annum; or
(ii) (A) neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement is declared effective by
the Commission on or prior to the 30th day after the applicable
required filing date or (B) notwithstanding that the Debenture
-64-
<PAGE> 67
Issuer and the Trust have consummated or will consummate an Exchange
Offer, the Debenture Issuer and the Trust are required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 30th day after
the date such Shelf Registration Statement was required to be filed,
then, commencing on the 31st day after the applicable required filing
date, additional Distributions shall accumulate on the liquidation
amount of the Capital Securities at a rate of 0.25% per annum; or
(iii) (A) the Trust has not exchanged Exchange Capital
Securities for all Capital Securities or the Debenture Issuer has not
exchanged Exchange Guarantees or Exchange Subordinated Debentures for
all Guarantees or Subordinated Debentures validly tendered, in
accordance with the terms of the Exchange Offer on or prior to the 30th
day after the date on which the Exchange Offer Registration Statement
was declared effective or (B) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the expiration of
the Rule 144 (k) Period (other than after such time as all Capital
Securities have been disposed of thereunder or otherwise cease to be
Registrable Securities), additional Distributions shall accumulate on
the liquidation amount of the Capital Securities at a rate of 0.25% per
annum commencing on (x) the 31st day after such effective date, in the
case of (A) above, or (y) the day such Shelf Registration Statement
ceases to be effective in the case of (B) above;
provided, however, that the additional Distributions rate on the liquidation
amount of the Capital Securities may not exceed in the aggregate 0.25% per
annum; provided, further, however, that (1) upon the filing of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
clause (i) above), (2) upon the effectiveness of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of clause (ii) above),
or (3) upon the exchange of Exchange Capital Securities, Exchange Guarantees and
Exchange Subordinated Debentures for all Capital Securities, Guarantees and
Subordinated Debentures tendered (in the case of clause (iii)(A) above), or upon
the effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(B) above), additional Distributions on
the liquidation amount of the Capital Securities as a result of such clause (or
the relevant subclause thereof), as the case may be, shall cease to accumulate.
Any amounts of additional Distributions due pursuant to
clauses (i), (ii) or (iii) above will be payable in cash on June 17 and December
17 of each year to the Holders on the first day of the month in which the
relevant Distribution date falls.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.
-65-
<PAGE> 68
All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Administrative
Trustees at the Trust's mailing address set forth below (or such other address
as the Trust may give notice of to the Holders of the Securities):
Advanta Capital Trust I
c/o Advanta Corp.
501 Carr Road
Wilmington, DE 19809
Attention: Jeffrey D. Beck
(b) if given to the Delaware Trustee, at the mailing address
set forth below (or such other address as Delaware Trustee may give notice of to
the Holders of the Securities):
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, DE 19801
Attention: Corporate Trustee Administration Department
(c) if given to the Property Trustee, at the Property
Trustee's mailing address set forth below (or such other address as the Property
Trustee may give notice of to the Holders of the Securities):
The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attention: Corporate Trustee Administration Department
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
Advanta Corp.
Welsh & McKean Avenues
P.O. Box 844
Spring House, PA 19477-0844
Attention: Gene S. Schneyer, Esq., Vice-President and
General Counsel
-66-
<PAGE> 69
(e) if given to any other Holder, at the address set forth on
the books and records of the Trust.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 15.2 Governing Law.
This Declaration and the rights of the parties hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 15.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 15.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Declaration by the
Sponsor and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 Partial Enforceability.
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Declaration, or the application of such provision to Persons
or circumstances other than those to which it is held invalid, shall not be
affected thereby.
-67-
<PAGE> 70
SECTION 15.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
-68-
<PAGE> 71
IN WITNESS WHEREOF, the undersigned has caused these presents
to be executed as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
/s/ William A. Rosoff /s/ Jeffrey D. Beck
- --------------------------------------------- ------------------------------------------
William A. Rosoff, as Withdrawing Trustee Jeffrey D. Beck, as Administrative Trustee
/s/ Richard A. Greenawalt /s/ Ronald V. Samuels
- --------------------------------------------- ------------------------------------------
Richard A. Greenawalt, as Withdrawing Trustee Ronald V. Samuels, as Administrative
Trustee
/s/ David D. Wesselink /s/ Vera Regoli
- --------------------------------------------- ------------------------------------------
David D. Wesselink, as Withdrawing Trustee Vera Regoli, as Administrative Trustee
ADVANTA CORP. CHASE MANHATTAN BANK DELAWARE
as Sponsor as Delaware Trustee
By: /s/ David D. Wesselink By: /s/ John J. Cashin
--------------------------------------------- ------------------------------------------
Name: David D. Wesselink Name: John J. Cashin
Title: Senior Vice President & Title: Senior Trust Officer
Chief Financial Officer
THE CHASE MANHATTAN BANK
as Property Trustee
By: /s/ Sheik Wiltshire
------------------------------
Name: Sheik Wiltshire
Title: Second Vice President
</TABLE>
-69-
<PAGE> 72
ANNEX I
TERMS OF
8.99% SERIES A/SERIES B CAPITAL SECURITIES
8.99% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of December 17, 1996 (as amended from time to
time, the "Declaration"), the designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Capital Securities and the
Common Securities (collectively, the "Securities") are set out below (each
capitalized term used but not defined herein has the meaning set forth in the
Declaration or, if not defined in such Declaration, as defined in the Offering
Memorandum referred to below in Section 2(c) of this Annex I):
1. Designation and Number.
(a) Capital Securities. 100,000 Series A Capital Securities of
the Trust and 100,000 Series B Capital Securities of the Trust, each series with
an aggregate liquidation amount with respect to the assets of the Trust of one
hundred million dollars ($100,000,000), as provided in the Purchase Agreement,
and each with a liquidation amount with respect to the assets of the Trust of
$1,000 per Security, are hereby designated for the purposes of identification
only as "8.99 % Series A Capital Securities" and "8.99 % Series B Capital
Securities", respectively (collectively, the "Capital Securities"). The
certificates evidencing the Capital Securities shall be substantially in the
form of Exhibit A-1 to the Declaration, with such changes and additions thereto
or deletions therefrom as may be required by ordinary usage, custom or practice
or to conform to the rules of any stock exchange on which the Capital Securities
are listed.
(b) Common Securities. 3,093 Common Securities of the Trust
with an aggregate liquidation amount with respect to the assets of the Trust of
three million ninety-three thousand dollars ($3,093,000) and a liquidation
amount with respect to the assets of the Trust of $1,000 per Security, are
hereby designated for the purposes of identification only as "8.99% Common
Securities" (the "Common Securities"). The certificates evidencing the Common
Securities shall be substantially in the form of Exhibit A-2 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security shall be fixed at a
rate per annum of 8.99% (the "Coupon Rate") of the liquidation amount of $1,000
per Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one semi-annual period shall bear additional Distributions
thereon compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law). Pursuant to the Registration Rights Agreement, in certain
limited circumstances the Debenture Issuer shall be required to pay Liquidated
Damages (as defined in the Registration Rights Agreement) with respect to the
Debentures. The term "Distributions", as used herein, includes
A-1
<PAGE> 73
distributions of any such interest and Liquidated Damages payable unless
otherwise stated. A Distribution shall be payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee and
to the extent the Property Trustee has funds on hand legally available therefor.
(b) Distributions on the Securities shall be cumulative, shall
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from December 17, 1996 and shall be payable
semi-annually in arrears on June 17 and December 17 of each year, commencing on
June 17, 1997 (each, a "Distribution Date"), except as otherwise described
below. Distributions shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and for any period less than a full calendar month on
the basis of the actual number of days elapsed in such month. As long as no
Event of Default has occurred and is continuing under the Indenture, the
Debenture Issuer has the right under the Indenture to defer payments of interest
by extending the interest payment period at any time and from time to time on
the Debentures for a period not exceeding 10 consecutive semi-annual periods,
including the first such semi-annual period during such period (each an
"Extension Period"), during which Extension Period no interest shall be due and
payable on the Debentures, provided that no Extension Period shall extend beyond
the Maturity Date of the Debentures. As a consequence of such deferral,
Distributions shall also be deferred. Despite such deferral, Distributions shall
continue to accumulate with additional Distributions thereon (to the extent
permitted by applicable law but not at a rate greater than the rate at which
interest is then accruing on the Debentures) at the Coupon Rate compounded
semi-annually during any such Extension Period. Prior to the termination of any
such Extension Period, the Debenture Issuer may further defer payments of
interest by further extending such Extension Period; provided that such
Extension Period, together with all such previous and further extensions within
such Extension Period, may not exceed 10 consecutive semi-annual periods,
including the first semi-annual period during such Extension Period, or extend
beyond the Maturity Date of the Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
(c) Distributions on the Securities shall be payable to the
Holders thereof as they appear on the books and records of the Trust on the
first day of the month in which the relevant Distribution Date occurs, which
Distribution Dates correspond to the interest payment dates on the Debentures.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment in respect of the Capital Securities shall be
made as described under the heading "Description of the Capital Securities --
Form, Denomination, Book-Entry Procedures and Transfer" in the Offering
Memorandum dated December 11, 1996, of the Debenture Issuer and the Trust
relating to the Securities and the Debentures. The relevant record dates for the
Common Securities shall be the same as the record dates for the Capital
Securities. Distributions payable on any Securities that are not punctually paid
on any Distribution Date, as a result of the Debenture Issuer having failed to
make a payment under the Debentures, shall cease to be payable to the Holder on
the relevant record date, and such defaulted Distribution shall instead be
payable to the Person in whose name such Securities are registered on the
special record date or other specified date determined in accordance with the
Indenture. If any date on which Distributions are payable on the Securities is
not a Business Day, then payment of the Distribution payable on such date shall
be
A-2
<PAGE> 74
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay), with the same force and effect
as if made on such date.
(d) In the event that there is any money or other property
held by or for the Trust that is not accounted for hereunder, such property
shall be distributed Pro Rata (as defined herein) among the Holders of the
Securities.
3. Liquidation Distribution Upon Dissolution.
In the event of any termination of the Trust or the Sponsor
otherwise gives notice of its election to liquidate the Trust pursuant to
Section 8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the Holders of the
Securities a Like Amount (as defined below) of the Debentures, unless such
distribution is determined by the Property Trustee not to be practicable, in
which event such Holders shall be entitled to receive out of the assets of the
Trust legally available for distribution to Holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an amount
equal to the aggregate of the liquidation amount of $1,000 per Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal amount
of Debentures to be paid in accordance with their terms and (ii) with respect to
a distribution of Debentures upon the liquidation of the Trust, Debentures
having a principal amount equal to the Liquidation Amount of the Securities of
the Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets on hand
legally available to pay in full the aggregate Liquidation Distribution, then
the amounts payable directly by the Trust on the Securities shall be paid on a
Pro Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in part,
at maturity or upon early redemption (either at the option of the Debenture
Issuer or pursuant to a Special Event, as described below), the proceeds from
such repayment shall be simultaneously applied by the Property Trustee (subject
to the Property Trustee having received notice no later than 45 days prior to
such repayment) to redeem a Like Amount of the Securities at a redemption price
equal to (i) in the case of the repayment of the Debentures at maturity, the
Maturity Redemption Price (as defined below), (ii) in the case of the optional
redemption of the Debentures upon the occurrence and continuation of a Special
Event prior to December 17, 2006, the Special Event Redemption Price (as defined
below) and (iii) in the case of the optional redemption of the Debentures on or
after December 17, 2006, the Optional Redemption Price (as defined below). The
Maturity Redemption Price, the Special Event
A-3
<PAGE> 75
Redemption Price and the Optional Redemption Price are referred to collectively
as the "Redemption Price". Holders shall be given not less than 30 nor more than
60 days prior written notice of such redemption.
(b) (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued interest on the Debentures as of the maturity date thereof.
(ii) In the case of an optional redemption, if fewer
than all the outstanding Securities are to be so redeemed, the Common Securities
and the Capital Securities shall be redeemed Pro Rata and the Capital Securities
to be redeemed shall be determined as described in Section 4(f)(ii) below. Upon
the entry of an order for the dissolution of the Trust by a court of competent
jurisdiction, the Debentures thereafter will be subject to optional repayment,
in whole, but not in part, on or after December 17, 2006.
The Debenture Issuer shall have the right (subject to the
conditions in the Indenture) to elect to redeem the Debentures in whole or in
part at any time on or after December 17, 2006 (the "Initial Optional Redemption
Date"), upon not less than 30 days and not more than 60 days notice, at the
Optional Redemption Price and, simultaneous with such redemption, to cause a
Like Amount of the Securities to be redeemed by the Trust at the Optional
Redemption Price on a Pro Rata basis. "Optional Redemption Price" shall mean a
price equal to the percentage of the liquidation amount of Securities to be
redeemed plus accumulated and unpaid Distributions thereon, if any, to the date
of such redemption if redeemed during the 12 month period beginning December 17
of the years indicated below:
A-4
<PAGE> 76
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2006 104.4950%
2007 104.0455%
2008 103.5960%
2009 103.1465%
2010 102.6970%
2011 102.2475%
2012 101.7980%
2013 101.3485%
2014 100.8990%
2015 100.4495%
2016 and thereafter 100%
</TABLE>
(c) If at any time a Special Event (as defined below) occurs
prior to the Initial Optional Redemption Date, the Debenture Issuer shall have
the right (subject to the conditions set forth in the Indenture) upon not less
than 30 nor more than 60 days notice, to redeem the Debentures in whole, but not
in part, within the 90 days following the occurrence of such Special Event (the
"90 Day Period"), and, simultaneous with such redemption, to cause a Like Amount
of the Securities to be redeemed by the Trust at the Special Event Redemption
Price on a Pro Rata basis.
"Special Event" shall occur upon receipt by the Debenture
Issuer and an Administrative Trustee of an Opinion of Counsel experienced in
such matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is announced
on or after December 17, 1996, there is more than an insubstantial risk that (i)
the Trust is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Debentures, (ii) interest payable by the Debenture Issuer on the Debentures
is not, or within 90 days of the date of such opinion, will not be, deductible
by the Debenture Issuer, in whole or in part, for United States federal income
tax purposes or (iii) the Trust is, or will be within 90 days of the date of
such opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
A-5
<PAGE> 77
"Special Event Redemption Price" shall mean a price equal to
the greater of (i) 100% of the liquidation amount of Securities to be redeemed
or (ii) the sums as determined by a Quotation Agent (as defined in the
Indenture), of the present values of the liquidation amount and premium payable
with respect to an optional redemption of Securities on the Initial Optional
Redemption Date, together with scheduled payments of Distributions from the
redemption date to and including the Initial Optional Redemption Date,
discounted to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined in the Indenture), plus, in each case, accumulated and unpaid
Distributions thereon, if any, to the date of such redemption.
(d) On and from the date fixed by the Administrative Trustees
for any distribution of Debentures and liquidation of the Trust: (i) the
Securities will no longer be deemed to be outstanding, (ii) the Clearing Agency
or its nominee (or any successor Clearing Agency or its nominee), as the Holder
of the Capital Securities, shall receive a registered global certificate or
certificates representing the Debentures to be delivered upon such distribution
and any certificates representing Securities not held by the Clearing Agency or
its nominee (or any successor Clearing Agency or its nominee) shall be deemed to
represent beneficial interests in a Like Amount of Debentures until such
certificates are presented to the Debenture Issuer or its agent for transfer or
reissue.
(e) The Trust may not redeem fewer than all the outstanding
Securities unless all accumulated and unpaid Distributions have been paid on all
Securities for all semi-annual Distribution periods terminating on or before the
date of redemption.
(f) The procedure with respect to redemptions or distributions
of Debentures shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution
Notice") shall be given by the Trust by mail to each Holder of
Securities to be redeemed or exchanged not fewer than 30 nor more than
60 days before the date fixed for redemption or exchange thereof which,
in the case of a redemption, shall be the date fixed for redemption of
the Debentures. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given pursuant
to this Section 4(f)(i), a Redemption/Distribution Notice shall be
deemed to be given on the day such notice is first mailed by first-class
mail, postage prepaid, to Holders of Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of
Securities at the address of each such Holder appearing in the books and
records of the Trust. No defect in the Redemption/Distribution Notice or
in the mailing of either thereof with respect to any Holder shall affect
the validity of the redemption or exchange proceedings with respect to
any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata
from each Holder of Capital Securities, it being understood that, in
respect of Capital Securities registered in the name of and held of
A-6
<PAGE> 78
record by the Clearing Agency or its nominee (or any successor Clearing
Agency or its nominee) or any nominee, the distribution of the proceeds
of such redemption shall be made to the Clearing Agency and disbursed by
such Clearing Agency in accordance with the procedures applied by such
agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, (which notice will be irrevocable), then
(A) with respect to Capital Securities issued in book-entry form, by
12:00 noon, New York City time, on the redemption date, provided that
the Debenture Issuer has paid the Property Trustee a sufficient amount
of cash in connection with the related redemption or maturity of the
Debentures by 10:00 a.m., New York City time, on the maturity date or
the date of redemption, as the case requires, the Property Trustee shall
deposit irrevocably with the Clearing Agency or its nominee (or
successor Clearing Agency or its nominee) funds sufficient to pay the
applicable Redemption Price with respect to such Capital Securities and
shall give the Clearing Agency irrevocable instructions and authority to
pay the Redemption Price to the relevant Clearing Agency Participants,
and (B) with respect to Capital Securities issued in certificated form
and Common Securities, provided that the Debenture Issuer has paid the
Property Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures, the Property Trustee
shall pay the relevant Redemption Price to the Holders of such
Securities by check mailed to the address of the relevant Holder
appearing on the books and records of the Trust on the redemption date.
If a Redemption/Distribution Notice shall have been given and funds
deposited as required, if applicable, then immediately prior to the
close of business on the date of such deposit, or on the redemption
date, as applicable, Distributions shall cease to accumulate on the
Securities so called for redemption and all rights of Holders of such
Securities so called for redemption shall cease, except the right of the
Holders of such Securities to receive the Redemption Price, but without
interest on such Redemption Price, and such Securities shall cease to be
outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
Redemption Date of the Securities shall be subject to the rights of
Holders of Securities on the close of business on a regular record date
in respect of a Distribution Date occurring on or prior to such
Redemption Date.
Neither the Administrative Trustees nor the Trust shall be
required to register or cause to be registered the transfer of (i) any
Securities beginning on the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Securities for
redemption or (ii) any Securities selected for redemption except the unredeemed
portion of any Security being redeemed. If any date fixed for redemption of
Securities is not a Business Day, then payment of the Redemption Price payable
on such date 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 fixed for redemption. If
payment of the Redemption Price in respect of any Securities is improperly
withheld or refused and not paid either by the Property Trustee or by the
Sponsor as guarantor pursuant to the relevant Securities Guarantee,
Distributions on such Securities shall continue to accumulate from the original
redemption date to
A-7
<PAGE> 79
the actual date of payment, in which case the actual payment date shall be
considered the date fixed for redemption for purposes of calculating the
Redemption Price.
(v) Redemption/Distribution Notices shall be sent by the
Property Trustee on behalf of the Trust to (A) in respect of the Capital
Securities, the Clearing Agency or its nominee (or any successor
Clearing Agency or its nominee) if the Global Certificates have been
issued or, if Definitive Capital Security Certificates have been issued,
to the Holder thereof, and (B) in respect of the Common Securities to
the Holder thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws and banking
laws and to the provisions contained in the Purchase Agreement), the
Sponsor or any of its subsidiaries may at any time and from time to time
purchase outstanding Capital Securities by tender, in the open market or
by private agreement.
5. Voting Rights - Capital Securities.
(a) Except as provided under Sections 5(b) and 7 and as
otherwise required by law and the Declaration, the Holders of the Capital
Securities shall have no voting rights.
(b) So long as any Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on such Debenture Trustee with respect to
the Debentures, (ii) waive any past default that is waivable under Section 5.07
of the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in liquidation amount
of all outstanding Capital Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Capital Securities except by subsequent vote of such Holders. The
Property Trustee shall notify each Holder of Capital Securities of any notice of
default with respect to the Debentures. In addition to obtaining the foregoing
approvals of such Holders of the Capital Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust shall not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.
If an Event of Default under the Declaration has occurred and
is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of or premium, if any, or interest on the Debentures on
the due date (or in the case of redemption, on the redemption date), then a
Holder of Capital Securities may directly institute a proceeding for enforcement
of payment to such Holder of the principal of or premium, if any, or interest on
a Like Amount of Debentures (a
A-8
<PAGE> 80
"Direct Action") on or after the respective due date specified in the
Debentures. In connection with such Direct Action, the rights of the Common
Securities Holder shall be subrogated to the rights of such Holder of Capital
Securities to the extent of any payment made by the Debenture Issuer to such
Holder of Capital Securities in such Direct Action. Except as provided in the
second preceding sentence, the Holders of Capital Securities shall not be able
to exercise directly any other remedy available to the holders of the
Debentures.
Any approval or direction of Holders of Capital Securities may
be given at a separate meeting of Holders of Capital Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Property Trustees shall cause a notice of any
meeting at which Holders of Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Capital Securities. Each such notice shall
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consent.
No vote or consent of the Holders of the Capital Securities
shall be required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Capital Securities are
entitled to vote or consent under any of the circumstances described above any
of the Capital Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b), 6(c), and 7 as
otherwise required by law and the Declaration, the Holders of the Common
Securities shall have no voting rights.
(b) Unless a Debenture Event of Default shall have occurred
and be continuing, any Trustee may be removed at any time by the Holder of the
Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed at such
time by the Holders of a Majority in liquidation amount of the outstanding
Capital Securities. In no event shall the holders of the Capital Securities have
the right to vote to appoint, remove or replace the Administrative Trustees,
which voting rights are vested exclusively in the Sponsor as the holder of the
Common Securities. No resignation or removal of a Trustee and no appointment of
a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Declaration.
(c) So long as any Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on such Debenture Trustee with
A-9
<PAGE> 81
respect to the Debentures, (ii) waive any past default that is waivable under
Section 5.07 of the Indenture, (iii) exercise any right to rescind or annul a
declaration of acceleration of the maturity of the principal of the Debentures
or (iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in liquidation amount
of all outstanding Common Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Common Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Common Securities except by subsequent vote of such Holders. The Property
Trustee shall notify each Holder of Common Securities of any notice of default
with respect to the Debentures. In addition to obtaining the foregoing approvals
of such Holders of the Common Securities, prior to taking any of the foregoing
actions, the Trustees shall obtain an opinion of counsel experienced in such
matters to the effect that the Trust shall not be classified as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.
If an Event of Default under the Declaration has occurred and
is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of or premium, if any, or interest on the Debentures on
the due date (or in the case of redemption, on the redemption date), then a
Holder of Common Securities may institute a Direct Action for enforcement of
payment to such Holder of the principal of or premium, if any, or interest on a
Like Amount of Debentures on or after the respective due date specified in the
Debentures. In connection with Direct Action, the rights of the Common
Securities Holder shall be subordinated to the rights of such Holder of Capital
Securities to the extent of any payment made by the Debenture Issuer to such
Holder of Common Securities in such Direct Action. Except as provided in the
second preceding sentence, the Holders of Common Securities shall not be able to
exercise directly any other remedy available to the holders of the Debentures.
Any approval or direction of Holders of Common Securities may
be given at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees shall cause a notice of
any meeting at which Holders of Common Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Common Securities. Each such notice
shall include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities
shall be required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
A-10
<PAGE> 82
7. Amendments to Declaration and Indenture.
In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor,
the Property Trustee and the Administrative Trustees, without the consent of the
Holders of the Securities (i) to cure any ambiguity, correct or supplement any
provisions in the Declaration that may be inconsistent with any other
provisions, or to make any other provisions with respect to matters or questions
arising under the Declaration which shall not be inconsistent with the other
provisions of the Declaration, or (ii) to modify, eliminate or add to any
provisions of the Declaration to such extent as shall be necessary to ensure
that the Trust shall be classified for United States federal income tax purposes
as a grantor trust at all times that any Securities are outstanding or to ensure
that the Trust shall not be required to register as an "Investment Company"
under the Investment Company Act; provided however, that in the case of clause
(i), such action shall not adversely affect in any material respect the
interests of any Holder of Securities, and any amendments of the Declaration
shall become effective when notice thereof is given to the Holders of the
Securities. The Declaration may be amended by the Trustees and the Sponsor with
(i) the consent of Holders representing a Majority in liquidation amount of all
outstanding Securities, and (ii) receipt by the Trustees of an Opinion of
Counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment shall not affect the Trust's
status as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status as an Investment Company under the Investment
Company Act, provided that, without the consent of each Holder of Trust
Securities, the Declaration may not be amended to (i) change the amount or
timing of any Distribution on, or the payment required to be made in respect of
the Securities or any redemption provisions or otherwise adversely affect the
amount of any Distribution or other payment required to be made in respect of
the Securities as of a specified date or (ii) restrict the right of a Holder of
Securities to institute suit for the enforcement of any such payment on or after
such date.
8. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate liquidation amount of Capital
Securities held by the relevant Holder relative to the aggregate liquidation
amount of all Capital Securities outstanding, and only after satisfaction of all
amounts owed to the Holders of the Capital Securities, to each Holder of Common
Securities pro rata according to the aggregate liquidation amount of Common
Securities held by the relevant Holder relative to the aggregate liquidation
amount of all Common Securities outstanding.
9. Ranking.
A-11
<PAGE> 83
The Capital Securities rank pari passu with the Common
Securities and payment thereon shall be made Pro Rata with the Common
Securities, except that, if an Event of Default under the Declaration occurs and
is continuing, no payments in respect of Distributions on, or payments upon
liquidation, redemption or otherwise with respect to, the Common Securities
shall be made until the Holders of the Capital Securities shall be paid in full
the Distributions, Redemption Price, Liquidation Distribution and other payments
to which they are entitled at such time.
10. Acceptance of Securities Guarantee and Indenture.
Each Holder of Capital Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Capital Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture.
11. No Preemptive Rights.
The Holders of the Securities shall have no preemptive rights
to subscribe for any additional securities.
12. Miscellaneous.
These terms constitute a part of the Declaration.
The Sponsor shall provide a copy of the Declaration, the
Capital Securities Guarantee or the Common Securities Guarantee (as may be
appropriate), the Indenture (including any supplemental indenture) to a Holder
without charge on written request to the Sponsor at its principal place of
business.
A-12
<PAGE> 84
EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS GLOBAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT:
THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS
CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY
THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS CAPITAL
SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST, A
NEW YORK CORPORATION ("DTC") TO THE TRUST OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO., OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC, AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., OR TO SUCH
PERSON 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.]
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY
(OR ANY PREDECESSOR OF THIS CAPITAL
A1-1
<PAGE> 85
SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS
CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (D), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND.
A1-2
<PAGE> 86
Certificate Number: Number of Capital Securities
CUSIP NO.
Certificate Evidencing Capital Securities
of
ADVANTA CAPITAL TRUST I
8.99% Series __ Capital Securities
(liquidation amount of $1,000 per Capital Security)
ADVANTA CAPITAL TRUST I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), hereby certifies that
_________(the "Holder") is the registered owner of ________securities of the
Trust representing undivided beneficial interests in the assets of the Trust
designated the 8.99 % Series Capital Securities (liquidation amount of $1,000
per Capital Security) (the "Capital Securities"). The Capital Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Capital Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
Amended and Restated Declaration of Trust of the Trust dated as of December 17,
1996 as the same may be amended from time to time (the "Declaration"), including
the designation of the terms of the Capital Securities as set forth in Annex I
to the Declaration. Capitalized terms used but not defined herein shall have the
meaning given them in the Declaration. The Sponsor will provide a copy of the
Declaration, the Capital Securities Guarantee and the Indenture to a Holder
without charge upon written request to the Trust at its principal place of
business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the Capital
Securities as evidence of indirect beneficial ownership in the Debentures.
A1-3
<PAGE> 87
IN WITNESS WHEREOF, the Trust has executed this certificate
this 17th day of December, 1996.
ADVANTA CAPITAL TRUST I
By:_____________________________________
Name:
Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
Dated: ______________,
THE CHASE MANHATTAN BANK
as Property Trustee
By:_____________________________________
Authorized Officer
A1-4
<PAGE> 88
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed
at a rate per annum of 8.99% (the "Coupon Rate") of the liquidation amount of
$1,000 per Capital Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one semi-annual period will bear interest thereon compounded semi-annually
at the Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any such
interest and such Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
Distributions on the Capital Securities will be cumulative,
will accumulate from the most recent date to which Distributions have been paid
or, if any Distributions have been paid, from December 17, 1996 and will be
payable semi-annually in arrears, on June 17 and December 17 of each year,
commencing on June 17, 1997, except as otherwise described below. Distributions
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months and, for any period less than a full calendar month, the number of days
elapsed in such month. As long as no Event of Default has occurred and is
continuing under the Indenture, the Debenture Issuer has the right under the
Indenture to defer payments of interest by extending the interest payment period
at any time and from time to time on the Debentures for a period not exceeding
10 consecutive calendar semiannual periods, including the first such semi-annual
period during such extension period (each an "Extension Period"), provided that
no Extension Period shall extend beyond the Maturity Date of the Debentures. As
a consequence of such deferral, Distributions will also be deferred. Despite
such deferral, semi-annual Distributions will continue to accumulate with
interest thereon (to the extent permitted by applicable law, but not at a rate
exceeding the rate of interest then accruing on the Debentures) at the Coupon
Rate compounded semi-annually during any such Extension Period. Prior to the
termination of any such Extension Period, the Debenture Issuer may further defer
payments of interest by further extending such Extension Period; provided that
such Extension Period, together with all such previous and further extensions
within such Extension Period, may not exceed 10 consecutive semi-annual periods,
including the first semiannual period during such Extension Period, or extend
beyond the Maturity Date of the Debentures. Payments of accumulated
Distributions will be payable to Holders as they appear on the books and records
of the Trust on the first record date after the end of the Extension Period.
Upon the termination of any Extension Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.
Subject to certain conditions set forth in the Declaration and
the Indenture, the Property Trustee may, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneous with any
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
A1-5
<PAGE> 89
The Capital Securities shall be redeemable as provided in the
Declaration.
A1-6
<PAGE> 90
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Capital Security Certificate to:
________________________________
________________________________
________________________________
(Insert assignee's social security or tax identification number)
________________________________
________________________________
________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________
________________________________
________________________________agent to transfer this Capital Security
Certificate on the books of the Trust. The agent may substitute another to act
for him or her.
Date:________________
Signature:_____________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
Signature Guarantee:_________________________
____________________________
* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
A1-7
<PAGE> 91
[Include the following if the Capital Security bears a Restricted Capital
Securities Legend --
In connection with any transfer of any of the Capital Securities evidenced by
this certificate, the undersigned confirms that such Capital Securities are
being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without
transfer; or
(2) / / transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
(3) / / to an institutional "accredited investor" within
the meaning of subparagraph (a)(1), (2), (3) or (7)
of Rule 501 under the Securities Act of 1933 that is
acquiring the Capital Securities for its own account,
or for the account of such an institutional
"accredited investor," for investment purposes and
not with a view to, or for offer or sale in
connection with, any distribution in violation of the
Securities Act of 1933; or
(4) / / transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933; or
(5) / / transferred pursuant to an effective registration
statement.
Unless one of the boxes is checked, the Exchange Agent will refuse to register
any of the Capital Securities evidenced by this certificate in the name of any
person other than the registered Holder thereof; provided, however, that if box
(3) or (4) is checked, the Exchange Agent may require, prior to registering any
such transfer of the Capital Securities such legal opinions, certifications and
other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such as
the exemption provided by Rule 144 under such Act; provided further, that (i) if
box (2) is checked, the transferee must also certify that it is a qualified
institutional buyer as defined in Rule 144A or (ii) if box (3) is checked, the
transferee must also provide to the Exchange Agent a Transferee Letter of
Representation in the form attached to the Offering Memorandum of the Trust
dated December 11, 1996; provided, further, that after the date that a
Registration Statement has been filed and so long as such Registration Statement
continues to be effective, the Exchange Agent may only permit transfers for
which box (5) has been checked.
---------------------------------
Signature
A1-8
<PAGE> 92
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY
(OR ANY PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS COMMON SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS ACQUIRING THIS COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT,
SUBJECT TO THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER (i) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) PURSUANT TO CLAUSE (D), TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS COMMON SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
A2-1
<PAGE> 93
Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
Advanta Capital Trust I
8.99% Common Securities
(liquidation amount of $1,000 per Common Security)
ADVANTA CAPITAL TRUST I, a statutory business trust formed under the laws of the
State of Delaware (the "Trust"), hereby certifies that Advanta Corp., a Delaware
corporation (the "Holder"), is the registered owner of ________________
(__________) common securities of the Trust representing undivided beneficial
interests in the assets of the Trust designated the 8.99 % Common Securities
(liquidation amount of $1,000 per Common Security) (the "Common Securities").
The Common Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of December 17, 1996 as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Common Securities
as set forth in Annex I to the Declaration. Capitalized terms used but not
defined herein shall have the meaning given them in the Declaration. The Sponsor
will provide a copy of the Declaration, the Common Securities Guarantee and the
Indenture (including any supplemental indenture) to a Holder without charge upon
written request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Debentures.
A2-2
<PAGE> 94
IN WITNESS WHEREOF, the Trust has executed this certificate
this ________ day of ________, 19___.
ADVANTA CAPITAL TRUST I
By:_____________________________________
Name:
Administrative Trustee
A2-3
<PAGE> 95
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of 8.99% (the "Coupon Rate") of the liquidation amount of
$1,000 per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one semi-annual period will bear interest thereon compounded semiannually
at the Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any such
interest and such Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor.
Distributions on the Common Securities will be cumulative,
will accrue from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from December 17, 1996 and will be payable
semi-annually in arrears, on June 17 and December 17 of each year, commencing on
June 17, 1997, except as otherwise described below. Distributions will be
computed on the basis of a 360-day year consisting of twelve 30 day months and,
for any period less than a full calendar month, the number of days elapsed in
such month. As long as no Event of Default has occurred and is continuing under
the Indenture, the Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period at any time and
from time to time on the Debentures for a period not exceeding 10 consecutive
calendar semi-annual periods, including the first such semi-annual period during
such extension period (each an "Extension Period"), provided that no Extension
Period shall extend beyond the Maturity Date of the Debentures. As a consequence
of such deferral, Distributions will also be deferred. Despite such deferral,
Distributions will continue to accumulate with interest thereon (to the extent
permitted by applicable law, but not at a rate exceeding the rate of interest
then accruing on the Debentures) at the Coupon Rate compounded semi-annually
during any such Extension Period. Prior to the termination of any such Extension
Period, the Debenture Issuer may further defer payments of interest by further
extending such Extension Period; provided that such Extension Period, together
with all such previous and further extensions within such Extension Period, may
not exceed 10 consecutive semi-annual periods, including the first semi-annual
period during such Extension Period, or extend beyond the Maturity Date of the
Debentures. Payments of accrued Distributions will be payable to Holders as they
appear on the books and records of the Trust on the first record date after the
end of the Extension Period. Upon the termination of any Extension Period and
the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
Subject to certain conditions set forth in the Declaration and
the Indenture, the Property Trustee may, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders to the Securities in liquidation of the Trust or, simultaneous with any
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Common Securities shall be redeemable as provided in the
Declaration.
A2-4
<PAGE> 1
Exhibit 4-j
REGISTRATION RIGHTS AGREEMENT
Dated December 11, 1996
by and among
ADVANTA CORP.;
ADVANTA CAPITAL TRUST I
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
and
SALOMON BROTHERS INC
as Initial Purchasers
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into on December 11, 1996 by and among ADVANTA CORP., a Delaware
corporation (the "Company"), ADVANTA CAPITAL TRUST I, a business trust formed
under the laws of the state of Delaware (the "Trust"), and MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch") and SALOMON BROTHERS, INC
(together, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement
dated December 11, 1996 (the "Purchase Agreement"), among the Company, as issuer
of the 8.99 % Series A Junior Subordinated Deferrable Interest Debentures due
December 17, 2026 (the "Subordinated Debentures"), the Trust and the Initial
Purchasers, which provides for, among other things, the sale by the Trust to the
Initial Purchasers of 100,000 of the Trust's 8.99% Series A Capital Securities,
liquidation amount $1,000 per Capital Security (the "Capital Securities"), the
proceeds of which will be used by the Trust to purchase Subordinated Debentures.
The Capital Securities, together with the Subordinated Debentures and the
Company's guarantee of the Capital Securities (the "Capital Securities
Guarantee") are collectively referred to as the "Securities." In order to induce
the Initial Purchasers to enter into the Purchase Agreement, the Company and the
Trust have agreed to provide to the Initial Purchasers and their direct and
indirect transferees the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the closing under the
Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Advice" shall have the meaning set forth in the last
paragraph of Section 3 hereof.
"Applicable Period" shall have the meaning set forth in
Section 3(t) hereof.
"Business Day" shall mean a day that is not a Saturday, a
Sunday, or a day on which banking institutions in New York, New York or in
Wilmington, Delaware are authorized or required to be closed.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble to
this Agreement and also includes the Company's successors and permitted assigns.
-2-
<PAGE> 3
"Declaration" or "Declaration of Trust" shall mean the Amended
and Restated Declaration of Trust, dated as of the Closing Time, by the trustees
named therein and the Company as sponsor.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Trust; provided, however, that such depositary
must have an address in the Borough of Manhattan, in The City of New York.
"Effectiveness Period" shall have the meaning set forth in
Section 2(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Exchange Offer" shall mean the offer by the Company and the
Trust to the Holders to exchange all of the Registrable Securities (other than
Private Exchange Securities) for a like principal amount of Exchange Securities
pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section
2(a) hereof.
"Exchange Securities" shall mean (i) with respect to the
Subordinated Debentures, the 8.99% Series B Junior Subordinated Deferrable
Interest Debentures due December 17, 2026 (the "Exchange Debentures") containing
terms identical to the Subordinated Debentures (except that they will not
contain terms with respect to the transfer restrictions under the Securities
Act, will not require transfers thereof to be in minimum blocks of $100,000
principal amount and will not provide for any increase in the interest rate
thereon), (ii) with respect to the Capital Securities, the Trust's 8.99% Series
B Capital Securities, liquidation amount $1,000 per Capital Security (the
"Exchange Capital Securities") which will have terms identical to the Capital
Securities (except they will not contain terms with respect to transfer
restrictions under the Securities Act, will not require minimum transfers
thereof to be in blocks of $100,000 liquidation amount and will not provide for
any increase in the distribution rate thereon) and (iii) with respect to the
Capital Securities Guarantee, the Company's guarantee (the "Exchange Capital
Securities Guarantee") of the Exchange Capital Securities which will have terms
identical to the Capital Securities Guarantee.
-3-
<PAGE> 4
"Holder" shall mean each of the Initial Purchasers, for so
long as they own any Registrable Securities, and each of their respective
successors, assigns and direct and indirect transferees who become registered
owners of Registrable Securities under the Indenture or Declaration of Trust.
"Indenture" shall mean the Indenture relating to the
Subordinated Debentures and the Exchange Debentures dated as of December 17,
1996 among the Company, as issuer, and The Chase Manhattan Bank, as trustee, as
the same may be amended from time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble to this Agreement.
"Inspectors" shall have the meaning set forth in Section 3(n)
hereof.
"Issue Date" shall mean the date of original issuance of the
Securities.
"Liquidated Damages" shall have the meaning set forth in
Section 2(e) hereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate liquidation amount of outstanding Capital Securities.
"Participating Broker-Dealer" shall have the meaning set forth
in Section 3(t) hereof.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, limited liability company, or a government
or agency or political subdivision thereof.
"Private Exchange" shall have the meaning set forth in Section
2(a) hereof.
"Private Exchange Securities" shall have the meaning set forth
in Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Shelf Registration Statement, and by
all other amendments and supplements to a prospectus, including posteffective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble to this Agreement.
-4-
<PAGE> 5
"Records" shall have the meaning set forth in Section 3(n)
hereof.
"Registration Default" shall have the meaning set forth in
Section 2(e) hereof.
"Registrable Securities" shall mean the Securities and, if
issued, the Private Exchange Securities; provided, however, that Securities or
Private Exchange Securities, as the case may be, shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such Securities or
Private Exchange Securities for the exchange or resale thereof, as the case may
be, shall have been declared effective under the Securities Act and such
Securities or Private Exchange Securities, as the case may be, shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities or
Private Exchange Securities, as the case may be, shall have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144A) under the Securities Act, (iii) such Securities or Private Exchange
Securities, as the case may be, shall have ceased to be outstanding or (iv) with
respect to the Securities, such Securities have been exchanged for Exchange
Securities upon consummation of the Exchange Offer and are thereafter freely
tradeable by the holder thereof (other than an affiliate of the Company).
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC or National Association of Securities
Dealers, Inc. (the "NASD") registration and filing fees, including, if
applicable, the fees and expenses of any "qualified independent underwriter"
(and the reasonable fees and expenses of its counsel) that is required to be
retained by any Holder of Registrable Securities in accordance with the rules
and regulations of the NASD, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws (including reasonable
fees and disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Securities or Registrable
Securities) and compliance with the rules of the NASD, (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus and any amendments or
supplements thereto, and in preparing or assisting in preparing, printing and
distributing any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees, (v) the fees and disbursements of counsel for the
Company and of the independent certified public accountants of the Company,
including the expenses of any "cold comfort" letters required by or incident to
such performance and compliance, (vi) the fees and expenses of the Trustee, and
any exchange agent or custodian, (vii) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities on any
securities exchange or exchanges, and (viii) the reasonable fees and expenses of
any special experts retained by the Company in connection with any Registration
Statement.
"Registration Statement" shall mean any registration statement
of the Company and the Trust which covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration
-5-
<PAGE> 6
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Rule 144(k) Period" shall mean the period of three years (or
such shorter period as may hereafter be referred to in Rule 144(k) under the
Securities Act (or similar successor rule)) commencing on the Issue Date.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities" shall have the meaning set forth in the preamble
to this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Event" shall have the meaning set forth in
Section 2(b) hereof.
"Shelf Registration Event Date" shall have the meaning set
forth in Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company and the Trust pursuant to the provisions
of Section 2(b) hereof which covers all of the Registrable Securities or all of
the Private Exchange Securities, as the case may be, on an appropriate form
under Rule 415 under the Securities Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TIA" shall have the meaning set forth in Section 3(1) hereof.
"Trustees" shall mean any and all trustees with respect to (i)
the Capital Securities under the Declaration, (ii) the Subordinated Debentures
under the Indenture and (iii) the Capital Securities Guarantee.
2. Registration Under the Securities Act.
(a) Exchange Offer. To the extent not prohibited by any
applicable law or applicable interpretation of the staff of the SEC, the Company
and the Trust shall, for the benefit of the Holders, at the Company's cost, use
their best efforts to (i) cause to be filed with the SEC within 150 days after
the Issue Date an Exchange Offer Registration Statement on an appropriate form
under the Securities Act covering the Exchange Offer, (ii) cause such Exchange
-6-
<PAGE> 7
Offer Registration Statement to be declared effective under the Securities Act
by the SEC not later than the date which is 180 days after the Issue Date, and
(iii) keep such Exchange Offer Registration Statement effective for not less
than 30 calendar days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders. Upon the effectiveness of
the Exchange Offer Registration Statement, the Company and the Trust shall
promptly commence the Exchange Offer, it being the objective of such Exchange
Offer to enable each Holder eligible and electing to exchange Registrable
Securities for a like principal amount of Exchange Debentures or a like
liquidation amount of Exchange Capital Securities, together with the Exchange
Guarantee, as applicable (assuming that such Holder is not an affiliate of the
Company within the meaning of Rule 405 under the Securities Act and is not a
broker-dealer tendering Registrable Securities acquired directly from the
Company for its own account, acquires the Exchange Securities in the ordinary
course of such Holder's business and has no arrangements or understandings with
any Person to participate in the Exchange Offer for the purpose of distributing
the Exchange Securities) to transfer such Exchange Securities from and after
their receipt without any limitations or restrictions under the Securities Act
and under state securities or blue sky laws.
In connection with the Exchange Offer, the Company and the
Trust shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not
less than 30 days after the date notice thereof is mailed to the Holders (or
longer if required by applicable law) (such period referred to herein as the
"Exchange Period");
(iii) utilize the services of the Depositary for the Exchange Offer:
(iv) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last Business Day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Securities delivered for exchange, and a
statement that such Holder is withdrawing his election to have such Securities
exchanged;
(v) notify each Holder that any Security not tendered by such Holder in
the Exchange Offer will remain outstanding and continue to accrue interest or
accumulate distributions, as the case may be, but will not retain any rights
under this Agreement (except in the case of the Initial Purchasers and
Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable laws relating
to the Exchange Offer.
-7-
<PAGE> 8
If any Initial Purchaser determines upon advice of its outside
counsel that it is not eligible to participate in the Exchange Offer with
respect to the exchange of Securities constituting any portion of an unsold
allotment in the initial distribution, as soon as practicable upon receipt by
the Company and the Trust of a written request from such Initial Purchaser, the
Company and the Trust, as applicable, shall issue and deliver to such Initial
Purchaser in exchange (the "Private Exchange") for the Securities held by such
Initial Purchaser, a like liquidation amount of Capital Securities of the Trust,
together with the Exchange Guarantee, or a like principal amount of the
Subordinated Debentures of the Company, as applicable, that are identical
(except that such securities may bear a customary legend with respect to
restrictions on transfer pursuant to the Securities Act) to the Exchange
Securities (the "Private Exchange Securities") and which are issued pursuant to
the Indenture, the Declaration or the Guarantee (which provides that the
Exchange Securities will not be subject to the transfer restrictions set forth
in the Indenture or the Declaration, as applicable, and that the Exchange
Securities, the Private Exchange Securities and the Securities will vote and
consent together on all matters as one class and that neither the Exchange
Securities, the Private Exchange Securities nor the Securities will have the
right to vote or consent as a separate class on any matter). The Private
Exchange Securities shall be of the same series as the Exchange Securities and
the Company and the Trust will seek to cause the CUSIP Service Bureau to issue
the same CUSIP Numbers for the Private Exchange Securities as for the Exchange
Securities issued pursuant to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer
and, if applicable, the Private Exchange, the Company and the Trust, as the case
requires, shall:
(i) accept for exchange all Securities or portions thereof tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private Exchange;
(ii) deliver, or cause to be delivered, to the applicable Trustee for
cancellation all Securities or portions thereof so accepted for exchange by the
Company; and
(iii) issue, and cause the applicable Trustee under the Indenture, the
Declaration or the Guarantee, as applicable, to promptly authenticate and
deliver to each Holder, new Exchange Securities or Private Exchange Securities,
as applicable, equal in principal amount to the principal amount of the
Subordinated Debentures or equal in liquidation amount to the liquidation amount
to the Capital Securities (together with the guarantee thereof) as are
surrendered by such Holder.
Distributions on each Exchange Capital Security and interest
on each Exchange Debenture and Private Exchange Security issued pursuant to the
Registered Exchange Offer and in the Private Exchange will accrue from the last
date on which a Distribution or interest was paid on the Capital Security or the
Subordinated Debenture surrendered in exchange therefore or, if no Distribution
or interest has been paid on such Capital Security or Subordinated Debenture,
from the Issue Date. To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, the Company and the Trust shall use
their best efforts to complete the Exchange
-8-
<PAGE> 9
Offer as provided above, and shall comply with the applicable requirements of
the Securities Act, the Exchange Act and other applicable laws in connection
with the Exchange Offer. The Exchange Offer shall not be subject to any
conditions, other than that the Exchange Offer does not violate applicable law
or any applicable interpretation of the staff of the SEC. Each Holder of
Registrable Securities that wishes to exchange such Registrable Securities for
Exchange Securities in the Exchange Offer will be required to make certain
customary representations in connection therewith, including, in the case of any
Holder of Capital Securities, representations that (i) it is not an affiliate of
the Trust or the Company, (ii) the Exchange Securities to be received by it were
acquired in the ordinary course of its business and (iii) at the time of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Capital
Securities. The Company and the Trust shall inform the Initial Purchasers, after
consultation with the Trustee, of the names and addresses of the Holders to
which the Exchange Offer is made, and the Initial Purchasers shall have the
right to contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with
this Section 2(a), the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities and Exchange Securities held by Participating
Broker-Dealers, and the Company and the Trust shall have no further obligation
to register the Registrable Securities (other than Private Exchange Securities)
pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. In the event that (i) the Company, the
Trust or the Majority Holders reasonably determine, after conferring with
counsel (which may be in-house counsel), that the Exchange Offer Registration
provided in Section 2(a) above is not available because of any change in law or
because of then prevailing interpretations of the staff of the SEC, (ii) the
Company shall determine in good faith that there is a reasonable likelihood
that, or a material uncertainty exists as to whether, consummation of the
Exchange Offer would result in a material adverse tax consequence to the
Company, (iii) the Exchange Offer Registration Statement is not declared
effective within 180 days of the Issue Date or (iv) upon the request of any
Initial Purchaser with respect to any Registrable Securities held by it, if such
Initial Purchaser is not permitted, in the reasonable opinion of Brown & Wood
LLP, pursuant to applicable law or applicable interpretations of the staff of
the SEC, to participate in the Exchange Offer and thereby receive securities
that are freely tradeable without restriction under the Securities Act and
applicable blue sky or state securities laws (any of the events specified in
(i)-(iv) being a "Shelf Registration Event" and the date of occurrence thereof,
the "Shelf Registration Event Date"), the Company and the Trust shall, at their
cost, use their best efforts to cause to be filed as promptly as practicable
after such Shelf Registration Event Date, as the case may be, and, in any event,
within 45 days after such Shelf Registration Event Date (which shall be no
earlier than 75 days after the Closing Time), a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities, and
shall use their best efforts to have such Shelf Registration Statement declared
effective by the SEC as soon as practicable. No Holder of Registrable Securities
shall be entitled to include any of its Registrable Securities in
-9-
<PAGE> 10
any Shelf Registration pursuant to this Agreement unless and until such Holder
agrees in writing to be bound by all of the provisions of this Agreement
applicable to such Holder and furnishes to the Company and the Trust in writing,
within 15 days after receipt of a request therefor, such information as the
Company and the Trust may, after conferring with counsel with regard to
information relating to Holders that would be required by the SEC to be included
in such Shelf Registration Statement or Prospectus included therein, reasonably
request for inclusion in any Shelf Registration Statement or Prospectus included
therein. Each Holder as to which any Shelf Registration is being effected agrees
to furnish to the Company and the Trust all information with respect to such
Holder necessary to make the information previously furnished to the Company or
the Trust by such Holder not materially misleading.
The Company and the Trust agree to use their best efforts to
keep the Shelf Registration Statement continuously effective for the Rule 144(k)
Period (subject to extension pursuant to the last paragraph of Section 3 hereof)
or for such shorter period that will terminate when all of the Registrable
Securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement or cease to be outstanding (the
"Effectiveness Period"). The Company and the Trust shall not permit any
securities other than Registrable Securities to be included in the Shelf
Registration. The Company and the Trust will, in the event a Shelf Registration
Statement is declared effective, provide to each Holder a reasonable number of
copies of the Prospectus that is a part of the Shelf Registration Statement,
notify each such Holder when the Shelf Registration has become effective and use
their best efforts to take certain other actions as are required to permit
certain unrestricted resales of the Registrable Securities. The Company and the
Trust further agree, if necessary, to supplement or amend the Shelf Registration
Statement, if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration Statement
or by the Securities Act or by any other rules and regulations thereunder for
shelf registrations, and the Company and the Trust agree to furnish to the
Holders of Registrable Securities copies of any such supplement or amendment
promptly after its being used or filed with the SEC.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) or 2(b) hereof and
will reimburse the Initial Purchasers for the reasonable fees and disbursements
of Brown & Wood LLP, counsel for the Initial Purchasers, incurred in connection
with the Exchange Offer and, if applicable, the Private Exchange Offer, and
either Brown & Wood LLP or any one other counsel designated in writing by the
Majority Holders to act as counsel for the Holders of the Registrable Securities
in connection with a Shelf Registration Statement, which other counsel shall be
reasonably satisfactory to the Company. Except as provided herein, each Holder
shall pay all expenses of its counsel, underwriting discounts and commissions
and transfer taxes if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to the Shelf Registration Statement.
-10-
<PAGE> 11
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
that if, after it has been declared effective, the offering of Registrable
Securities pursuant to a Shelf Registration Statement is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have been effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume. The Company and the Trust will be deemed not to have used their best
efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if either of them voluntarily takes any action that
would result in any such Registration Statement not being declared effective or
in the Holders of Registrable Securities covered thereby not being able to
exchange or offer and sell such Registrable Securities during that period,
unless such action is required by applicable law.
(e) Liquidated Damages. In the event that (i) (A) neither the
Exchange Offer Registration Statement nor a Shelf Registration Statement is
filed with the SEC on or prior to the 150th day after the Issue Date or (B)
notwithstanding that the Company and the Trust have consummated or will
consummate an Exchange Offer, the Company and the Trust are required to file a
Shelf Registration Statement and such Shelf Registration Statement is not filed
on or prior to the date required by Section 2(b) hereof, then commencing on the
day after the applicable required filing date, additional interest shall accrue
on the principal amount of the Subordinated Debentures, and additional
Distributions shall accumulate on the liquidation amount of the Capital
Securities, each at a rate of 0.25% per annum;
(ii) (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the SEC on or prior to the 30th
day after the applicable required filing date or (B) notwithstanding that the
Company and the Trust have consummated an Exchange Offer, the Company and the
Trust are required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the SEC on or prior to the
30th day after the date such Shelf Registration Statement was required to be
filed, then, commencing on the 31st day after the applicable required filing
date, additional interest shall accrue on the principal amount of the
Subordinated Debentures and additional distributions shall accumulate on the
liquidation amount of the Capital Securities, each at a rate of 0.25% per annum;
or
(iii) (A) the Trust has not exchanged Exchange Capital Securities for
all Capital Securities or the Company has not exchanged Exchange Guarantees or
Exchange Subordinated Debentures for all Guarantees or Subordinated Debentures
validly tendered, in accordance with the terms of the Exchange Offer, on or
prior to the 30th day after the date on which the Exchange Offer Registration
Statement was declared effective or (B) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time prior to the expiration of the Rule 144(k)
Period (other than after such time
-11-
<PAGE> 12
as all Capital Securities have been disposed of thereunder or otherwise cease to
be Registrable Securities), then additional interest shall accrue on the
principal amount of Subordinated Debentures, and additional distributions shall
accumulate on the liquidation amount of the Capital Securities, each at a rate
of 0.25% per annum commencing on (x) the 31st day after such effective date, in
the case of (A) above, or (y) the day such Shelf Registration Statement ceases
to be effective in the case of (B) above;
provided, however, that neither the additional interest rate on the Subordinated
Debentures, nor the additional distribution rate on the liquidation amount of
the Capital Securities, may exceed in the aggregate 0.25% per annum; provided
further, however, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Exchange Offer Registration Statement or a
Shelf Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Capital Securities, Exchange Guarantees and Exchange
Subordinated Debentures for all Capital Securities, Guarantees and Subordinated
Debentures tendered (in the case of clause (iii)(A) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(B) above), additional interest on the
Subordinated Debentures, and additional distributions on the liquidation amount
of the Capital Securities as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue or accumulate, as the case
may be.
Any amounts of additional interest and additional distributions due
pursuant to Section 2(e)(i), (ii) or (iii) above will be payable in cash on the
relevant record dates for the payment of interest and distributions pursuant to
the Indenture and the Declaration, respectively.
(f) Specific Enforcement. Without limiting the remedies
available to the Holders, the Company and the Trust acknowledge that any failure
by the Company or the Trust to comply with its obligations under Section 2(a)
and Section 2(b) hereof may result in material irreparable injury to the Holders
for which there is no adequate remedy at law, that it would not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, any Holder may obtain such relief as may be required to specifically
enforce the Company's and the Trust's obligations under Section 2(a) and Section
2(b) hereof.
3. Registration Procedures. In connection with the obligations
of the Company and the Trust with respect to the Registration Statements
pursuant to Sections 2(a) and 2(b) hereof, the Company and the Trust shall use
their best efforts to:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof
within the relevant time period specified in Section 2 hereof on the
appropriate form under the Securities Act, which form (i) shall be
selected by the Company and the Trust, (ii) shall, in the case of a
Shelf Registration, be available for the sale of the Registrable
Securities by the selling Holders thereof and (iii) shall comply as to
form in all material respects with the requirements of the applicable
form and include or incorporate by reference all financial statements
-12-
<PAGE> 13
required by the SEC to be filed therewith; and use its best efforts to
cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof; provided, however, that
if (1) such filing is pursuant to Section 2(b), or (2) a Prospectus
contained in an Exchange Offer Registration Statement filed pursuant to
Section 2(a) is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities,
before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company and the Trust shall
furnish to and afford the Holders of the Registrable Securities and
each such Participating Broker-Dealer, as the case may be, covered by
such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all
such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed. The
Company and the Trust shall not file any Registration Statement or
Prospectus or any amendments or supplements thereto in respect of which
the Holders must be afforded an opportunity to review prior to the
filing of such document if the Majority Holders or such Participating
Broker-Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
Effectiveness Period or the Applicable Period, as the case may be; and
cause each Prospectus to be supplemented, if so determined by the
Company or the Trust or requested by the SEC, by any required
prospectus supplement and as so supplemented to be filed pursuant to
Rule 424 (or any similar provision then in force) under the Securities
Act, and comply with the provisions of the Securities Act, the Exchange
Act and the rules and regulations promulgated thereunder applicable to
it with respect to the disposition of all securities covered by each
Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in accordance with the intended
method or methods of distribution by the selling Holders thereof
described in this Agreement (including sales by any Participating
Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities included in the Shelf Registration
Statement, at least three Business Days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is
being filed and advise each such Holder that the distribution of
Registrable Securities will be made in accordance with the method
selected by the Majority Holders; and (ii) furnish to each Holder of
Registrable Securities included in the Shelf Registration Statement and
to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement
thereto, and such other documents as such Holder or underwriter may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) consent to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities included in the Shelf
Registration Statement in connection with the
-13-
<PAGE> 14
offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(d) in the case of a Shelf Registration, register or qualify,
by the time the applicable Registration Statement is declared effective
by the SEC, the Registrable Securities under all applicable state
securities or "blue sky" laws of such jurisdictions as any Holder of
Registrable Securities covered by a Registration Statement and each
underwriter of an underwritten offering of Registrable Securities shall
reasonably request in writing in advance of such date of effectiveness,
and do any and all other acts and things that may be reasonably
necessary or advisable to enable such Holder and underwriter to
consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that
neither the Company nor the Trust shall be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this
Section 3(d), (ii) file any general consent to service of process in
any jurisdiction where it would not otherwise be subject to such
service of process or (iii) subject itself to taxation in any such
jurisdiction if it is not then so subject;
(e) in the case of (1) a Shelf Registration or (2)
Participating Broker-Dealers from whom the Company or the Trust has
received prior written notice that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as
provided in Section 3(t) hereof, are seeking to sell Exchange
Securities and are required to deliver Prospectuses, notify each Holder
of Registrable Securities, or such Participating Broker-Dealers, as the
case may be, their counsel and the managing underwriters, if any,
promptly and promptly confirm such notice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendment or supplement thereto becomes effective, (ii) of any request
by the SEC or any state securities authority for amendments and
supplements to a Registration Statement or Prospectus or for additional
information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of
any stop order suspending the effectiveness of a Registration Statement
or the qualification of the Registrable Securities or the Exchange
Securities to be offered or sold by any Participating Broker-Dealer in
any jurisdiction described in paragraph 3(d) hereof or the initiation
of any proceedings for that purpose, (iv) in the case of a Shelf
Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, any of the representations and warranties of the Company and
the Trust contained in any purchase agreement, securities sales
agreement or other similar agreement, ceases to be true and correct in
all material respects, (v) of the happening of any event or the failure
of any event to occur or the discovery of any facts or otherwise,
during the Effectiveness Period, that makes any statement made in such
Registration Statement or the related Prospectus untrue in any material
respect or that causes such Registration Statement or Prospectus to
fail to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were
-14-
<PAGE> 15
made, not misleading and (vi) of the Company and the Trust's reasonable
determination that a post-effective amendment to the Registration
Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities included within the coverage of such
Shelf Registration Statement, without charge, at least one conformed
copy of each Registration Statement relating to such Shelf Registration
and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and in
such denominations (consistent with the provisions of the Indenture and
the Declaration) and registered in such names as the selling Holders or
the underwriters may reasonably request at least two Business Days
prior to the closing of any sale of Registrable Securities pursuant to
such Shelf Registration Statement;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by
Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, prepare a
supplement or post-effective amendment to a Registration Statement or
the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or
fail to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, and to notify each Holder to suspend use of the Prospectus
as promptly as practicable after the occurrence of such an event, and
each Holder hereby agrees to suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) in the case of a Shelf Registration, a reasonable time
prior to the filing of any document that is to be incorporated by
reference into a Registration Statement or a Prospectus after the
initial filing of a Registration Statement, provide a reasonable number
of copies of such document to the Holders, and make such of the
representatives of the Company and the Trust as shall be reasonably
requested by the Holders of Registrable Securities or the Initial
Purchasers on behalf of such Holders available for discussion of such
document;
-15-
<PAGE> 16
(k) obtain a CUSIP number for all Exchange Capital Securities
and the Capital Securities (and if the Trust has made a distribution of
the Subordinated Debentures to the Holders of the Capital Securities,
the Subordinated Debentures or the Exchange Subordinated Debentures) as
the case may be, not later than the effective date of a Registration
Statement, and provide the Trustee with printed certificates for the
Exchange Securities or the Registrable Securities, as the case may be,
in a form eligible for deposit with the Depositary;
(l) cause the Indenture, the Declaration, the Guarantee and
the Exchange Guarantee to be qualified under the Trust Indenture Act of
1939, as amended (the "TIA") in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be, and
effect such changes to such documents as may be required for them to be
so qualified in accordance with the terms of the TIA and execute, and
use its best efforts to cause the relevant trustee to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such
documents to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) as are customary in
underwritten offerings and take all such other appropriate actions as
are reasonably requested in order to expedite or facilitate the
registration or the disposition of such Registrable Securities, and in
such connection, whether or not an underwriting agreement is entered
into and whether or not the registration is an underwritten
registration, if requested by (x) any Initial Purchaser, in the case
where an Initial Purchaser holds Securities acquired by it as part of
its initial distribution and (y) other Holders of Securities covered
thereby: (i) make such representations and warranties to Holders of
such Registrable Securities and the underwriters (if any), with respect
to the business of the Trust, the Company and its subsidiaries as then
conducted and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in
each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested;
(ii) obtain opinions of counsel to the Company and the Trust and
updates thereof (which may be in the form of a reliance letter) in form
and substance reasonably satisfactory to the managing underwriters (if
any) and the Holders of a majority in principal amount of the
Registrable Securities being sold, addressed to each selling Holder and
the underwriters (if any) covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such underwriters (it being agreed that
the matters to be covered by such opinion may be subject to customary
qualifications and exceptions); (iii) obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the
managing underwriters from the independent certified public accountants
of the Company and the Trust (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company and the
Trust or of any business acquired by the Company and the Trust for
which financial statements and financial data are, or are required to
be, included in the Registration Statement),
-16-
<PAGE> 17
addressed to each of the underwriters, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and such
other matters as reasonably requested by such underwriters in
accordance with Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, ensure that the same shall
contain indemnification provisions and procedures no less favorable
than those set forth in Section 4 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal
amount of Registrable Securities covered by such Registration Statement
and the managing underwriters or agents) with respect to all parties to
be indemnified pursuant to said Section (including, without limitation,
such underwriters and selling Holders). The above shall be done at each
closing under such underwriting agreement, or as and to the extent
required thereunder;
(n) if (1) a Shelf Registration is filed pursuant to Section
2(b) or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2(a) is required to be delivered
under the Securities Act by any Participating Broker-Dealer that seeks
to sell Exchange Securities during the Applicable Period, make
reasonably available for inspection by any selling Holder of such
Registrable Securities being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any
such disposition of Registrable Securities, if any, and any attorney,
accountant or other agent retained by any such selling Holder or each
such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept,
during reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Trust, the Company
and its subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and
employees of the Trust, the Company and its subsidiaries to supply all
relevant information in each case reasonably requested by any such
Inspector in connection with such Registration Statement; provided,
however, that the foregoing inspection and information gathering shall
be coordinated on behalf of the Holders by Merrill Lynch and on behalf
of the other parties, by one counsel designated as described in Section
2(c) hereof. Records that the Company and the Trust determine, in good
faith, to be confidential and any records that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors
unless (i) the disclosure of such Records is necessary to avoid or
correct a material misstatement or omission in such Registration
Statement, (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or is
necessary in connection with any action, suit or proceeding or (iii)
the information in such Records has been made generally available to
the public. Each selling Holder of such Registrable Securities and each
such Participating Broker-Dealer will be required to agree in writing
that information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Trust or the Company
unless and until such is made generally available to the public. Each
selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to
-17-
<PAGE> 18
further agree in writing that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company at its expense to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(o) comply with all applicable rules and regulations of the
SEC so long as any provision of this Agreement shall be applicable and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods;
(p) upon consummation of an Exchange Offer or a Private
Exchange, if requested by a Trustee, obtain an opinion of counsel to
the Company addressed to the Trustee for the benefit of all Holders of
Registrable Securities participating in the Exchange Offer or the
Private Exchange, as the case may be, and which includes an opinion
that (i) the Company or the Trust, as the case requires, has duly
authorized, executed and delivered the Exchange Securities and Private
Exchange Securities and (ii) each of the Exchange Securities or the
Private Exchange Securities, as the case may be, constitutes a legal,
valid and binding obligation of the Company or the Trust, as the case
requires, enforceable against the Company or the Trust, as the case
requires, in accordance with its respective terms (in each case, with
customary exceptions);
(q) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to
the Company or the Trust, as applicable (or to such other Person as
directed by the Company or the Trust, respectively), in exchange for
the Exchange Securities or the Private Exchange Securities, as the case
may be, the Company or the Trust, as applicable, shall mark, or cause
to be marked, on such Registrable Securities delivered by such
Holders,that such Registrable Securities are being cancelled in
exchange for the Exchange Securities or the Private Exchange
Securities, as the case may be; in no event shall such Registrable
Securities be marked as paid or otherwise satisfied;
(r) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities, and
their respective counsel, in connection with any filings required to be
made with the NASD;
-18-
<PAGE> 19
(s) take all other reasonable steps necessary to effect the
registration of the Registrable Securities covered by a Registration
Statement contemplated hereby;
(t) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," which section shall be
reasonably acceptable to the Initial Purchasers or another
representative of the Participating Broker-Dealers, and which shall
contain a summary statement of the positions taken or policies made by
the staff of the SEC with respect to the potential "underwriter" status
of any broker-dealer (a "Participating Broker-Dealer") that holds
Registrable Securities acquired for its own account as a result of
market-making activities or other trading activities and that will be
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
of Exchange Securities to be received by such broker-dealer in the
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in
the reasonable judgment of the Initial Purchasers or such other
representative, represent the prevailing views of the staff of the SEC,
including a statement that any such broker-dealer who receives Exchange
Securities for Registrable Securities pursuant to the Exchange Offer
may be deemed a statutory underwriter and must deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such Exchange Securities, (ii) furnish to each Participating
Broker-Dealer that has delivered to the Company the notice referred to
in Section 3(e), without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as
such Participating Broker-Dealer may reasonably request (each of the
Company and the Trust hereby consents to the use of the Prospectus
forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto by any Person subject to the prospectus
delivery requirements of the Securities Act, including all
Participating Broker-Dealers, in connection with the sale or transfer
of the Exchange Securities covered by the Prospectus or any amendment
or supplement thereto), (iii) keep the Exchange Offer Registration
Statement effective and amend and supplement the Prospectus contained
therein in order to permit such Prospectus to be lawfully delivered by
all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such Persons must comply with
such requirements under the Securities Act and applicable rules and
regulations in order to resell the Exchange Securities; provided,
however, that such period shall not be required to exceed 90 days (or
such longer period if extended pursuant to the last sentence of Section
3 hereof) (the "Applicable Period"), and (iv) include in the
transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the
following provision:
"If the exchange offeree is a broker-dealer holding
Registrable Securities acquired for its own account as a
result of market-making activities or other trading
activities, it will deliver a prospectus meeting the
requirements of the Securities Act in
-19-
<PAGE> 20
connection with any resale of Exchange Securities received in
respect of such Registrable Securities pursuant to the
Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and delivering a Prospectus in
connection with the exchange of Registrable Securities, the
broker-dealer will not be deemed to admit that it is an underwriter
within the meaning of the Securities Act; and
(B) in the case of any Exchange Offer Registration
Statement, to deliver to the Initial Purchasers or to another
representative of the Participating Broker-Dealers, if requested by any
such Initial Purchasers or such other representative of the
Participating Broker-Dealers, on behalf of the Participating
Broker-Dealers upon consummation of the Exchange Offer (i) an opinion
of counsel in form and substance reasonably satisfactory to the Initial
Purchasers or such other representative of the Participating
Broker-Dealers, covering the matters customarily covered in opinions
requested in connection with Exchange Offer Registration Statements and
such other matters as may be reasonably requested (it being agreed that
the matters to be covered by such opinion may be subject to customary
qualifications and exceptions), (ii) an officers' certificate
containing certifications substantially similar to those set forth in
Section 5(f) of the Purchase Agreement and such additional
certifications as are customarily delivered in a public offering of
debt securities and (iii) as well as upon the effectiveness of the
Exchange Offer Registration Statement, a comfort letter, in each case,
in customary form if permitted by Statement on Auditing Standards No.
72.
The Company or the Trust may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company or the Trust, as applicable, such information regarding such
seller as may be required by the staff of the SEC to be included in a
Registration Statement. The Company or the Trust may exclude from such
registration the Registrable Securities of any seller that unreasonably fails to
furnish such information within a reasonable time after receiving such request.
The Company shall have no obligation to register under the Securities Act the
Registrable Securities of a seller that so fails to furnish such information.
In the case of (1) a Shelf Registration Statement or (2)
Participating Broker-Dealers that have notified the Company and the Trust that
they will be utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in Section 3(t) hereof, are seeking to sell
Exchange Securities and are required to deliver Prospectuses, each Holder agrees
that, upon receipt of any notice from the Company or the Trust of the happening
of any event of the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or
3(e)(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(i) hereof or until it is advised in writing (the "Advice") by the
Company and the Trust that the use of the applicable Prospectus may be resumed,
and, if so
-20-
<PAGE> 21
directed by the Company and the Trust, such Holder will deliver to the Company
or the Trust (at the Company's or the Trust's expense, as the case requires) all
copies in such Holder's possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
or Exchange Securities, as the case may be, current at the time of receipt of
such notice. If the Company or the Trust shall give any such notice to suspend
the disposition of Registrable Securities or Exchange Securities, as the case
may be, pursuant to a Registration Statement, the Company and the Trust shall
use their best efforts to file and have declared effective (if an amendment) as
soon as practicable an amendment or supplement to the Registration Statement and
shall extend the period during which such Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days in the
period from and including the date of the giving of such notice to and including
the date when the Company and the Trust shall have made available to the Holders
(x) copies of the supplemented or amended Prospectus necessary to resume such
dispositions or (y) the Advice.
4. Indemnification and Contribution.
(a) In connection with any Registration Statement, the Company
and the Trust shall, jointly and severally, indemnify and hold harmless
each Initial Purchaser, each Holder, each underwriter who participates
in an offering of the Registrable Securities, each Participating
Broker-Dealer, each Person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act and each of their respective directors, officers,
employees and agents, as follows:
(i) from and against any and all loss, liability,
claim, damage and expense whatsoever, joint or several, as
incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto), covering
Registrable Securities or Exchange Securities, including all
documents incorporated therein by reference, or the omission
or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(ii) from and against any and all loss, liability,
claim, damage and expense whatsoever, joint or several, as
incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or
proceeding by any court or governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected
with the prior written consent of the Company; and
-21-
<PAGE> 22
(iii) from and against any and all expenses
whatsoever, as incurred (including reasonable fees and
disbursements of counsel chosen by such Holder, such
Participating Broker-Dealer, or any underwriter (except to the
extent otherwise expressly provided in Section 4(c) hereof)),
reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by
any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) of this Section 4(a);
provided, however, that (i) this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished in writing to the
Company or the Trust by such Holder, such Participating Broker-Dealer or any
underwriter with respect to such Holder, Participating Broker-Dealer or any
underwriter, as the case may be, expressly for use in the Registration Statement
(or any amendment thereto) or any Prospectus (or any amendment or supplement
thereto) and (ii) the Company and the Trust shall not be liable to any such
Holder, Participating Broker-Dealer, any underwriter or controlling person, with
respect to any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary Prospectus to the extent that any such loss,
liability, claim, damage or expense of any Holder, Participating Broker-Dealer,
any underwriter or controlling person results from the fact that such Holder,
any underwriter or Participating Broker-Dealer sold Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the final Prospectus as then amended or supplemented if the
Company had previously furnished copies thereof to such Holder, underwriter or
Participating Broker-Dealer and the loss, liability, claim, damage or expense of
such Holder, underwriter, Participating Broker-Dealer or controlling person
results from an untrue statement or omission of a material fact contained in the
preliminary Prospectus which was corrected in the final Prospectus. Any amounts
advanced by the Company or the Trust to an indemnified party pursuant to this
Section 4 as a result of such losses shall be returned to the Company or the
Trust if it shall be finally determined by such a court in a judgment not
subject to appeal or final review that such indemnified party was not entitled
to indemnification by the Company or the Trust.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Trust, any underwriter and the
other selling Holders and each of their respective directors, officers
(including each officer of the Company and the Trust who signed the Registration
Statement), employees and agents and each Person, if any, who controls the
Company, the Trust, any underwriter or any other selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Section 4(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity
-22-
<PAGE> 23
with written information furnished to the Company or the Trust by such selling
Holder with respect to such Holder expressly for use in the Registration
Statement (or any amendment thereto), or any such Prospectus (or any amendment
or supplement thereto); provided, however, that, in the case of Shelf
Registration Statement, no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers properly
served on such indemnified party, but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability that it may have
under this Section 4, except to the extent that it is materially prejudiced by
such failure. In case any such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which an indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified party
unless such settlement (i) includes an unconditional release of such indemnified
party from all liability on any claims that are the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Trust, and
the Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, the Trust, and the Holders, as incurred; provided, that
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any Person that
was not guilty of such fraudulent misrepresentation. As between the Company, the
Trust, and the Holders, such parties shall contribute to such aggregate losses,
liabilities, claims, damages and-expenses of the nature contemplated by such
indemnity agreement in such proportion as shall be appropriate to reflect the
relative fault of the Company and Trust, on the one hand, and the Holders, on
the other hand, with respect to the statements or omissions which resulted in
such loss, liability, claim, damage or expense, or action in respect thereof, as
well as any other relevant equitable considerations. The relative fault of the
Company and the Trust, on the one hand, and of the Holders, on the other hand,
shall be
-23-
<PAGE> 24
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Trust, on
the one hand, or by or on behalf of the Holders, on the other, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Trust and the Holders of
the Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 4 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 4, each
affiliate of a Holder, and each director, officer, employee, agent and Person,
if any, that controls a Holder or such affiliate within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Holder, and each director of each of the Company
or the Trust, each officer of each of the Company or the Trust who signed the
Registration Statement, and each Person, if any, that controls each of the
Company and the Trust within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
each of the Company or the Trust.
5. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents reasonably required under the terms of such underwriting
arrangements.
6. Selection of Underwriters. The Holders of Registrable
Securities covered by the Shelf Registration Statement that desire to do so may
sell the securities covered by such Shelf Registration in an underwritten
offering. In any such underwritten offering, the underwriter or underwriters and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of the Registrable
Securities included in such offering; provided, however, that such underwriters
and managers must be reasonably satisfactory to the Company and the Trust.
7. Miscellaneous.
(a) Rule 144 and Rule 144A. For so long as the Company or the
Trust is subject to the reporting requirements of Section 13 or 15 of the
Exchange Act and any Registrable Securities remain outstanding, the Company and
the Trust, as the case may be, will use their best efforts to file the reports
required to be filed by either of them under the Securities Act and Section
13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the
SEC thereunder; provided, that if either of them ceases to be so required to
file such reports, it will, upon the request of any Holder of Registrable
Securities (a) make publicly available such information as is necessary to
permit sales of such Holder's securities pursuant to Rule 144 under the
Securities Act, (b) deliver such information to a prospective purchaser as is
necessary
-24-
<PAGE> 25
to permit sales of such Holder's securities pursuant to Rule 144A under the
Securities Act and take such further action as any Holder of Registrable
Securities may reasonably request, and (c) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time, to enable such Holder to sell its Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, (ii) Rule 144A under the Securities Act, as such rule may be
amended from time to time, or (iii) any similar rules or regulations hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company and the Trust will deliver to such Holder a written statement as to
whether either of them has complied with such requirements.
(b) No Inconsistent Agreements. Neither the Company nor the
Trust has entered into, nor will the Company or the Trust on or after the date
of this Agreement enter into, any agreement that is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's or the Trust's other issued and
outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company and the Trust have obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure; provided, that no amendment, modification or
supplement or waiver or consent to the departure with respect to the provisions
of Section 4 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities. Notwithstanding the foregoing sentence, (i) this Agreement may be
amended, without the consent of any Holder of Registrable Securities, by written
agreement signed by the Company, the Trust and Merrill Lynch, to cure any
ambiguity, correct or supplement any provision of this Agreement that may be
inconsistent with any other provision of this Agreement or to make any other
provisions with respect to matters or questions arising under this Agreement
that shall not be inconsistent with other provisions of this Agreement, (ii)
this Agreement may be amended, modified or supplemented, and waivers and
consents to departures from the provisions hereof may be given, by written
agreement signed by the Company, the Trust and Merrill Lynch to the extent that
any such amendment, modification, supplement, waiver or consent is, in their
reasonable judgment, necessary or appropriate to comply with applicable law
(including any interpretation of the Staff of the SEC) or any change therein and
(iii) to the extent any provision of this Agreement relates to the Initial
Purchasers, such provision may be amended, modified or supplemented, and waivers
or consents to departures from such provisions may be given, by written
agreement signed by Merrill Lynch, the Company and the Trust.
-25-
<PAGE> 26
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company or the Trust by means of a notice given in accordance with the
provisions of this Section 7(d), which address initially is, with respect to the
Initial Purchasers, the address set forth in the Purchase Agreement; and (ii) if
to the Company or the Trust, initially at the Company's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 7(d).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee, at
the address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchasers, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement or
the Indenture. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. Each of the Initial Purchasers
shall be a third party beneficiary of the agreements made hereunder between the
Company and the Trust, on the one hand, and the Holders, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
-26-
<PAGE> 27
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE
PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Securities Held by the Company, the Trust or its
Affiliates. Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company, the Trust or its affiliates (as such term is
defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
-27-
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
ADVANTA CORP.
By: /s/ David D. Wesselink
------------------------------------------------
Name: David D. Wesselink
Title: Senior Vice President and Chief
Financial Officer
ADVANTA CAPITAL TRUST I
By: /s/ David D. Wesselink
------------------------------------------------
Name: David D. Wesselink
Trustee
-28-
<PAGE> 29
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
SALOMON BROTHERS INC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Lee Shavel
------------------------------------
Authorized Signatory
On its behalf and on behalf of
Salomon Brothers Inc
-29-
<PAGE> 1
EXHIBIT 4-k
========================================
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
Advanta Corp.
Dated as of December 17, 1996
========================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION -2-
SECTION 1.1 Definitions and Interpretation -2-
ARTICLE II TRUST INDENTURE ACT -5-
SECTION 2.1 Trust Indenture Act; Application -5-
SECTION 2.2 Lists of Holders of Securities -6-
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee -6-
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee -6-
SECTION 2.5 Evidence of Compliance with Conditions Precedent -7-
SECTION 2.6 Events of Default; Waiver -7-
SECTION 2.7 Event of Default; Notice -7-
SECTION 2.8 Conflicting Interests -7-
ARTICLE III POWERS, DUTIES AND RIGHTS OF CAPITAL
SECURITIES GUARANTEE TRUSTEE -8-
SECTION 3.1 Powers and Duties of the Capital Securities
Guarantee Trustee -8-
SECTION 3.2 Certain Rights of Capital Securities
Guarantee Trustee -10-
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A
Capital Securities Guarantee -12-
ARTICLE IV CAPITAL SECURITIES GUARANTEE TRUSTEE -12-
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility -12-
SECTION 4.2 Appointment, Removal and Resignation of Capital
Securities Guarantee Trustee -13-
ARTICLE V GUARANTEE -14-
SECTION 5.1 Guarantee -14-
SECTION 5.2 Waiver of Notice and Demand -14-
SECTION 5.3 Obligations Not Affected -14-
SECTION 5.4 Rights of Holders -15-
SECTION 5.5 Guarantee of Payment -16-
SECTION 5.6 Subrogation -16-
SECTION 5.7 Independent Obligations -16-
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION -16-
SECTION 6.1 Limitation of Transactions -16-
SECTION 6.2 Ranking -17-
ARTICLE VII TERMINATION -17-
SECTION 7.1 Termination -17-
ARTICLE VIII INDEMNIFICATION -18-
SECTION 8.1 Exculpation -18-
SECTION 8.2 Indemnification -18-
ARTICLE IX MISCELLANEOUS -19-
SECTION 9.1 Successors and Assigns -19-
SECTION 9.2 Amendments -19-
SECTION 9.3 Notices -19-
SECTION 9.4 Exchange Offer -20-
SECTION 9.5 Benefit -21-
SECTION 9.6 Governing Law -21-
</TABLE>
<PAGE> 3
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Series A Capital
Securities Guarantee"), dated as of December 17, 1996 is executed and delivered
by Advanta Corp., a Delaware corporation (the "Guarantor"), and The Chase
Manhattan Bank, as trustee (sometimes referred to hereinafter as the "Capital
Securities Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Series A Capital Securities (as defined
herein) of Advanta Capital Trust I, a Delaware statutory business trust (the
"Issuer").
WHEREAS, pursuant to an Amended and Restated
Declaration of Trust (the "Declaration"), dated as of December 17, 1996, among
the trustees of the Issuer, the Guarantor, as sponsor, and the holders from
time to time of undivided beneficial interests in the assets of the Issuer, the
Issuer (i) is issuing on the date hereof 100,000 capital securities, having an
aggregate liquidation amount of $100,000,000, such capital securities being
designated the 8.99% Series A Capital Securities (collectively the "Series A
Capital Securities") and (ii) in connection with an Exchange Offer (as defined
in the Declaration) will execute and deliver the Series B Capital Securities
Guarantee (as defined in the Declaration) for the benefit of Holders of the
Series B Capital Securities (as defined in the Declaration).
WHEREAS, as incentive for the Holders to purchase the
Series A Capital Securities, the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth in this Series A Capital
Securities Guarantee, to pay to the Holders of the Series A Capital Securities
the Guarantee Payments (as defined below), and the Guarantor agrees to make
certain other payments on the terms and conditions set forth herein.
WHEREAS, the Guarantor is executing and delivering a
guarantee agreement (the "Common Securities Guarantee"), for the benefit of the
holders of the Common Securities (as defined herein), the terms of which
provide that if an Event of Default (as defined in the Declaration) has
occurred and is continuing, the rights of holders of the Common Securities to
receive Guarantee Payments under the Common Securities Guarantee are
subordinated, to the extent and in the manner set forth in the Common
Securities Guarantee, to the rights of Holders of Series A Capital Securities
and the Series B Capital Securities to receive Guarantee Payments under this
Series A Capital Securities Guarantee and the Series B Capital Securities
Guarantee, as the case may be.
NOW, THEREFORE, in consideration of the purchase by
each Holder of Series A Capital Securities, which purchase the Guarantor hereby
acknowledges shall benefit the Guarantor, the Guarantor executes and delivers
this Series A Capital Securities Guarantee for the benefit of the Holders.
<PAGE> 4
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Series A Capital Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Series A
Capital Securities Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;
(b) Terms defined in the Declaration as at the
date of execution of this Series A Capital Securities Guarantee have the same
meaning when used in this Series A Capital Securities Guarantee unless
otherwise defined in this Series A Capital Securities Guarantee;
(c) a term defined anywhere in this Series A Capital Securities Guarantee
has the same meaning throughout;
(d) all references to "the Series A Capital
Securities Guarantee" or "this Series A Capital Securities Guarantee" are to
this Series A Capital Securities Guarantee as modified, supplemented or amended
from time to time;
(e) all references in this Series A Capital
Securities Guarantee to Articles and Sections are to Articles and Sections of
this Series A Capital Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has
the same meaning when used in this Series A Capital Securities Guarantee,
unless otherwise defined in this Series A Capital Securities Guarantee or
unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that
term in Rule 405 under the Securities Act of 1933, as amended, or any successor
rule thereunder.
"Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in New York, New
York or Wilmington, Delaware are authorized or required by law or executive
order to close.
<PAGE> 5
"Capital Securities Guarantee Trustee" shall mean The
Chase Manhattan Bank, until a Successor Capital Securities Guarantee Trustee
has been appointed and has accepted such appointment pursuant to the terms of
this Series A Capital Securities Guarantee and thereafter means each such
Successor Capital Securities Guarantee Trustee.
"Common Securities" shall mean the securities
representing common undivided beneficial interests in the assets of the Issuer.
"Corporate Trust Office" shall mean the office of the
Capital Securities Guarantee Trustee at which the corporate trust business of
the Capital Securities Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of this
Agreement is located at 450 West 33rd Street, 15th Floor, New York, New York
10001.
"Covered Person" shall mean any Holder or beneficial
owner of Series A Capital Securities.
"Debentures" shall mean the series of subordinated
debt securities of the Guarantor designated the 8.99% Series A Junior
Subordinated Deferrable Interest Debentures due December 17, 2026 held by the
Property Trustee (as defined in the Declaration) of the Issuer.
"Event of Default" shall mean a default by the
Guarantor on any of its payment or other obligations under this Series A
Capital Securities Guarantee.
"Guarantee Payments" shall mean the following
payments or distributions, without duplication, with respect to the Series A
Capital Securities, to the extent not paid or made by the Issuer: (i) any
accumulated and unpaid Distributions (as defined in the Declaration) that are
required to be paid on such Series A Capital Securities to the extent the
Issuer has funds on hand legally available therefor at such time, (ii) the
redemption price, including all accumulated and unpaid Distributions to the
date of redemption (the "Redemption Price") to the extent the Issuer has funds
on hand legally available therefor at such time, with respect to any Series A
Capital Securities called for redemption by the Issuer, and (iii) upon a
voluntary or involuntary termination and liquidation of the Issuer (other than
in connection with the distribution of Debentures to the Holders in exchange
for Series A Capital Securities as provided in the Declaration), the lesser of
(a) the aggregate of the liquidation amount and all accumulated and unpaid
Distributions on the Series A Capital Securities to the date of payment, to the
extent the Issuer has funds on hand legally available therefor, and (b) the
amount of assets of the Issuer remaining available for distribution to Holders
in liquidation of the Issuer. If an Event of Default has occurred and is
continuing, no Guarantee Payments under the Common Securities Guarantee with
respect to the Common Securities or any guarantee payment under any Other
Common Securities Guarantees shall be made until the Holders of Series A
Capital Securities shall be paid in full the Guarantee Payments to which they
are entitled under this Series A Capital Securities Guarantee.
<PAGE> 6
"Holder" shall mean any holder, as registered on the
books and records of the Issuer, of any Series A Capital Securities; provided,
however, that, in determining whether the holders of the requisite percentage
of Series A Capital Securities have given any request, notice, consent or
waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of
the Guarantor.
"Indemnified Person" shall mean the Capital
Securities Guarantee Trustee, any Affiliate of the Capital Securities Guarantee
Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Capital
Securities Guarantee Trustee.
"Indenture" shall mean the Indenture dated as of
December 17, 1996 among the Guarantor (the "Debenture Issuer") and The Chase
Manhattan Bank, as trustee, pursuant to which the Debentures are to be issued
to the Property Trustee of the Issuer.
"Majority in liquidation amount of the Series A
Capital Securities" shall mean, except as provided by the Trust Indenture Act,
a vote by Holder(s) of Series A Capital Securities, voting separately as a
class, of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accumulated and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Series A Capital Securities.
"Officers' Certificate" shall mean, with respect to
any person, a certificate signed by the Chairman, a Vice Chairman, the Chief
Executive Officer, the President, a Vice President or the Treasurer of the
Guarantor. Any Officers' Certificate delivered with respect to compliance with
a condition or covenant provided for in this Series A Capital Securities
Guarantee shall include:
(a) a statement that each officer signing the
Officers' Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a statement that each such officer has made
such examination or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(c) a statement as to whether, in the opinion of
each such officer, such condition or covenant has been complied with.
"Other Common Securities Guarantees" shall have the
same meaning as "Other Guarantees" in the Common Securities Guarantee.
<PAGE> 7
"Other Debentures" shall mean all junior subordinated
debentures issued by the Guarantor from time to time and sold to trusts other
than the Issuer to be established by the Guarantor (if any), in each case
similar to the Issuer.
"Other Guarantees" shall mean all guarantees to be
issued by the Guarantor with respect to capital securities (if any) similar to
the Series A Capital Securities issued by trusts other than the Issuer to be
established by the Guarantor (if any), in each case similar to the Issuer.
"Person" shall mean a legal person, including any
individual, corporation, estate, partnership, joint venture, association, joint
stock company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of December 11, 1996 by and among the
Guarantor, the Issuer and the Initial Purchasers named therein as such
agreement may be amended, modified or supplemented from time to time.
"Responsible Officer" shall mean, with respect to the
Capital Securities Guarantee Trustee, any officer within the Corporate Trust
Office of the Capital Securities Guarantee Trustee with direct responsibility
for the administration of this Series A Capital Securities Guarantee and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Successor Capital Securities Guarantee Trustee"
shall mean a successor Capital Securities Guarantee Trustee possessing the
qualifications to act as Capital Securities Guarantee Trustee under Section
4.1.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended.
"Trust Securities" shall mean the Common Securities
and the Series A Capital Securities and Series B Capital Securities,
collectively.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Series A Capital Securities Guarantee is
subject to the provisions of the Trust Indenture Act that are required to be
part of this Series A Capital Securities Guarantee and shall, to the extent
applicable, be governed by such provisions; and
<PAGE> 8
(b) if and to the extent that any provision of
this Series A Capital Securities Guarantee limits, qualifies or conflicts with
the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture
Act, such imposed duties shall control.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Capital
Securities Guarantee Trustee (unless the Capital Securities Guarantee Trustee
is otherwise the registrar of the Capital Securities) with a list, in such form
as the Capital Securities Guarantee Trustee may reasonably require, of the
names and addresses of the Holders of the Series A Capital Securities ("List of
Holders") as of such date, (i) within one Business Day after June 1 and
December 1 of each year, and (ii) at any other time within 30 days of receipt
by the Guarantor of a written request for a List of Holders as of a date no
more than 14 days before such List of Holders is given to the Capital
Securities Guarantee Trustee; provided, that the Guarantor shall not be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Capital Securities
Guarantee Trustee by the Guarantor. The Capital Securities Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Capital Securities Guarantee Trustee
shall comply with its obligations under Sections 311(a), 311(b) and Section
312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee
Within 60 days after May 15 of each year, commencing
May 15, 1997, the Capital Securities Guarantee Trustee shall provide to the
Holders of the Series A Capital Securities such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Capital Securities
Guarantee Trustee shall also comply with the requirements of section 313(d) of
the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee
The Guarantor shall provide to the Capital Securities
Guarantee Trustee such documents, reports and information as required by
Section 314 (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act. Delivery of such reports, information
and documents to the Capital Securities Guarantee Trustee is for informational
purposes only and the Capital Securities Guarantee Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Guarantor's
<PAGE> 9
compliance with any of its covenants hereunder (as to which the Capital
Securities Guarantee Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Capital Securities
Guarantee Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Series A Capital Securities Guarantee that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
14(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
Series A Capital Securities may, by vote, on behalf of the Holders of all of
the Series A Capital Securities, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Series A Capital Securities Guarantee, but no
such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon.
SECTION 2.7 Event of Default; Notice
(a) The Capital Securities Guarantee Trustee
shall, within 90 days after the occurrence of a default with respect to this
Capital Securities Guarantee, mail by first class postage prepaid, to all
Holders of the Series A Capital Securities, notices of all defaults actually
known to a Responsible Officer of the Capital Securities Guarantee Trustee,
unless such defaults have been cured before the giving of such notice;
provided, that, except in the case of default in the payment of any Guarantee
Payment, the Capital Securities 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
Capital Securities Guarantee Trustee in good faith determines that the
withholding of such notice is in the interests of the holders of the Series A
Capital Securities.
(b) The Capital Securities Guarantee Trustee
shall not be deemed to have knowledge of any Event of Default unless the
Capital Securities Guarantee Trustee shall have received written notice, or a
Responsible Officer of the Capital Securities Guarantee Trustee charged with
the administration of the Declaration shall have obtained actual knowledge, of
such Event of Default.
SECTION 2.8 Conflicting Interests
<PAGE> 10
The Declaration shall be deemed to be specifically
described in this Series A Capital Securities Guarantee for the purposes of
clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee
(a) This Series A Capital Securities Guarantee
shall be held by the Capital Securities Guarantee Trustee for the benefit of
the Holders of the Series A Capital Securities, and the Capital Securities
Guarantee Trustee shall not transfer this Series A Capital Securities Guarantee
to any Person except a Holder of Series A Capital Securities exercising his or
her rights pursuant to Section 5.4(b) or to a Successor Capital Securities
Guarantee Trustee on acceptance by such Successor Capital Securities Guarantee
Trustee of its appointment to act as Successor Capital Securities Guarantee
Trustee. The right, title and interest of the Capital Securities Guarantee
Trustee shall automatically vest in any Successor Capital Securities Guarantee
Trustee, and such vesting and succession of title shall be effective whether or
not conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Capital Securities Guarantee Trustee.
(b) If an Event of Default actually known to a
Responsible Officer of the Capital Securities Guarantee Trustee has occurred
and is continuing, the Capital Securities Guarantee Trustee shall enforce this
Series A Capital Securities Guarantee for the benefit of the Holders of the
Series A Capital Securities.
(c) The Capital Securities Guarantee Trustee,
before the occurrence of any Event of Default and after the curing of all
Events of Default that may have occurred, shall undertake to perform only such
duties as are specifically set forth in this Series A Capital Securities
Guarantee, and no implied covenants shall be read into this Series A Capital
Securities Guarantee against the Capital Securities Guarantee Trustee. In case
an Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) and is actually known to a Responsible Officer of the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Series A Capital
Securities Guarantee, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(d) No provision of this Series A Capital
Securities Guarantee shall be construed to relieve the Capital Securities
Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
<PAGE> 11
(i) prior to the occurrence of any Event of Default
and after the curing or waiving of all such Events of Default
that may have occurred:
(A) the duties and obligations of the
Capital Securities Guarantee Trustee shall be
determined solely by the express provisions of this
Series A Capital Securities Guarantee, and the
Capital Securities Guarantee Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this
Series A Capital Securities Guarantee, and no implied
covenants or obligations shall be read into this
Series A Capital Securities Guarantee against the
Capital Securities Guarantee Trustee; and
(B) in the absence of bad faith on the
part of the Capital Securities Guarantee Trustee, the
Capital Securities Guarantee Trustee may conclusively
rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Capital
Securities Guarantee Trustee and conforming to the
requirements of this Series A Capital Securities
Guarantee; provided, however, that in the case of any
such certificates or opinions that by any provision
hereof are specifically required to be furnished to
the Capital Securities Guarantee Trustee, the Capital
Securities Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they
conform to the requirements of this Series A Capital
Securities Guarantee;
(ii) the Capital Securities Guarantee Trustee shall
not be liable for any error of judgment made in good faith by
a Responsible Officer of the Capital Securities Guarantee
Trustee, unless it shall be proved that the Capital Securities
Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Capital Securities Guarantee Trustee shall
not be liable with respect to any action taken or omitted to
be taken by it in good faith in accordance with the direction
of the Holders of a Majority in liquidation amount of the
Series A Capital Securities relating to the time, method and
place of conducting any proceeding for any remedy available to
the Capital Securities Guarantee Trustee, or exercising any
trust or power conferred upon the Capital Securities Guarantee
Trustee under this Series A Capital Securities Guarantee; and
(iv) no provision of this Series A Capital Securities
Guarantee shall require the Capital Securities Guarantee
Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of
<PAGE> 12
any of its duties or in the exercise of any of its rights or
powers, if the Capital Securities Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the
terms of this Series A Capital Securities Guarantee or
indemnity, reasonably satisfactory to the Capital Securities
Guarantee Trustee, against such risk or liability is not
reasonably assured to it.
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Capital Securities Guarantee Trustee may
conclusively rely, and shall be fully protected in acting or
refraining from acting, upon any resolution, certificate,
statement instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed
by it to be genuine and to have been signed, sent or presented
by the proper party or parties.
(ii) Any direction or act of the Guarantor
contemplated by this Series A Capital Securities Guarantee may
be sufficiently evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Series
A Capital Securities Guarantee, the Capital Securities
Guarantee Trustee shall deem it desirable that a matter be
proved or established before taking, suffering or omitting any
action hereunder, the Capital Securities Guarantee Trustee
(unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon
receipt of such request, shall be promptly delivered by the
Guarantor.
(iv) The Capital Securities Guarantee Trustee shall
have no duty to see to any recording, filing or registration
of any instrument (or any rerecording, refiling or
registration thereof).
(v) The Capital Securities Guarantee Trustee may
consult with counsel of its selection, and the advice or
opinion of such counsel with respect to legal matters shall be
full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion. Such
counsel may be counsel to the Guarantor or any of its
Affiliates and may include any of its employees. The Capital
Securities Guarantee Trustee shall have the right at any time
to seek instructions concerning the administration of this
Series A Capital Securities Guarantee from any court of
competent jurisdiction.
<PAGE> 13
(vi) The Capital Securities Guarantee Trustee shall
be under no obligation to exercise any of the rights or powers
vested in it by this Series A Capital Securities Guarantee at
the request or direction of any Holder, unless such Holder
shall have provided to the Capital Securities Guarantee
Trustee such security and indemnity, reasonably satisfactory
to the Capital Securities Guarantee Trustee, against the
costs, expenses (including attorneys' fees and expenses and
the expenses of the Capital Securities Guarantee Trustee's
agents, nominees or custodians) and liabilities that might be
incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the
Capital Securities Guarantee Trustee; provided, that nothing
contained in this Section 3.2(a)(vi) shall be taken to relieve
the Capital Securities Guarantee Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Series A Capital
Securities Guarantee.
(vii) The Capital Securities Guarantee Trustee shall
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 Capital
Securities Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as
it may see fit.
(viii) The Capital Securities Guarantee Trustee may
execute any of the trusts or powers hereunder or perform any
duties hereunder either directly or by or through agents,
nominees, custodians or attorneys, and the Capital Securities
Guarantee Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
(ix) Any action taken by the Capital Securities
Guarantee Trustee or its agents hereunder shall bind the
Holders of the Series A Capital Securities, and the signature
of the Capital Securities Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such
action. No third party shall be required to inquire as to the
authority of the Capital Securities Guarantee Trustee to so
act or as to its compliance with any of the terms and
provisions of this Series A Capital Securities Guarantee, both
of which shall be conclusively evidenced by the Capital
Securities Guarantee Trustee's or its agent's taking such
action.
(x) Whenever in the administration of this Series A
Capital Securities Guarantee the Capital Securities Guarantee
Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or
<PAGE> 14
right or taking any other action hereunder, the Capital
Securities Guarantee Trustee (i) may request instructions from
the Holders of a Majority in liquidation amount of the Series
A Capital Securities, (ii) may refrain from enforcing such
remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such
instructions.
(xi) The Capital Securities Guarantee Trustee shall
not be liable for any action taken, suffered, or omitted to be
taken by it in good faith, without negligence, and reasonably
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Series A Capital
Securities Guarantee.
(b) No provision of this Series A Capital
Securities Guarantee shall be deemed to impose any duty or obligation on the
Capital Securities Guarantee Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it in any jurisdiction
in which it shall be illegal, or in which the Capital Securities Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Capital
Securities Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A Capital
Securities Guarantee
The recitals contained in this Series A Capital Securities
Guarantee shall be taken as the statements of the Guarantor, and the Capital
Securities Guarantee Trustee does not assume any responsibility for their
correctness. The Capital Securities Guarantee Trustee makes no representation
as to the validity or sufficiency of this Series A Capital Securities
Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility
(a) There shall at all times be a Capital Securities Guarantee Trustee that
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business
under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a
corporation or Person permitted by the Securities and Exchange
Commission to act as an institutional trustee
<PAGE> 15
under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and
subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes
of this Section 4.1(a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Capital Securities
Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a),
the Capital Securities Guarantee Trustee shall immediately resign in the manner
and with the effect set out in Section 4.2(c).
(c) If the Capital Securities Guarantee Trustee
has or shall acquire any "conflicting interest" within the meaning of Section
310(b) of the Trust Indenture Act, the Capital Securities Guarantee Trustee and
Guarantor shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Capital Securities
Guarantee Trustee
(a) Subject to Section 4.2(b), the Capital
Securities Guarantee Trustee may be appointed or removed without cause at any
time by the Guarantor except during an Event of Default.
(b) The Capital Securities Guarantee Trustee
shall not be removed in accordance with Section 4.2(a) until a Successor
Capital Securities Guarantee Trustee has been appointed and has accepted such
appointment by written instrument executed by such Successor Capital Securities
Guarantee Trustee and delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee
shall hold office until a Successor Capital Securities Guarantee Trustee shall
have been appointed or until its removal or resignation. The Capital
Securities Guarantee Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument in writing executed by the Capital
Securities Guarantee Trustee and delivered to the Guarantor, which resignation
shall not take effect until a Successor Capital Securities Guarantee Trustee
has been appointed and has accepted such appointment by instrument in writing
executed by such Successor Capital Securities Guarantee Trustee and delivered
to the Guarantor and the resigning Capital Securities Guarantee Trustee.
<PAGE> 16
(d) If no Successor Capital Securities Guarantee
Trustee shall have been appointed and accepted appointment as provided in this
Section 4.2 within 60 days after delivery of an instrument of removal or
resignation, the Capital Securities Guarantee Trustee resigning or being
removed may petition any court of competent jurisdiction for appointment of a
Successor Capital Securities Guarantee Trustee. Such court may thereupon,
after prescribing such notice, if any, as it may deem proper, appoint a
Successor Capital Securities Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall
be liable for the acts or omissions to act of any Successor Capital Securities
Guarantee Trustee.
(f) Upon termination of this Series A Capital
Securities Guarantee or removal or resignation of the Capital Securities
Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the
Capital Securities Guarantee Trustee all amounts due to the Capital Securities
Guarantee Trustee accrued to the date of such termination, removal or
resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees
to pay in full to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by the Issuer), as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer may have or assert.
The Guarantor's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Guarantor to the Holders or by
causing the Issuer to pay such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of
this Series A Capital Securities Guarantee and of any liability to which it
applies or may apply, presentment, demand for payment, any right to require a
proceeding first against the Issuer or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor,
notice of redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of
the Guarantor under this Series A Capital Securities Guarantee shall in no way
be affected or impaired by reason of the happening from time to time of any of
the following:
(a) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Issuer of any express or
implied agreement,
<PAGE> 17
covenant, term or condition relating to the Series A Capital Securities to be
performed or observed by the Issuer;
(b) the extension of time for the payment by the
Issuer of all or any portion of the Distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the terms of the
Series A Capital Securities or the extension of time for the performance of any
other obligation under, arising out of, or in connection with, the Series A
Capital Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum payable
that results from the extension of any interest payment period on the
Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of
diligence on the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the terms of
the Series A Capital Securities, or any action on the part of the Issuer
granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of debt of, or other similar proceedings affecting,
the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency
in, the Series A Capital Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred;
(g) the consummation of the Exchange Offer; or
(h) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a guarantor,
it being the intent of this Section 5.3 that the obligations of the Guarantor
with respect to the Guarantee Payments shall be absolute and unconditional
under any and all circumstances.
There shall be no obligation of the Holders to give
notice to, or obtain consent of, the Guarantor with respect to the happening of
any of the foregoing.
SECTION 5.4 Rights of Holders
(a) The Holders of a Majority in liquidation
amount of the Series A Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Capital Securities Guarantee Trustee in respect of this Series A Capital
Securities Guarantee or exercising any trust or
<PAGE> 18
power conferred upon the Capital Securities Guarantee Trustee under this Series
A Capital Securities Guarantee.
(b) If the Capital Securities Guarantee Trustee
fails to enforce such Series A Capital Securities Guarantee, any Holder of
Series A Capital Securities may institute a legal proceeding directly against
the Guarantor to enforce the Capital Securities Guarantee Trustee's rights
under this Series A Capital Securities Guarantee, without first instituting a
legal proceeding against the Issuer, the Capital Securities Guarantee Trustee
or any other person or entity. The Guarantor waives any right or remedy to
require that any action be brought first against the Issuer or any other person
or entity before proceeding directly against the Guarantor.
SECTION 5.5 Guarantee of Payment
This Series A Capital Securities Guarantee creates a
guarantee of payment and not of collection.
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any)
rights of the Holders of Series A Capital Securities against the Issuer in
respect of any amounts paid to such Holders by the Guarantor under this Series
A Capital Securities Guarantee; provided, however, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any right that it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of
payment under this Series A Capital Securities Guarantee, if, at the time of
any such payment, any amounts are due and unpaid under this Series A Capital
Securities Guarantee. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such amount
in trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations
hereunder are independent of the obligations of the Issuer with respect to the
Series A Capital Securities, and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Series A Capital Securities Guarantee notwithstanding the
occurrence of any event referred to in subsections (a) through (h), inclusive,
of Section 5.3 hereof.
<PAGE> 19
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Capital Securities remain outstanding,
the Guarantor shall not (i) declare or pay any dividends or distributions on,
or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Guarantor's capital stock (which includes common and preferred
stock) or (ii) make any payment of principal, interest or premium, if any, on
or repay or repurchase or redeem any debt securities of the Guarantor
(including any Other Debentures) that rank pari passu with or junior in right
of payment to the Debentures or (iii) make any guarantee payments with respect
to any guarantee by the Guarantor of the debt securities of any subsidiary of
the Guarantor (including Other Guarantees) if such guarantee ranks pari passu
or junior in right of payment to the Debentures (other than (a) dividends or
distributions in shares of, or options, warrants, rights to subscribe for or
purchase shares of, common stock of the Guarantor, (b) any declaration of a
dividend in connection with the implementation of a stockholder's rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Capital Securities Guarantee, (d) as a result of a reclassification of the
Guarantor's capital stock or the exchange or the conversion of one class or
series of the Guarantor's capital stock for another class or series of the
Guarantor's capital stock, (e) the purchase of fractional interests in shares
of the Guarantor's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
and (f) purchases of common stock related to the issuance of common stock or
rights under any of the Guarantor's benefit plans for its directors, officers
or employees or any of the Guarantor's dividend reinvestment plans) if at such
time (i) there shall have occurred any event of which the Guarantor has actual
knowledge that (a) is, or with the giving of notice or the lapse of time, or
both, would be, an Event of Default and (b) in respect of which the Guarantor
shall not have taken reasonable steps to cure, (ii) if such Debentures are held
by the Property Trustee, the Guarantor shall be in default with respect to its
payment of any obligations under this Series A Capital Securities Guarantee or
(iii) the Guarantor shall have given notice of its election of the exercise of
its right to extend the interest payment period pursuant to Section 16.01 of
the Indenture and any such extension shall be continuing.
SECTION 6.2 Ranking
This Series A Capital Securities Guarantee will
constitute an unsecured obligation of the Guarantor and will rank (i)
subordinate and junior in right of payment to Senior Indebtedness (as defined
in the Indenture), to the same extent and in the same manner that the
Debentures are subordinated to Senior Indebtedness pursuant to the Indenture
(except as indicated below), it being understood that the terms of Article XV
of the Indenture shall apply to the obligations of the Guarantor under this
Series A Capital Securities Guarantee as if (x) such Article XV were set forth
herein in full and (y)
<PAGE> 20
such obligations were substituted for the term "Securities" appearing in such
Article XV, except that with respect to Section 15.03 of the Indenture only,
the term "Senior Indebtedness" shall mean all liabilities of the Guarantor,
whether or not for money borrowed (other than obligations in respect of Other
Guarantees), (ii) pari passu with the most senior preferred or preference stock
now or hereafter issued by the Guarantor and with any Other Guarantee (as
defined herein) and any Other Common Securities Guarantee and any guarantee now
or hereafter entered into by the Guarantor in respect of any preferred or
preference stock of any Affiliate of the Guarantor, and (iii) senior to the
Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Series A Capital Securities Guarantee shall
terminate (i) upon full payment of the Redemption Price (as defined in the
Declaration) of all Series A Capital Securities, or (ii) upon liquidation of
the Issuer, the full payment of the amounts payable in accordance with the
Declaration or the distribution of the Debentures to the Holders of all of the
Series A Capital Securities. Notwithstanding the foregoing, this Series A
Capital Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder of Series A Capital
Securities must restore payment of any sums paid under the Series A Capital
Securities or under this Series A Capital Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Guarantor or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith in
accordance with this Series A Capital Securities Guarantee and in a manner that
such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Series A Capital
Securities Guarantee or by law, except that an Indemnified Person shall be
liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.
(b) An Indemnified Person shall be fully
protected in relying in good faith upon the records of the Guarantor and upon
such information, opinions, reports or statements presented to the Guarantor by
any Person as to matters the Indemnified Person reasonably believes are within
such other Person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the
<PAGE> 21
Guarantor, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits, losses, or any other
facts pertinent to the existence and amount of assets from which Distributions
to Holders of Series A Capital Securities might properly be paid.
SECTION 8.2 Indemnification
The Guarantor agrees to indemnify each Indemnified
Person for, and to hold each Indemnified Person harmless against, any and all
loss, liability, damage, claim or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses (including reasonable legal fees and expenses) of defending itself
against, or investigating, any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
obligation to indemnify as set forth in this Section 8.2 shall survive the
termination of this Series A Capital Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this
Series A Capital Securities Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Guarantor and shall inure to the
benefit of the Holders of the Series A Capital Securities then outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not
materially adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Series A Capital Securities Guarantee may only
be amended with the prior approval of the Holders of a Majority in liquidation
amount of the Securities (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined). The provisions of
Section 12.2 of the Declaration with respect to meetings of Holders of the
Securities apply to the giving of such approval.
SECTION 9.3 Notices
All notices provided for in this Series A Capital
Securities Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by first class mail, as
follows:
<PAGE> 22
(a) If given to the Issuer, in care of the
Administrative Trustee at the Issuer's mailing address set forth below (or such
other address as the Issuer may give notice of to the Capital Securities
Guarantee Trustee and the Holders of the Series A Capital Securities):
Advanta Capital Trust I
c/o Advanta Corp.
501 Carr Road
Wilmington, Delaware 19809
Attention: Jeffrey Beck
Telecopy: (302) 791-6540
(b) If given to the Capital Securities Guarantee
Trustee, at the Capital Securities Guarantee Trustee's mailing address set
forth below (or such other address as the Capital Securities Guarantee Trustee
may give notice of to the Holders of the Series A Capital Securities):
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trustee Administration
Department
Telecopy: (212) 946-8161
(c) If given to the Guarantor, at the Guarantor's
mailing address set forth below (or such other address as the Guarantor may
give notice of to the Capital Securities Guarantee Trustee and the Holders of
the Series A Capital Securities):
Advanta Corp.
Welsh and McKean Roads
P.O. Box 844
Spring House, Pennsylvania 19477
Attention: Gene S. Schneyer, Esquire
Telecopy: (215) 444-5025
(d) If given to any Holder of Series A Capital
Securities, at the address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given
when received in person, telecopied with receipt confirmed, or mailed by first
class mail, postage prepaid except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of which
no notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.
<PAGE> 23
SECTION 9.4 Exchange Offer
In the event an Exchange Offer Registration Statement
(as defined in the Registration Rights Agreement) becomes effective and the
Issuer issues any Series B Capital Securities in the Exchange Offer, the
Guarantor will enter into a new capital securities guarantee agreement, in
substantially the same form as this Series A Capital Securities Guarantee, with
respect to the Series B Capital Securities.
SECTION 9.5 Benefit
This Series A Capital Securities Guarantee is solely
for the benefit of the Holders of the Series A Capital Securities and, subject
to Section 3.1(a), is not separately transferable from the Series A Capital
Securities.
SECTION 9.6 Governing Law
THIS SERIES A CAPITAL SECURITIES GUARANTEE SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
THIS SERIES A CAPITAL SECURITIES GUARANTEE is
executed as of the day and year first above written.
ADVANTA CORP., as Guarantor
By: /s/
Name:
Title:
THE CHASE MANHATTAN BANK, as
Capital Securities Guarantee Trustee
By: /s/
Name:
Title:
<PAGE> 1
EXHIBIT 10-C
ADVANTA CORP.
ADVANTA MANAGEMENT INCENTIVE PLAN
A. Plan Objectives
The objectives of the Plan are to:
- Reward outstanding performance.
- Link the business planning process, including attainment of key
Corporate and SBU priorities with the compensation system.
- Provide competitive incentive compensation opportunities to
recruit and retain key employees.
- Control fixed compensation expense by introducing a variable pay
element funded by meeting key financial and individual
performance objectives.
B. Eligibility
- To be approved by the Compensation Committee of the Board of
Directors, based on recommendations of the Chairman and
President. Generally, the Plan shall be limited to senior level
exempt employees in a position to substantially contribute to
attainment of annual goals, and with a base salary of at least
$60,000. However, exceptions to this may be recommended by the
Chairman and President. Participants in this Plan shall not
participate in any other annual incentive program other than the
Advanta Management Incentive Plan With Stock Election II, III or
IV ("AMIPWISE").
- Generally, there are four classes of participation:
<TABLE>
<CAPTION>
Class Participants
----- ------------
<S> <C>
A Chairman/CEO and President/Chief Operating Officer
B SBU Heads of Credit Cards, Second Mortgages and Leasing,
as well as the Executive Vice President/Chief Financial Officer
and the Senior Vice President, Administration
C Corporate Vice Presidents (VPs of HR, CIS,
Legal, Accounting and Treasury) and senior
level staff with salaries equal to or
greater than $75,000
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
D All other participants with salaries from $60,000
</TABLE>
C. Size of Incentive Awards and Plan Cost
- Each class has a Guideline Incentive Opportunity expressed as a
percentage of base salary. Salary is defined as the base salary
in effect on January 1 of the plan year. If an individual becomes
a participant after January 1, base salary shall be the salary in
effect on the first day of participation.
- Attainment of targeted performance goals will produce an award
equal to the Guideline Award.
- Performance above or below goals will produce a correspondingly
greater or smaller award. The Maximum Award will be paid when
both the Company or the SBU, as applicable, exceeds its earnings
goal and individual performance exceeds the performance goal.
Combinations of these elements will produce different awards.
- The maximum award is 200% of the Guideline Award.
- Guideline and Maximum awards are shown below for each level of
performance.
<TABLE>
<CAPTION>
Participant Normal Guideline Maximum
Class Award* Award*
----- ------ ------
<S> <C> <C>
A 75% 150%
B 50% 100%
C** 20-35% 40%
D** 10-15% 20-30%
</TABLE>
* Expressed as a percentage of base salary. Intermediate
performance awards determined by interpolation.
** Awards determined by financial performance and MBO
achievement.
D. Award Generating Approach
- Awards will be based on the degree to which the Company's annual
Corporate and SBU profit goals are achieved, and on individual
performance for participants in Class C and Class D. Profits will
be measured by Pretax Operating Profit contributions at the SBU
and Corporate levels. Individual performance will be reviewed
against MBO achievement.
<PAGE> 3
E. Minimum Performance Levels
- No incentive payment shall be made if the Company/SBU does not
achieve its Threshold Profit Performance Goal. The threshold
performance level shall be 75% of Profit Performance Goal.
- Profit goals for Corporate and SBU units shall be identified and
calibrated with the award schedule. Annual profit goals shall be
approved by the Compensation Committee.
- The threshold insures interest in the Plan at a low but
acceptable level of performance. Performance goal at maximum is
established to provide for increasingly larger awards at
performance levels significantly above target. Awards are
calibrated to match the appropriate level of performance. Class A
participants and Class B and C (non-SBU) participants will only
receive bonuses if threshold Corporate earnings are achieved.
Class B SBU heads and Class C SBU participants will only receive
bonuses if threshold SBU earnings are achieved.
F. Plan Administration
- The Plan is administered by the Compensation Committee of the
Board of Directors. The President shall provide recommendations
to the Committee. These recommendations shall include:
- annual profit targets,
- participation recommendations,
- profit performance and quality evaluation at the close of
the fiscal year,
- award recommendations at the close of the year, and
- acting on other matters which may affect administration of
the Plan.
<PAGE> 4
- The Chairman and President may recommend exceptions to policy
described herein for eligibility and award size. However,
exceptions shall not be approved that would materially impact the
cost and intent of the Plan.
- Total awards cannot exceed Plan maximums, and all awards are
subject to Compensation Committee review and approval.
G. Form and Timing of Payments
- Incentive awards will be paid at such time as the Compensation
Committee and the Board of Directors determine with respect to
any Plan year. Awards will be paid in cash, except to the extent
that a participant in the Plan has made an election under
AMIPWISE (or has been required thereunder) to have an award paid
in shares of the Company's Common Stock.
H. Partial Participation
- In the event a participant is hired or promoted to an eligible
position after the beginning of the Plan year, his or her award
shall be prorated for actual participation during the Plan year.
I. Termination of Employment
- In the event of the resignation or discharge of a participant
during the Plan year, participation in the Plan generally will be
suspended and no award will be earned for that Plan year.
- In the event of disability, death, or retirement of the
participant during the Plan year (as defined under the Company's
policies), the participant or his or her beneficiary shall be
paid a pro rata amount based on time employed during the period
or an amount as determined by the Committee in its sole
discretion.
<PAGE> 1
Exhibit 10-i
ADVANTA CORP. EXECUTIVE DEFERRAL PLAN
AMENDMENT NO. 2
WHEREAS, ADVANTA CORP. ("ADVANTA") maintains the ADVANTA Corp.
Executive Deferral Plan ("Plan"); and
WHEREAS, ADVANTA desires the Plan be amended to modify the claims
procedures thereunder; and
WHEREAS, Article 15 of the Plan permits ADVANTA to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended, as follows:
1. A new Section 16.11 is hereby added, effective immediately, to
read in its entirety:
16.11 CLAIMS. If, pursuant to the provisions of the Plan, the
Administrative Committee denies the claim of a Participant for benefits
under the Plan, the Administrative Committee shall provide written
notice, within ninety (90) days after receipt of the claim, setting
forth in a manner calculated to be understood by the claimant:
a. the specific reasons for such denial;
b. the specific reference to the Plan provisions on which
the denial is based;
c. a description of any additional material or information
necessary to perfect the claim and an explanation of why
such material or information is needed; and
d. an explanation of the Plan's claim review procedure and
the time limitations of this subsection applicable
thereto.
The Participant whose claim for benefits has been denied may
request review by the Administrative Committee of the denied claim by
notifying the Administrative Committee in writing within sixty (60) days
after receipt of the notification of claim denial. As part of said
review procedure, the claimant or his authorized representative may
review pertinent documents and submit issues and comments to the
Administrative Committee in writing. The Administrative Committee shall
render its decision to the claimant in writing in a manner calculated to
be understood by the claimant not later than sixty (60) days after
<PAGE> 2
receipt of the request for review, unless special circumstances require
an extension of time, in which case decision shall be rendered as soon
after the sixty-day period as possible, but not later than one hundred
and twenty (120) days after receipt of the request for review. The
decision on review shall state the specific reasons therefor and the
specific Plan reference on which it is based.
2. The present Section 16.11 is hereby redesignated Section 16.12
and the first sentence thereof is hereby amended, effective immediately, to
read:
"16.12 ARBITRATION. Any claim, dispute or other matter in
question of any kind relating to this Plan not settled through the
claims procedures established by the Committee in accordance with the
provisions of Section 16.11 of the Plan shall be settled by Arbitration
in accordance with the Rules of the American Arbitration Association."
3. In all other respects the Plan is hereby ratified and confirmed.
-2-
<PAGE> 1
Exhibit 10-j
AMENDMENT TO
THE ADVANTA CORP. NON-EMPLOYEE DIRECTOR DEFERRAL PLAN
1. Section 1.10 of the Plan is hereby amended in its entirety to read:
"1.10. DIRECTOR shall mean an non-employee member of the Board of Directors of
the Company and any non-employee member of the Board of Directors of Advanta
Partners, L.P."
2. In all other respects, the Plan is hereby ratified and confirmed.
<PAGE> 1
EXHIBIT 10-N
As a taxable executive benefit, the Company pays the premiums for life insurance
policies on the lives of non-employee Directors and certain key executives. The
executive or Board member has the right to designate the beneficiary under the
applicable life insurance policy. Messrs. Alter and Hart are each covered by a
$5,000,000 policy. Messrs.Rosoff, Allhusen, Lindenberg, Wesselink and Riseman
are each covered by a $1,000,000 policy. Mr. Kranzley is covered by a $650,000
policy. Mr. Podowski is covered by a $700,000 policy. Mr. John is covered by a
$850,000 policy. Each non-employee Director is covered by a $500,000 policy. All
of the life insurance policies are owned by the Company, with the exception of
the policy providing coverage for Mr. Riseman which is owned by him. Upon
termination of employment, each executive (other than Mr. Riseman) is entitled
to acquire the insurance policy from the Company upon payment to the Company of
an amount equal to the cash value of the policy at that time. The policies
insuring the non-employee Directors are term life insurance policies, on which
there is no build-up in cash value.
In addition to the above, in 1993 two split-dollar life insurance policies were
purchased to separately insure the life of Dennis Alter and the joint lives of
Mr. Alter and his spouse in the amounts of $10,000,000 and $50,000,000,
respectively. The proceeds of these policies are payable to beneficiaries
designated by Mr. Alter. Premiums paid by the Company pursuant to these policies
will be refunded to the Company on termination of, or payment of benefits
under, the policies, and any cash surrender value in excess of such premiums
may be paid to Mr. Alter's beneficiary.
<PAGE> 1
EXHIBIT 10 q
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ADVANTA PARTNERS LP
__________________________
Dated as of October 1, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS................................................... 1
1.01 Defined Terms........................................................ 1
ARTICLE II - CONTINUATION OF THE PARTNERSHIP.............................. 9
2.01. Formation and duration of the Partnership........................... 9
2.02. Name of the Partnership............................................. 9
2.03. Activity of the Partnership......................................... 9
2.04. Offices of the Partnership.......................................... 10
2.05. Title to Partnership Property....................................... 11
2.06. Representations and Warranties...................................... 11
ARTICLE III - INITIAL CAPITAL AND CONTRIBUTED
CAPITAL..................................................... 16
3.01. Initial Capital; Contributed Capital; Initial
Contribution; Admission of Additional Partners.................... 16
3.02. Failure of the Class A Limited Partner
to Make Additional Contributions or
Advances or to Maintain its Commitment............................ 18
3.03. Contributions by the General Partner................................ 18
ARTICLE IV - CAPITAL ACCOUNT AND PROFITS OR LOSSES........................ 18
4.01. Capital Accounts.................................................... 18
4.02. Allocation of Partners' Profits and Losses.......................... 19
4.03. Allocations with Respect to Transferred Interests................... 21
4.04. Minimum Allocations to the General Partners......................... 21
4.05. Allocations with Respect to Certain Carried Interests............... 21
ARTICLE V - VALUATIONS.................................................... 22
5.01. Valuation of Portfolio Investments Owned
by the Partnership................................................ 22
ARTICLE VI - DISTRIBUTIONS................................................ 24
6.01. Distributions....................................................... 24
6.02. Taxes Withheld...................................................... 28
-i-
<PAGE> 3
ARTICLE VII - ADDITIONAL CAPITAL CONTRIBUTIONS BY
SPECIAL LIMITED PARTNERS................................... 29
7.01 Opportunity to Participate........................................... 29
7.02 Procedures relating to Additional Capital
Contributions by Special Limited Partners.......................... 29
ARTICLE VIII - MANAGEMENT.................................................. 31
8.01. Authority of the Board of Directors.................................. 31
8.02. Certain Compensation Matters......................................... 33
8.03. Services of the General Partner and Board
of Directors....................................................... 34
8.04. Compensation and Dealings with Partnership........................... 34
8.05. No Loans to Partners, Etc............................................ 34
8.06. Liability of the General Partner, Board
of Directors Members and Others.................................... 35
8.07. Limitations on the Limited Partners.................................. 38
ARTICLE IX - RECORDS AND BANK ACCOUNTS..................................... 38
9.01. Books and Records.................................................... 38
9.02. Accounting Basis and Fiscal Year..................................... 38
9.03. Financial Reports.................................................... 38
9.04. Bank Accounts........................................................ 39
ARTICLE X - ASSIGNABILITY AND PURCHASE OF INTERESTS........................ 40
10.01. Substitution and Assignment of a
Partner's Interest................................................. 40
10.02. Admission of Additional Partners.................................... 40
10.03. Withdrawal of Partners.............................................. 40
ARTICLE XI - DISSOLUTION AND TERMINATION................................... 41
11.01. Event of Dissolution................................................ 41
11.02. Liquidation......................................................... 41
ARTICLE XII - PURCHASE RIGHT OF ADVANTA.................................... 43
12.01. Advanta's Purchase Right............................................ 43
ARTICLE XIII- GENERAL PROVISIONS........................................... 44
13.01. Power of Attorney................................................... 44
13.02. Indulgences, Etc.................................................... 44
-ii-
<PAGE> 4
13.03. Controlling Law...................................................... 44
13.04. Notices.............................................................. 45
13.05. Schedules............................................................ 46
13.06. Binding Nature of Agreement.......................................... 46
13.07. Execution in Counterparts............................................ 46
13.08. Provisions Separable................................................. 46
13.09. Entire Agreement; Amendment.......................................... 47
13.10. Section Headings..................................................... 47
13.11. Gender, Etc. ........................................................ 47
13.12. Number of Days....................................................... 47
13.13. Interpretation....................................................... 47
Exhibit A - Investment Amounts of Special Limited Partners
-iii-
<PAGE> 5
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ADVANTA PARTNERS LP
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (the "Agreement")
made as of October 1, 1996, by and among Advanta GP Corp., a Delaware
corporation ("Advanta GP"), as General Partner, Advanta Investment Corp., a
Delaware corporation ("Advanta"), as a Class A Limited Partner, Messrs. Mitchell
L. Hollin, Michael Najjar and Gary H. Neems as Class B Limited Partners, and
Robert Hall, Robert Rock and James Stern as Special Limited Partners.
W I T N E S S E T H
The parties hereto are partners of a limited partnership known as
Advanta Partners LP (the "Partnership") and wish to amend and restate the
Partnership's Agreement of Limited Partnership dated as of May 6, 1994, as
previously amended by Amendment No. 1, Amendment No. 2 and Amendment No. 3
thereto dated as of May 9, 1995, January 30, 1996, and May 21, 1996
respectively, to reflect the acquisition by the Partnership of the interests in
the Partnership held by AP Capital, Inc. and Anthony P. Brenner and to reflect
certain other changes to such Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto agree that the Partnership's Agreement of Limited Partnership, as
amended, is hereby amended and restated to read in its entirety as follows:
ARTICLE I
DEFINITIONS
1.01. Defined Terms. Unless the context otherwise requires, each
capitalized term used in this Agreement shall have the meaning given to that
term either in this Section or elsewhere in this Agreement where that term is
defined. A definition shall be equally applicable to both the single and plural
form.
"Accounting Firm" means Arthur Andersen LLP, which is to be
responsible for auditing the financial statements of the
<PAGE> 6
Partnership, or such other independent public accounting firm chosen by the
Board of Directors.
"Accounting Period" means the period during which Profits or
Losses are to be calculated under this Agreement, which will normally be a
period of one year commencing January 1, but may be of shorter duration should
the context require a shorter period.
"Act" means the Pennsylvania Revised Uniform Limited Partnership
Act, as amended.
"Acting Member" shall have the meaning given to such term within
Section 8.06.
"Advanta" means Advanta Investment Corp., the Class A Limited
Partner.
"Advances" shall have the meaning given to such term within
Section 3.01(d).
"Affiliate" means, when used with respect to any specified
Person, any other Person that, either directly or indirectly through one or
more intermediaries, Controls, is Controlled By or is Under Common Control With
such specified Person.
"Agreement" means this Agreement of Limited Partnership, as it
may be amended from time to time.
"Allocation and Vesting Agreement" shall have the meaning set
forth in Section 6.01(a)(i)(E) hereof.
"AP101 Distribution" shall mean a distribution by Advanta
Partners 101 LP pursuant to Section 6.1(a)(i)(D) of the Advanta Partners 101 LP
partnership agreement to the Partnership and Advanta 101 GP.
"Appraised Value" shall have the meaning given to such term
within Section 12.01. The appraisers selected to provide the Appraised Value
shall not have any ongoing economic relationships with Advanta or its
Affiliates.
"Asset Value" means, with respect to any Partnership Asset, the
asset's Adjusted Basis for federal income tax purposes, except that the Asset
Values of all Partnership Assets shall be adjusted to equal their respective
fair market
-2-
<PAGE> 7
values (as determined by the Board of Directors in the manner provided in
Section 5.01), in accordance with this Agreement and the rules set forth in
Treasury Regulations Section 1.704-1(b)(2)(iv)(f), except as otherwise
provided herein, as of: (a) the date of the acquisition of any additional
Partnership Interest by any new or existing Partner in exchange for more than a
de minimis Capital Contribution; (b) the date of the distribution of more than a
de minimis amount of Partnership Assets (other than money) to a Partner; or (c)
the date of the termination of the Partnership under Section 708(b)(i)(B) of
the Code. Subsequent to any such adjustment of the Asset Value of any
Partnership Asset, the Asset Value shall thereafter be adjusted for the
Depreciation taken into account with respect to such Partnership Asset for
purposes of computing Profit and Loss, and the Capital Accounts shall be
adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g).
"Bankruptcy" means with respect to any Person, such Person has become
insolvent or that a petition shall have been filed by or against such Person as
a "debtor" and the adjudication of such Person as bankrupt under the provisions
of the bankruptcy laws of the United States of America shall have commenced, or
that such Person shall have made an assignment for the benefit of its creditors
generally or a receiver shall have been appointed for substantially all of the
property and assets of such Person.
"Board of Directors" means the board of directors of the General
Partner, as provided for in Section 8.01 hereof.
"Business Plan" means the written business plan of the Partnership and
as adopted and modified from time to time by the Board of Directors.
"Capital Account" of a Partner means the individual Capital Account
established and maintained in accordance with Section 4.01 hereof.
"Carried Interest" shall have the meaning given to such term in Section
6.01(a) hereof.
"Class A Limited Partner" means Advanta Investment Corp.
"Class A Limited Partner's Investment" means the sum of the Class A
Limited Partner's Contribution and Advances
-3-
<PAGE> 8
made with respect to, allocated to, or directly or indirectly used in
connection with, a particular Portfolio Investment.
"Class B Limited Partners" means Messrs. Hollin, Najjar and Neems (but
in no event shall be deemed to refer to any other Person who had previously
been a Class B Limited Partner prior to the date of this Agreement).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment" shall have the meaning given to such term in Section
3.01(c) hereof.
"Contributed Capital" means capital contributions made by a Partner to
the Partnership and not repaid to such Partner, including such Partner's
Initial Capital, but excluding any Advances.
"Contribution" means Contributed Capital of the Class A Limited Partner.
"Control" (including "Controlled By" and "Under Common Control With")
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Defended Person" shall have the meaning given to such term within
Section 8.06.
"Depreciation" means, for each fiscal year, an amount equal to the
depreciation, amortization and other cost recovery deductions allowable with
respect to an asset for such period, except that if the Asset Value of an asset
differs from its Adjusted Basis at the beginning of such year, Depreciation
shall be an amount which bears the same ratio to such beginning Asset Value as
the federal income tax depreciation, amortization or other cost recovery
deduction for such year or other period bears to such beginning adjusted tax
basis. If the amount of any depreciation, amortization or cost recovery
deduction for such year is zero, Depreciation shall be determined by reference
to beginning Asset Value, using any reasonable method selected by the General
Partner.
"Dissolution" of a Partner which is not a natural Person means that
such Partner has terminated its existence,
-4-
<PAGE> 9
whether partnership or corporate, wound up its affairs and dissolved.
"Effective Date" means June 1, 1994.
"GEII" means Great Expectations International, Inc., a Delaware
corporation.
"General Partner" means a Person who is a general partner of the
Partnership and shall include Advanta GP and any other Person who may hereafter
be admitted to the Partnership as a General Partner pursuant to the provisions
of the Agreement.
"Hollin" means Mitchell L. Hollin.
"Hurdle Rate" means an 8% cumulative return, compounded annually, on
the Class A Limited Partner's Investment calculated with respect to a Portfolio
Investment.
"Incompetency" of an individual means that such individual shall have
been judged incompetent or insane by decree of a court of appropriate
jurisdiction.
"Initial Capital" shall have the meaning given to such term in Section
3.01(a) hereof.
"Initial Partners" means the parties hereto on the Effective Date.
"Initial Term" means the initial term of the Partnership commencing on
the Effective Date and ending on the ten-year anniversary of the Effective
Date, or such shorter term as provided for in the Agreement.
"Interest in the Partnership" or "Partnership Interest" means the
interest in the Partnership which each Partner receives in return for such
Partner's Contributed Capital, and in the case of the Class A Limited Partner,
also for making Advances.
"Investment" means, (i) with respect to the Partnership, the total
amount paid or contributed by the Partnership to, or with respect to the
securities of, any entity in which a Portfolio Investment has been or is
hereafter made; (ii) with respect to the Special Limited Partners, means the
aggregate capital contribution and purchase price paid for their Partnership
Interests pursuant to the provisions of Section 7.02
-5-
<PAGE> 10
and (iii) with respect to the Class A Limited Partner, the Class A Limited
Partner's Investment.
"Investment Notice" has the meaning set forth in Section 7.02(a).
"Limited Partner" shall mean a Person who is a limited partner of the
Partnership and shall include the Class A Limited Partner, the Class B Limited
Partners, the Special Limited Partners and any other Person who may hereafter
be admitted to the Partnership as a limited partner pursuant to the provisions
of the Agreement.
"Najjar" means Michael Najjar.
"Neems" means Gary H. Neems.
"Non-Portfolio Income" means income from temporary investments such as
short-term government securities, certificates of deposit, bank deposits and
commercial paper in which Partnership funds are invested until invested in a
manner intended to achieve the purposes of the Partnership, reduced by any
related expenses of maintaining such short-term investments.
"Outside Director" means a member of the Board of Directors who is not
an Affiliate of any Partner.
"Partner" means a Person who is a General Partner and/or Limited
Partner in the Partnership.
"Partnership Assets" means all assets and property, whether tangible or
intangible and whether real, personal or mixed, at any time owned by the
Partnership.
"Person" means any individual, corporation, partnership, joint venture,
association, trust or other organization or any government, or any agency or
political subdivision of any government.
"Portfolio Investments" means investments of the Partnership other than
temporary investments of the type referred to in the definition of
Non-Portfolio Income.
"Profits or Losses" means, for each Accounting Period, an amount equal
to the Partnership's taxable income or loss for such Accounting Period,
determined by the Accounting Firm at the close of the relevant Accounting
Period, including,
-6-
<PAGE> 11
without limitation, each item of Partnership income, gain, loss or deduction,
taking into account the following adjustments and any other adjustments
necessary in order to comply with Treasury Regulations Section 1.704-1(b)(2)
(iv) including the rules for revaluations of Partnership Assets:
(a) all income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profit or Loss
shall be added to such taxable income or loss;
(b) any expenditure of the Partnership described in Section
705(a)(2) (B) of the Code or treated as an expenditure described in such Code
Section and not otherwise taken into account in computing Profit or Loss shall
be subtracted from such taxable income or loss;
(c) gain or loss resulting from any disposition of Partnership
Assets with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Asset Value of the Partnership
Assets disposed of, notwithstanding that the adjusted income tax basis of such
Partnership Assets differs from its Asset Value;
(d) in lieu of the depreciation, amortization or other cost
recovery deductions taken into account in computing taxable income or loss,
there shall be taken into account the deduction for such items computed in
accordance with the definition of Depreciation;
(e) in the event the Asset Value of any Partnership Asset is
adjusted pursuant to the definition of Asset Value set forth in this Section
1.01 or any other provision of this Agreement, the amount of such adjustment
shall be taken into account as income or loss from the disposition of such asset
for purposes of computing Profits or Losses; and
(f) any items of income specially allocated under Paragraph
4.02(b) shall be excluded from Profits or Losses.
"Restricted Investments" means Portfolio Investments of the Partnership
subject to a restriction impairing the free marketability thereof or
transferability under any applicable securities laws.
"Securities" has the meaning given to such term in Section 2.03.
-7-
<PAGE> 12
"Shared Portfolio Investment Percentage" means, with respect to the
Special Limited Partners and the Class A Limited Partner, the percentage
determined by dividing the Investment of the respective Partner in the Shared
Portfolio Investment by the aggregate of the Investments of all of the Special
Limited Partners and the Class A Limited Partner's Investment with respect to
the Shared Portfolio Investment, as these amounts may be determined from time
to time.
"Shared Portfolio Investment" means a Portfolio Investment with respect
to which any of the Special Limited Partners have made additional capital
contributions pursuant to Article VII hereof.
"Shortfall" means any unpaid Hurdle Rate and/or loss of the Class A
Limited Partner's Investment experienced by the Class A Limited Partner with
respect to the liquidation of any Portfolio Investment other tan GEII.
"Special Limited Partners" means Robert Hall, Robert Rock and James
Stern and any other Persons who may join in this Agreement from time to time as
Special Limited Partners pursuant to the provisions of Section 3.01(g).
"Specified Amount" has the meaning given to such term in Section
6.01(a)(iv).
"Term" means the term of the Partnership.
"Unrealized Loss" means, as of any date, for each Portfolio Investment
where the Class A Limited Partner's unreturned Contribution in a Portfolio
Investment other than GEII exceeds the Value of the Partnership's unliquidated
investment in such Portfolio Investment, the amount of such excess of
unreturned Contribution over such Value.
"Value" means the value of a Portfolio Investment determined in
accordance with Section 5.01 hereof.
"Withholding Tax Act" shall have the meaning given to such term within
Section 6.02.
-8-
<PAGE> 13
ARTICLE II
CONTINUATION OF THE PARTNERSHIP
2.01. Formation and Continuation of the Partnership. The parties hereto
hereby continue the Partnership as a limited partnership under the Act. This
agreement shall continue until the tenth anniversary of the Effective Date
unless extended or earlier terminated in accordance with the terms hereof. The
General Partner shall cause to be filed on behalf of the Partnership such
partnership, and such assumed or fictitious name, certificate or certificates as
may be required by law. At least three (3) months prior to the fifth
anniversary of the Effective Date, the end of the Initial Term and any extended
Term, the board of directors of the Class A Limited Partner will make decisions
concerning the continuation of the Class A Limited Partner's financial
commitment to the Partnership and shall promptly provide the General Partner
with a written notification of such decision. Based upon such decisions and
subject to the acceptance of such decisions by the General Partner, the General
Partner and the Class A Limited Partner will amend the Agreement (if the
decisions of the board of directors of the Class A Limited Partner call for an
amendment to the Agreement) to extend the Term and to expand, contract or leave
unchanged the size and terms of the Commitment, as applicable. Notwithstanding
the foregoing, the Class A Limited Partner can elect to dissolve the Partnership
at any time, upon providing the General Partner with at least thirty (30) days
prior written notification of such election.
2.02. Name of the Partnership. The name of the Partnership shall be
Advanta Partners LP or such other name as may hereafter be selected by the
General Partner.
2.03. Activity of the Partnership.
(a) The Partnership is formed for the purpose of making
investments with the objective of seeking capital appreciation. The Partnership
will concentrate on opportunities primarily in financial services and
secondarily in information/database services. Portfolio Investment situations
will include equity and equity-related investments in a range of growth capital
and restructuring financings, leveraged and unleveraged acquisitions, including
management LBO's, and special situations. The Partnership will not acquire an
equity interest in a business in which the Partnership would, upon such
acquisition, own 100% of the equity of such business nor enter
-9-
<PAGE> 14
into strategic joint ventures without the prior approval of a majority of the
Board of Directors. If the Partnership proposes to make a Portfolio Investment
which would be considered of a type which is part of the Class A Limited
Partner's core business except for certain characteristics which would make
such investments unsuitable for the Class A Limited Partner, such Portfolio
Investments will be made and liquidated by the Partnership only with the prior
approval of a majority of the Board of Directors. The Partnership's Portfolio
Investments will be made consistent with the Partnership's Business Plan. It is
expected that the Partnership will play a proactive role in its Portfolio
Investments, seeking to add value to such Portfolio Investments. Nothing
contained in the Agreement and nothing in Advanta Corp.'s relationship with
the Partnership shall restrict Advanta Corp. from doing whatever transactions,
and making whatever investments, it chooses.
(b) Subject to the principles and limitations set forth in
subsection (a) above, the Partnership may invest in both marketable and
non-marketable securities, including without limitation, common and preferred
stock, debentures, bonds, royalties, promissory notes, evidences of
indebtedness, warrants, options, subscription rights of and other participating
interests in corporations, partnerships, joint ventures, trusts,
proprietorships, other business entities, governments and governmental
agencies, and puts, calls, options and other rights or obligations to
purchase, sell or subscribe for any of the foregoing and any other similar
instruments and documents whether now known or hereafter devised which are or
may hereafter be known or referred to as securities (all such items
being hereinafter collectively referred to as "Securities"), and may deal in
such ways as is customary and in the ordinary course of business of an
investment partnership, and in connection therewith, with the prior approval of
a majority of the Board of Directors, as to the amount and extent, to borrow
funds not exceeding in principal amount at any one time outstanding 10% of
total Contributed Capital. The Partnership may arrange for managerial and
other support for Persons in which it invests. Subject to the restrictions and
provisions contained in Section 8.01, the Partnership shall engage in the
activities set forth in this Section 2.03 and no others, except as shall be
incidental or related thereto or which may be necessary or desirable in
connection therewith.
2.04. Offices of the Partnership. The principal office of the
Partnership shall be initially located at Five Horsham Business Center, 300
Welsh Road, Horsham, Pennsylvania 19044. A
-10-
<PAGE> 15
secondary office satisfactory to the Class A Limited Partner, will be
established in New York City. The Board of Directors may establish such other
offices of the Partnership in one or more places as it may from time to time
determine.
2.05. Title to Partnership Property. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be and
shall be deemed to be owned by the Partnership as an entity, and no Partner,
individually, shall have any ownership of any such property. The Partnership
may hold any of its assets in its own name or in the name of one or more
nominees, which nominee may be such individuals, corporations, partnerships,
trusts or other Persons as the General Partner shall determine.
2.06. Representations and Warranties.
(a) The General Partner represents and warrants to the
other parties hereto as follows:
(1) The General Partner is a corporation duly organized
and validly existing under the Delaware General Corporation Law, and has all
requisite power and authority to perform its obligations under and carry on the
business contemplated by this Agreement.
(2) Neither the execution and delivery of this
Agreement nor the performance by such General Partner of any of the
transactions or obligations contemplated hereunder will result in any violation
of any of the terms or provisions of (i) the articles of incorporation or
bylaws of such General Partner, (ii) (whether or not with notice or the passage
of time or otherwise) any material agreement to which such General Partner or
any Affiliate of such General Partner is a party or by which it is otherwise
bound, or (iii) any currently existing law, rule, license, regulation,
judgment, order, ruling or decree governing or affecting the operation of the
Partnership or such General Partner. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission, other governmental authority or
instrumentality, or any securities or commodities exchange or self-regulatory
organization is or was required prior to the execution of this Agreement by or
with respect to such General Partner or the Partnership in connection with the
execution and delivery of this Agreement or the performance of the transactions
contemplated hereby.
-11-
<PAGE> 16
(3) All necessary action on the part of such General Partner duly to
approve the execution, delivery and performance of this Agreement by it has
been taken and this Agreement has been duly executed and delivered by it and
constitutes a legal, valid and binding obligation of such General Partner,
enforceable against it in accordance with its terms.
(4) Such General Partner agrees to use reasonable efforts to cause
the Partnership to be classified for federal income tax purposes as a
partnership rather than as an association taxable as a corporation during the
life of the Partnership, but in no event shall it have any liability or
obligation if it is not so classified as a result of future changes in laws or
regulations or changes in interpretation of existing laws or regulations. Any
costs or expenses relating to or arising from the use of such efforts shall be
borne by the Partnership.
(b) The Class A Limited Partner represents and warrants to the other
parties hereto as follows:
(1) Such Limited Partner is a corporation duly organized and validly
existing under the Delaware General Corporation Law and has all requisite power
and authority to perform its obligations under this Agreement.
(2) Neither the execution and delivery of this Agreement nor the
performance by such Limited Partner of any of the transactions or obligations
contemplated hereunder will result in any violation of any of the terms or
provisions of (i) the certificate of incorporation or bylaws of such Limited
Partner, (ii) (whether or not with notice or the passage of time or otherwise)
any material agreement to which such Limited Partner or any Affiliate of such
Limited Partner is a party or by which it is otherwise bound, or (iii) any
currently existing law, rule, license, regulation, judgment, order, ruling or
decree governing or affecting the operation of the Partnership or such Limited
Partner. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission,
other governmental authority or instrumentality, or any securities or
commodities exchange or self-regulatory organization is or was required prior to
the execution of this Agreement by or with respect to such Limited Partner or
the Partnership in connection with the execution and delivery of this Agreement
or the performance of the transactions contemplated hereby.
-12-
<PAGE> 17
(3) All necessary action on the part of such Limited Partner
duly to approve the execution, delivery and performance of this Agreement by it
has been taken and this Agreement has been duly executed and delivered by it and
constitutes a legal, valid and binding obligation of such Limited Partner,
enforceable against it in accordance with its terms.
(c) Each Class B Limited Partner and Special Limited Partner
represents and warrants to the other parties hereto as follows:
(1) Neither the execution and delivery of this Agreement nor
the performance by such Limited Partner of any of the transactions or
obligations contemplated hereunder will result in any violation of any of the
terms or provisions of (i) (whether or not with notice or the passage of time
or otherwise) any material agreement to which such Limited Partner or any
Affiliate of such Limited Partner is a party or by which it is otherwise bound,
or (ii) any currently existing law, rule, license, regulation, judgment, order,
ruling or decree governing or affecting the operation of the Partnership or
such Limited Partner. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission, other governmental authority or instrumentality, or any securities
or commodities exchange or self-regulatory organization is or was required prior
to the execution of this Agreement by or with respect to such Limited Partner
or the Partnership in connection with the execution and delivery of this
Agreement or the performance of the transactions contemplated hereby.
(2) This Agreement has been duly executed and delivered by such
Limited Partner and constitutes a legal, valid and binding obligation of such
Limited Partner, enforceable against such Limited Partner in accordance with
its terms.
(d) Each Limited Partner represents and warrants to the other parties
hereto as follows:
(1) The Limited Partner has acquired or will acquire such
Limited Partner's Interest in the Partnership for such Limited Partner's own
account as principal for investment and not with a view to the resale or other
disposition of all or any part thereof or any interest therein.
(2) If an individual, the Limited Partner: (i) is at least 18
years of age; (ii) has adequate means of
-13-
<PAGE> 18
providing for the Limited Partner's current needs and personal contingencies;
(iii) has no need for liquidity in the Limited Partner's investment in Interest
in the Partnership; and (iv) all of the Limited Partner's investments in and
commitments to non-liquid investments are, and after the purchase of the
Interest in the Partnership will be, reasonable in relation to the Limited
Partner's net worth and current needs and shall not cause the Limited Partner's
overall commitments to such investments to become disproportionate or excessive.
(3) The Limited Partner is able to bear the economic risk of losing the
Limited Partner's entire investment in the Interest in the Partnership.
(4) The Limited Partner understands that the Interests in the
Partnership have not been registered under the Securities Act of 1933, as
amended (the "Act") or the securities laws of any state, and are being offered
and sold in reliance upon an exemption to such registration and are subject to
substantial restrictions on transfer.
(5) The Limited Partner understands that no public or private market
for the Interests in the Partnership is likely to develop and that since the
Interests in the Partnership have not been registered under the Act, the
Limited Partner cannot and the Limited Partner agrees and understands that the
Limited Partner will not sell or otherwise transfer and dispose of any of the
Interest in the Partnership unless a registration statement with respect to
such transfer or disposition is in effect under the Act and any other
applicable state or federal securities laws or such transfer or disposition is
exempt from registration under the Act or is otherwise in compliance with other
relevant state or federal securities laws or unless the General Partner or the
Partnership approve such a sale or transfer (which approval may be withheld).
The Limited Partner further understands that: (A) the Partnership has no
obligation or intention to register the Interest in the Partnership for resale
under any federal or state securities laws or to take any action (including the
filing of reports or the publication of information required by Rule 144 under
the Act) that would make available any exemption from the registration
requirements of such laws; and (B) the Limited Partner therefore may have to be
precluded from selling or otherwise transferring or disposing of any of the
Interest in the Partnership for an indefinite period of time or at any
particular time and may therefore have to bear the economic risk of an
investment in the Interest in the Partnership for an indefinite period of time.
The Limited
-14-
<PAGE> 19
Partner further acknowledges that the Interest in the Partnership may not be
sold without the express written consent of the General Partner and compliance
with all relevant provisions of the Partnership Agreement, plus all applicable
filing fees. The Limited Partner also acknowledges that the Limited Partner
will be responsible for compliance with all conditions on transfer imposed by
any blue sky or state securities law administrator and will hold the
Partnership and the General Partner harmless from any breach thereof.
(6) The Limited Partner understands that no federal or state
agency has approved or disapproved of the Interest in the Partnership, passed
upon or endorsed the merits of the offering thereof, or made any finding or
determination as to the fairness of the Interest in the Partnership for
investment.
(7) If the Limited Partner is a corporation, partnership, trust
or other entity, it is authorized and qualified to become a limited partner in,
and authorized to make its capital contribution to the Partnership and it has
not been formed for the purpose of acquiring Interest in the Partnership.
(8) The Limited Partner has such knowledge and experience in
financial and business matters that the Limited Partner is capable of
evaluating the merits and risks of the Limited Partner's investment in the
Partnership and of making an informed investment decision, and the Limited
Partner has obtained, in the judgment of the Limited Partner, sufficient
information from the Partnership to evaluate the merits and risks of such
investment.
(9) The Limited Partner understands that the Interest in the
Partnership is being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state securities laws and that the
General Partner and the Partnership are relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments, and understandings
set forth herein in order to determine the applicability of such exemptions.
-15-
<PAGE> 20
ARTICLE III
INITIAL CAPITAL AND CONTRIBUTED CAPITAL
3.01. Initial Capital; Contributed Capital; Initial
Contribution; Admission of Additional Partners.
(a) Each Initial Partner made an initial capital
contribution to the Partnership in the amount of $100. Such amount is such
Partner's "Initial Capital".
(b) Prior to the date of this Agreement, each Initial
Partner has paid to the Partnership in cash such Partner's Initial Capital.
(c) In addition to the Class A Limited Partner's Initial
Capital, the Class A Limited Partner agrees to make available to the
Partnership during the Initial Term an aggregate of $100 million in
Contributions (the "Commitment") for Portfolio Investments. The Class A Limited
Partner has, prior to the date of this Agreement, already contributed a portion
of such amount. Following authorization by the Board of Directors of a
Portfolio Investment consistent with the limitations set forth in Section
8.01(b), the Class A Limited Partner will provide the funds it has been called
upon by the Partnership's Board of Directors to provide as the Limited
Partner's Contribution for such Portfolio Investment, in accordance with the
timetable established by the Board of Directors.
(d) In addition to the Class A Limited Partner's
Commitment, upon request made from time to time by the General Partner, the
Class A Limited Partner agrees to periodically advance the cash necessary
("Advances") to fund the operating budget of the Partnership during the Initial
Term. The Class A Limited Partner's Initial Capital constitutes an Advance. The
initial operating budget of the Partnership has been accepted by the Class A
Limited Partner. Operating budgets thereafter will be established by the Board
of Directors after receiving recommendations with respect thereto from the
General Partner. The Class A Limited Partner's Advances will be allocated among
Portfolio Investments as follows:
(i) Following the end of each fiscal year in which
one or more Portfolio Investments are consummated, the amount of accumulated
(i.e., not yet allocated because no Portfolio Investments were made in such
fiscal year or not yet
-16-
<PAGE> 21
allocated as hereinafter provided) Advances as of the close of such fiscal
year, plus the Hurdle Rate with respect thereto, will be allocated in full to
such Portfolio Investments pro rata in accordance with the dollar amount of the
Class A Limited Partner's Contributions to such consummated Portfolio
Investments. For purposes of applying the Hurdle Rate to Advances, all Advances
made in a calendar year will be deemed to have been made on July 1 of such
year, except that all Advances made during 1994 will be deemed to have been
made on September 15, 1994.
(ii) If the amount of Advances and associated Hurdle Rate
allocated to a particular Portfolio Investment under Section 3.01(d)(i) above
would be greater than 20% of the amount of the Class A Limited Partner's
Contributions (minus the associated Hurdle Rate) to such Portfolio Investment,
such excess will not be allocated to such Portfolio Investment but will be
carried forward, increased by the Hurdle Rate, to be allocated, pursuant to
Section 3.01(d)(i), at the end of the succeeding year or years.
(e) Other than the Hurdle Rate payable to the Class A Limited Partner,
no interest shall accrue on any Contributed Capital and no Partner shall have
the right to withdraw or to be repaid any Contributed Capital except as and to
the extent specifically provided elsewhere in this Agreement.
(f) Each time the Class A Limited Partner makes a Contribution or an
Advance, 1.01% of each such Contribution and Advance shall be credited to
Advanta GP. Such amounts credited to Advanta GP shall carry a Hurdle Rate,
shall, if Contributions, be credited against the Class A Limited Partner's
Commitment, and shall, if Advances, be allocated to Portfolio Investments in
the same proportions as the Class A Limited Partner's Advances. Such amounts
shall also be deemed to be included in the Class A Limited Partner's
Investment, and shall be combined with all other components of the Class A
Limited Partner's Investment for purposes of distributions pursuant to
Subsections 6.01(a)(i)(A) through (D) and for purposes of computing the Class A
Limited Partner's Shared Portfolio Investment Percentage.
(g) From time to time the Board of Directors may admit to the
Partnership Outside Directors as Special Limited Partners. Such admission will
be effected by an agreement signed by the Special Limited Partners to be
admitted by which they agree to be bound by this Agreement as Special Limited
Partners, provided that such agreement is accepted by the Partnership.
-17-
<PAGE> 22
Concurrent with such admission to the Partnership, each Special Limited Partner
shall pay such Special Limited Partner's Initial Capital. Effective as of such
admission, Exhibit A to the Partnership Agreement shall be appropriately
modified by the General Partner to reflect such admission and the Investment
Amounts of the Special Limited Partners so admitted.
3.02. Failure of the Class A Limited Partner to Make Additional
Contributions or Advances or to Maintain its Commitment. At any time upon
thirty (30) days' prior written notice to the General Partner, the Class A
Limited Partner may reduce its Commitment to any level, including zero. If the
Board of Directors calls upon the Class A Limited Partner to make Contributions
and/or Advances as contemplated by the Agreement and the Class A Limited
Partner refuses or fails to do so (even if prior notice of a reduction of the
Commitment had not been given), or if the Class A Limited Partner reduces its
Commitment to any extent, such failure or reduction shall not constitute a
breach by the Class A Limited Partner of its obligation hereunder, but the
Board of Directors shall independently have the right to dissolve the
Partnership under Article XI, at any time, upon providing the Partners with at
least thirty (30) days prior written notification of such election.
3.03. Contribution by the General Partner. On any date on which,
pursuant to this Article III, Limited Partners each make payments of
Contributed Capital, the General Partner shall have contributed cash, in the
aggregate, equal to 1.01% of the aggregate cash Contributed Capital paid by the
Limited Partners as of each such date. Amounts credited under Section 3.01(f)
shall be deemed to meet, in part, the requirements of this Section 3.03.
ARTICLE IV
CAPITAL ACCOUNTS AND PROFITS OR LOSSES
4.01. Capital Accounts.
(a) A separate capital account (the "Capital Account") shall be
established and maintained for each Partner. The Capital Account of each
Partner shall be credited with the amount of such Partner's Contributed
Capital, all Profits allocated to such Partner pursuant to Article IV, and any
items of income or gain which are specially allocated pursuant to
-18-
<PAGE> 23
Section 4.02(b); and shall be debited with the sum of (i) all Losses and
deductions of the Partnership allocated to such Partner pursuant to Article IV
and (ii) all cash and the Asset Value of any property (net of liabilities
assumed by such Partner and the liabilities to which such property is subject)
distributed by the Partnership to such Partner. To the extent not provided for
in the preceding sentence, the Capital Accounts of the Partners shall be
adjusted in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv), as the same may be amended or revised. Any references in any
Section of this Agreement to the Capital Account of a Partner shall be deemed
to refer to such Capital Account as the same may be credited or debited from
time to time as set forth above. In the event of any transfer of any Interest
in the Partnership in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
it relates to the transferred interest.
(b) Except as otherwise specified in Section 11.02(h), no
Partner shall be required to pay to the Partnership or to any other Partner the
amount of any negative balance which may exist from time to time in such
Partner's Capital Account.
4.02. Allocation of Partners' Profits or Losses.
(a) Except as provided in Sections 4.03 and 4.04, the Profits
or Losses of the Partnership for any applicable Accounting Period shall be
allocated among the Partners in the following order and priority:
(i) first, an amount of the gross income of the
Partnership shall be allocated to Partners receiving distributions on account
of the Hurdle Rate pursuant to Section 6.01(a)(i)(B); and
(ii) second, Profits and all Losses shall be allocated
among the Partners so as to produce, as nearly as possible, Capital Account
balances for the Partners (taking into account all prior allocations and
distributions, including any allocations under clause (i)) which would equal
the amount to which the Partners would be entitled as a liquidating
distribution from the Partnership pursuant to Section 11.02(b) and as if the
net proceeds available for distribution were an amount equal to the aggregate
positive balance in the Partners' Capital Accounts computed after taking into
account all allocations of Profit and Loss (or items thereof) for the fiscal
period, including those pursuant to this Section 4.02; provided,
-19-
<PAGE> 24
however, that if the allocation of all or any portion of the Partnership Losses
(or items thereof) causes the Capital Account(s) of a Partner or Partners to
exceed the amount that they are obligated to restore, or are deemed obligated
to restore pursuant to Treasury Regulation Section 1.704-2(g) or (i), the
excess, if any, shall be allocated to those Partners, if any, having positive
remaining Capital Account balances, in proportion to their relative percentage
interests, to the extent of any such positive balances, and thereafter in
accordance with the Partners' respective economic risk of loss with respect to
any indebtedness to which the remaining Loss or deductions are attributable.
(b) Allocations of Partnership Profit or Loss (or items
thereof) shall be made consistent with the requirements of Treasury Regulation
Section 1.704-2(e), including, without limitation, those provisions relating to
allocations of income and deductions attributable to non-recourse debt and
partner non-recourse debt. Allocations that would conform to those required by
a "minimum gain chargeback" (as defined in Treasury Regulation Section
1.704-2(f)) in addition to the requirements of Treasury Regulation Section
1.704-1(b) (2) (ii) (d), relating to a "qualified income offset," and Treasury
Regulation Section 1.704-2(i) (4), relating to the chargeback on account of a
decrease in minimum gain attributable to partner non-recourse debt, shall be
made in a manner, at a time, and in the amounts consistent with those
provisions.
(c) Except as provided otherwise in this Agreement, for
income tax purposes, all items of Partnership income, gain, loss or deduction,
and any other allocations not otherwise provided for shall be allocated among
the General Partner and the Limited Partners, as a class, in the same
proportions they share Profits or Losses, as the case may be, for the relevant
Accounting Period.
(d) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, items of income, gains, loss and deduction with respect
to any property contributed to the capital of the Partnership, shall, solely
for federal income tax purposes, be allocated among the Partners so as to take
into account any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its Asset Value. In the event
the Asset Value of any Partnership asset is adjusted pursuant to this
Agreement, subsequent allocations of income, gain, loss and deduction with
respect to such asset shall take into account any variation between the
Adjusted Basis of
-20-
<PAGE> 25
such asset and its Asset Value in the same manner as under Section 704(c) of
the Code and applicable Treasury Regulations, including under Section 704(b) of
the Code. Allocations pursuant to this Section 4.02(d) are solely for purposes
of federal, state and local taxes and shall not affect or be taken into account
in computing Capital Accounts, Profits, Losses and other items or distributions
pursuant to this Agreement.
4.03. Allocations With Respect to Transferred Interests.
If Partnership Interests are transferred in accordance with this
Agreement, there shall be allocated to the transferor Partner and the
transferee Partner during the fiscal year of transfer the product of: (i) the
Partnership's Profits or Losses allocable to such Partnership Interest for such
fiscal year; and (ii) a fraction, the numerator of which is the number of days
such Partner held such Partnership Interest during such fiscal year and the
denominator of which is the total number of days in such fiscal year; provided,
however, that the Board of Directors may, in its sole discretion (subject to
the provisions of Sections 706(d) of the Code), allocate such Profits or Losses
by closing the books of the Partnership immediately after the transfer of such
Partnership Interest, and provided further, in the case of the sale or other
disposition of a Portfolio Investment, Profits or Losses from such sale or
other disposition shall be allocated as of the date of such sale or other
disposition and distributions of the net proceeds from such sale or other
disposition shall be made to the parties who were Partners on the date of such
sale or other disposition as if no transfer had been made and all Partners'
Capital Accounts shall be adjusted accordingly.
4.04. Minimum Allocations to the General Partner. Except as provided
in Section 4.02(d), any of the provisions of this Agreement to the contrary
notwithstanding, the General Partner shall be allocated, pro rata in accordance
with their respective Contributed Capital, at least 1% of each material item of
Partnership income, gain, loss, deduction and credit.
4.05. Allocations with Respect to Certain Interests. Allocations of
Profits or Losses of the Partnership (or items thereof) with respect to vested
percentages in the Carried Interest (as determined under Section 6.01(a)(i)(E)
hereof) in a Portfolio Investment or the vested Percentages of a Shared
Portfolio Investment shall be made as though the Partnership assets consisted
only of the Portfolio Investments acquired by the Partnership during the period
of time of the particular Class
-21-
<PAGE> 26
B Limited Partner's employment by the Partnership, or the Shared Portfolio
Investments with respect to which the particular Special Limited Partner has an
interest. In making the determinations required by this Section 4.05, the Board
of Directors shall apply the principles set forth in Section 6.01(a)(i)(E).
ARTICLE V
VALUATIONS
5.01. Valuation of Portfolio Investments Owned by the Partnership.
A value determined pursuant to this Section shall be referred to
as a "Value". The Value of Portfolio Investments owned by the Partnership and
other determinations of Value required under this Agreement shall be determined
by the General Partner in accordance with the principles set forth below,
subject to approval by the Board of Directors based on the consistent
application of said principles and such other guidelines as the General Partner
and the Board of Directors may approve from time to time:
(a) Subject to the specific standards set forth below, the Value
of Portfolio Investments shall be their estimated fair value and shall be
determined from time to time as required by Article VI hereof or at such other
time and for such other purposes as may be deemed necessary or appropriate in
the reasonably exercised sole discretion of the Board of Directors. In
determining the value of the Interest of any Partner in the Partnership or in
any accounting among the Partners or any of them, no value shall be placed on
the goodwill or name of the Partnership, and no tax reserves shall be set up
for unrealized gains or profits.
(b) If traded on one or more securities exchanges, the Value of
a share or other unit of such Security shall be deemed to be the average of the
closing prices for such Security for the last ten days in which the Security
traded (or if there shall have been no sale, the average of the closing bid and
ask prices) on the principal exchange on which such Security is traded).
(c) If actively traded over-the-counter, the Value of a share or
other unit of such Security shall be deemed
-22-
<PAGE> 27
to be the average of the closing sale prices for such Security for the last ten
days for which such sale prices are available as reported by Nasdaq, if the
Securities are included in the Nasdaq National Market, otherwise as reported by
the National Quotation Bureau.
(d) If there is no active public market, the Value of
Securities shall be the estimated fair value thereof, as determined in good
faith by the Board of Directors, taking into consideration the cost of such
Securities, developments concerning the issuer of such Securities subsequent to
the acquisition of such Securities, the financial data and projections of such
issuer provided to the Partnership and such other factor or factors as the
Board of Directors may deem relevant; provided, however, that the Value of such
Securities shall, in any event, be based upon the price at which the issuer
thereof has issued securities of the same class as the Securities being valued
(or securities convertible into or exchangeable for such Securities) in a
substantial placement in which at least 50% of the securities sold were
purchased by investors unaffiliated with the Partners, unless (i) the issuer of
the Securities has been self-financing for the preceding two fiscal years or
(ii) there is strong and convincing evidence to support a different value.
(e) The Value of publicly traded Securities shall reflect,
where appropriate, a discount to reflect a lack of depth or liquidity in the
relevant market.
(f) With respect to Securities which are Restricted
Investments, the Value of such Securities shall be discounted by an amount
which, in the good faith judgment of the Board of Directors, reflects the
effect of the restrictions on transfer on the Value of such Securities,
including, without limitation, the remaining period of time, under applicable
federal and state securities laws, that such restrictions on transfer will
continue and the nature and extent of any available registration rights.
(g) The Value of Portfolio Investments other than cash and
Securities shall be the estimated fair value thereof as determined in good
faith by the Board of Directors.
(h) For purposes of this Agreement, Securities or other
properties distributed to the Partners shall be valued in accordance with this
Article V, as of the date of distribution.
-23-
<PAGE> 28
(i) Notwithstanding the foregoing, if the Board of Directors
and the General Partner believe there is strong and convincing evidence to fix
the Value of a Security at an amount other than the amount called for by the
foregoing provisions, the Board of Directors and the General Partner may fix
the Value at such other amount.
(j) Notwithstanding the foregoing, in calculating Value for
purposes of calculating and determining the existence and extent of an
Unrealized Loss, such Value shall not reflect, with respect to any Securities,
any discount of the types described in Subparagraphs 5.01(e) and (f) above.
ARTICLE VI
DISTRIBUTIONS
6.01 Distributions.
(a) The General partner shall be obligated to distribute to the
Partners all dividends, interest, principal repayments or other distributions
received from a Portfolio Investment, and all proceeds realized by the
Partnership from the sale or disposition (whether for cash or for securities,
including any exercise of Advanta's purchase option under Section 12.01) of any
Portfolio Investment, subject to Sections 6.01(a) (vii) and 6.01(f) hereof.
Distributions may be in cash or in kind; provided, however, that all Partners
shall receive proceeds of any particular distribution in the same form,
whether in cash or in kind. Except as otherwise provided in this Agreement, all
distributions in accordance with this Section 6.01(a) shall be made in the
following order and priority:
(i) All distributions, including liquidating distributions,
shall be made to the Partners as follows:
(A) first, to the Class A Limited Partner to return the
Class A Limited Partner's Investment in such Portfolio Investment, subject to
Section 6.01(a) (iii) below; provided, however, that if the Portfolio Investment
is a Shared Portfolio Investment, the distributions pursuant to this clause (A)
shall be made to the Class A Limited Partner and the Special Limited Partners,
in proportion to their respective Shared Portfolio Investment Percentage, to
return to them their respective Investment in the Shared Portfolio Investment,
to the extent of their Investment in the Shared Portfolio Investment;
-24-
<PAGE> 29
(B) second, to the Class A Limited Partner to pay the
Hurdle Rate attributable to such Portfolio Investment; provided however, that
if the Portfolio Investment is a Shared Portfolio Investment, the distributions
pursuant to this clause (B) shall be made to the Class A Limited Partner and
the Special Limited Partners to pay their respective Hurdle Rates with respect
to the Shared Portfolio Investment, pro rata in accordance with the amount of
their Hurdle Rate that is unpaid at the date of distribution;
(C) third, to the Class A Limited Partner to pay the
amount of any of the Class A Limited Partner's Shortfalls;
(D) fourth, to the Class A Limited Partner to pay the
amount of any Unrealized Loss not previously distributed to the Class A Limited
Partner;
(E) With the remainder divided 80% to the Class A
Limited Partner and the Special Limited Partners as a class, 5% to Advanta GP,
and 15% (the "Carried Interest") to the Class A Limited Partner and the Class B
Limited Partners, as a class. The Carried Interest shall vest in the Class B
Limited Partners, and shall be allocated among the Class B Limited Partners, in
accordance with an Allocation and Vesting Agreement dated as of May 9, 1995, as
such Agreement may be amended from time to time (the "Allocation and Vesting
Agreement"). The portion of the Carried Interest not allocated to the Class B
Limited Partners under the Allocation and Vesting Agreement shall be allocated
solely to the Class A Limited Partner. The distributions to the Class A
Limited Partner and the Special Limited Partners, as a class, shall be
allocated among them based on their respective Shared Portfolio Investment
Percentages. If the Portfolio Investment is not a Shared Portfolio Investment,
the Shared Portfolio Investment Percentage of the Special Limited Partners
shall be 0%.
(F) Distributions made to the Special Limited Partners,
as a class, shall be allocated among them in the same percentage as their
Shared Portfolio Investment Percentage bears to the Aggregate Shared Portfolio
Investment Percentages of all of the Special Limited Partners in the class.
(ii) If the Class A Limited Partner has an Unrealized Loss with
respect to more than one Class A Limited Partner's Investment, payments of
Unrealized Loss shall be allocated between or among such Class A Limited
Partner's
-25-
<PAGE> 30
Investments pro rata in accordance with the respective dollar amounts of such
Class A Limited Partner's Investments.
(iii) Distribution to the Class A Limited Partner of Unrealized
Loss shall be deemed to be a return of the Class A Limited Partner's Investment
in the Portfolio Investment to which such distribution relates and accordingly,
the amount of the Class A Limited Partner's Investment upon which the Hurdle
Rate is paid will be correspondingly adjusted downward.
(iv) If at the time of a distribution with respect to a
Portfolio Investment pursuant to Section 6.01(a)(i), some or all of the amount
that would otherwise have been distributed on account of the Carried Interest
is not so distributed because of the distribution to the Class A Limited
Partner of Unrealized Loss, the reduction in the amount of such distributions
on account of Carried Interest by reason of distribution of Unrealized Loss
(such reduction is referred to herein as the "Specified Amount") shall be
maintained in the Partnership's records for each Class B Limited Partner, and
shall be paid to such Class B Limited Partner, together with interest thereon
at the Hurdle Rate, from the subsequent disposition by the Partnership of each
Portfolio Investment with respect to which an Unrealized Loss was distributed
to the Class A Limited Partner; provided, however, that no such payment shall
be made until and unless the amount of the Class A Limited Partner's Investment
and associated Hurdle Rate has been paid and provided, further, that payment of
such Specified Amount and the Hurdle Rate thereon shall be made only from
amounts representing the 15% distribution to be made pursuant to Section
6.01(a)(i)(E) above. The Specified Amount to be distributed shall be up to 15%
of the amount, if any, by which the Unrealized Loss distributed to the Class A
Limited Partner with respect to such Portfolio Investment exceeds the actual
realized loss for such Portfolio Investment.
(v) In the event of a partial liquidation or partial sale of a
Portfolio Investment, the Portfolio Investment which is liquidated or sold, or
in respect of which a distribution of liquidation or sale proceeds is made,
shall be treated as having been comprised from inception as two portfolio
Investments: one being the Portfolio Investment then being liquidated or sold
and the other being a Portfolio Investment in respect of which no liquidation,
sale or distribution is then being made. The Class A Limited Partner's
Investment, and the Special Limited Partners' Investment if the Portfolio
Investment
-26-
<PAGE> 31
is a Shared Portfolio Investment, and related Hurdle Rate will be appropriately
allocated between the two Portfolio Investments.
(vi) A leveraged recapitalization of a Portfolio Investment
shall be deemed to be, to the extent of a distribution of the leverage
proceeds, a dividend distribution from the applicable Portfolio Investment.
(vii) All cash proceeds received by the Partnership in respect
of a Portfolio Investment shall be distributed in accordance with this Section
6.01, unless retention thereof by the Partnership is determined by the Board of
Directors, in the exercise of their reasonable discretion, to be necessary or
reasonable to provide for expenses, whether or not accrued, obligations or
contingencies in respect of such Portfolio Investment.
(b) The Board of Directors may direct the General Partner to cause the
Partnership to make distributions to the Partners (other than distributions
required to be made pursuant to subsection (a) hereof), at such times and
intervals as the Board of Directors may deem appropriate.
(c) The amount of Investments returned to the Class A Limited Partner
pursuant to Section 6.01(a), less the portion of such Investments attributable
to Advances and Hurdle Rates, will, to such extent, restore the Class A Limited
Partner's Commitment; provided, however, that the Class A Limited Partner's
Commitment will become zero at the end of the Initial Term unless such
Commitment is extended pursuant to the terms of the Agreement.
(d) If Advanta requests the Partnership to undertake a Portfolio
Investment which Partnership would not undertake at its own initiation and the
Partnership determines in its discretion to do so, and on liquidation of such
Portfolio Investment the Class A Limited Partner fails to recoup its Investment
and receive the Hurdle Rate, such Shortfall shall not be treated as having
occurred for purposes of calculating the Class A Limited Partner Unrealized
Loss on the liquidation of subsequent Portfolio Investments. Additionally, the
Class A Limited Partner's Contribution to such Portfolio Investment under such
circumstances shall not be treated as part of the Class A Limited Partner's
Commitment.
(e) Notwithstanding the foregoing provisions of Section 6.01(a)(i)(E),
with respect to distributions to be made
-27-
<PAGE> 32
to Partners of distributions from Advanta Partners 101 LP to the Partnership,
each amount, if any, to be distributed to the Partners pursuant to Section
6.01(a)(i)(E) shall be calculated as follows: after calculating the amount
distributable to each Partner pursuant to the terms of Section 6.01(a)(i)(E),
an amount of the AP101 Distribution shall be reallocated from the Class A
Limited Partner and Advanta GP to the Class B Limited Partners so that the
share of the Class B Limited Partners in the AP101 Distribution shall be
calculated as if no portion of the AP101 Distribution were allocable to Advanta
101 GP.
(f) The Partners hereby agree that if, pursuant to a
request of the Class A Limited Partner under this Section 6.01(f) (which
request may be made by the Class A Limited Partner in its sole discretion), the
capital stock and/or the assets of GEII is distributed to the Class A Limited
Partner (and/or its Affiliates), there will be distributed to Hollin and Neems,
if they are then Class B Limited Partners on account of their Carried Interest
in GEII, in full satisfaction and discharge thereof, $1,471,800 to Hollin and
$480,000 to Neems in such form and kind as is determined by the Class A Limited
Partner as would be tax effective from the standpoint of the Class A Limited
Partner (and its Affiliates), without jeopardizing the tax results to the Class
B Limited Partners. In the event of any inconsistency between this paragraph
and any other provision of the Agreement, the provisions of this paragraph
shall control and take precedence.
6.02. Taxes Withheld.
(a) Unless treated as a "Tax Payment Loan" (as hereinafter
defined), any amount paid by the Partnership for or with respect to any Partner
on account of any withholding tax or other tax payable with respect to the
income, profits or distributions of the Partnership pursuant to the Code,
Treasury regulations, or any state or local statute, regulation or ordinance
requiring such payment (a "Withholding Tax Act") shall be treated as a
distribution to such Partner for all purposes of this Agreement, consistent
with the character or source of the income, profits or cash which gave rise to
the payment or withholding obligation. To the extent that the amount required
to be remitted by the Partnership under the Withholding Tax Act exceeds the
amount then otherwise distributable to such Partner, the excess shall
constitute a loan from the Partnership to such Partner (a "Tax Payment Loan")
which shall be payable upon demand and shall bear interest, from the date that
the Partnership makes the payment to the relevant taxing authority, at the
highest
-28-
<PAGE> 33
"Prime Rate" as published as such from time to time in The Wall Street Journal,
or its successor as a nationally recognized daily financial newspaper, plus 2
percentage points, compounded monthly. So long as any Tax Payment Loan or the
interest thereon remains unpaid, the Partnership shall offset future
distributions due to such Partner under this Agreement by applying the amount
of any such distribution first to the payment of any unpaid interest on all Tax
Payment Loans of such Partner and then to the repayment of the principal of all
Tax Payment Loans of such Partner.
(b) The General Partner shall have the authority to take all
actions necessary to enable the Partnership to comply with the provisions of
any Withholding Tax Act applicable to the Partnership and to carry out the
provisions of this Section. Nothing in this Section shall create any obligation
of the General Partner to advance funds to the Partnership or to borrow funds
from third parties in order to make any payments on account of any liability of
the Partnership under a Withholding Tax Act.
ARTICLE VII
ADDITIONAL CAPITAL CONTRIBUTIONS
BY SPECIAL LIMITED PARTNERS
7.01 Opportunity to Participate. With respect to the Partnership's
investment in each of RMH Teleservices, Inc., Sky Alland Research, Inc. and
Harmonic Systems Incorporated, each Special Limited Partner has made additional
capital contributions in the amount set forth opposite such Partner's name on
Exhibit A hereto. With respect to the first seven Portfolio Investments made by
the Partnership after the date hereof, each Special Limited Partner who is, at
the time of such investment, an Outside Director, shall make additional capital
contributions to the Partnership and shall acquire a share of the Partnership's
distributions, profits and losses arising from such Portfolio Investment,
subject to the terms set forth in this Agreement. The Special Limited Partners
shall also have the right to make follow-on investments in Portfolio
Investments as set forth in Section 7.02(b).
7.02 Procedures Relating to Additional Capital Contributions by Special
Limited Partners
(a) Prior to making a proposed Portfolio Investment after the
execution of this Agreement, the Partnership
-29-
<PAGE> 34
will notify each of the Special Limited Partners who are, as of such time,
Outside Directors, of such Portfolio Investment and provide information with
respect thereto as the Partnership deems appropriate. Each of the Special
Limited Partners will, within ten days after such notice (the "Investment
Notice") is sent to them by the Partnership, make additional capital
contributions to the Partnership with respect to the first seven of such
Portfolio Investments actually made by the Partnership after the date hereof and
shall do so by sending to the Partnership the Special Limited Partner's check to
the Partnership's order in the amount (the "Investment Amount") set forth
opposite such Special Limited Partner's name on Exhibit A hereto. In the event
a Special Limited Partner fails to timely make any such additional capital
contribution then, at the General Partner's option, such Special Limited Partner
shall lose his opportunity to participate in any future Portfolio Investments of
the Partnership with respect to which any Investment Notice is sent by the
Partnership within twelve months after the date on which the Partnership sent
the Investment Notice to the Special Limited Partners relating to the investment
for which the Special Limited Partner did not timely make the additional capital
contribution, and this shall be the Partnership's sole remedy against the
Special Limited Partner with respect to any such failure.
(b) Each special Limited Partner will have the opportunity to
participate in investments made by the Partnership which are determined by the
General Partner to be follow-on investments with respect to Portfolio
Investments for which such Special Limited Partner has made additional capital
contributions if, and only if, the per-unit price at which the Partnership is
making such follow-on investment is less than the per-unit price at which it
made its initial investment in the securities of the issuer of the Portfolio
Investment; and in such event such Special Limited Partner will have the
opportunity to make additional capital conditions to the Partnership in order
to prevent dilution of his interest in such Portfolio Investment, provided that
such additional capital contributions are made within ten days after a notice
requesting such additional capital contribution is sent by the General Partner
to such Special Limited Partner.
-30-
<PAGE> 35
ARTICLE VIII
MANAGEMENT
----------
8.01. AUTHORITY OF THE BOARD OF DIRECTORS.
(a) The Partnership shall be governed by the board of directors
of the General Partner, acting in their capacity as the Partnership's Board of
Directors. Such board of directors is referred to in this Agreement as the
Partnership's "Board of Directors." The members of the Board of Directors shall
be free to consult with Advanta GP and with Advanta, and may act in accordance
with directions received from Advanta GP and/or Advanta. The day to day
management and operation of the Partnership will be directed by the General
Partner.
(b) A majority of the members of the Board of Directors then in
office shall be necessary to constitute a quorum for the transaction of
business, and the acts of a majority of the members of the Board of Directors in
office shall be the acts of the Board of Directors. The Board of Directors may
also act by unanimous consent in writing.
(c) The Board of Directors may elect a Chairman of the Board to
preside at meetings of the Board (initially to be Dennis Alter).
(d) Meetings of the Board of Directors shall be held whenever
ordered by the Chairman of the Board, if any, or by a majority of the directors
in office. Written notice stating the place and time of any meeting of the
Board shall be sufficient if given at least one day in advance of the time
fixed for the meeting, and notice may be given to the recipient either
personally or by sending a copy thereof by first class or express mail, postage
prepaid, or by telegram (with messenger service specified), telex or TWX (with
answerback received), or next day courier service, charges prepaid, or by
telecopier, to such recipient's address (or to such recipient's telex, TWX,
telecopier or telephone number) appearing on the books of the Partnership or
supplied by such recipient to the Partnership for the purpose of notice. If the
notice is sent by mail, telegraph or courier service, it shall be deemed to
have been given to the person entitled thereto when deposited in the United
States mail or with a telegraph office or courier service for delivery to that
person, or in the case of telex or TWX, when dispatched; provided, that in any
case where only one day's notice is being given, notice must be given at least
24 hours in advance by
-31-
<PAGE> 36
delivery in person, telephone, telex, TWX, telecopier or similar means of
communication.
(e) Any member of the Board of Directors may participate in any meeting
of the Board of Directors or of any committee (provided such director is
otherwise entitled to participate), be counted for the purpose of determining a
quorum thereof and exercise all rights and privileges to which such member of
the Board of Directors might be entitled were he or she personally in
attendance, including the right to vote, or any other rights attendant to
presence in person at such meeting, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
(f) The Partnership policy with respect to compensation and expense
reimbursement for directors shall be determined by the General Partner.
(g) Except as otherwise expressly provided in this Agreement, all
policy matters and material decisions with respect to any matter set forth
herein or otherwise affecting or arising out of the conduct of the business of
the Partnership shall be made by the Board of Directors. Specifically, but not
by way of limitation, the Board of Directors:
(1) shall determine the Portfolio Investment acquisitions and
dispositions to be made by the Partnership, after receiving recommendations by
the General Partner. A Portfolio Investment will not be made without the
affirmative recommendation of the General Partner. The Class A Limited Partner
shall not be called upon to contribute more than $20 million to any single
Portfolio Investment, or to contribute more than $50 million to Portfolio
Investments in any 12-month period;
(2) has authority to direct the General Partner to execute and
deliver, in the name and on behalf of the Partnership, such documents and
instruments and to take such other action as the Board of Directors may deem
appropriate for the conduct of the Partnership's business;
(3) has authority to direct the General Partner to cause the
Partnership to lend money to one or more Portfolio Investment companies for any
purpose related to the Partnership's Portfolio Investments in such portfolio
companies;
-32-
<PAGE> 37
(4) has authority to direct the General Partner to cause the
Partnership to acquire property, real or personal, as the Board of Directors
may in its sole discretion deem necessary or appropriate for the conduct of the
Partnership's business and to sell, exchange, or otherwise dispose of all or
any part of the Partnership's property;
(5) has authority to direct the General Partner to cause the
Partnership to employ such agents, employees, managers, accountants, attorneys,
investment advisors, consultants and other Persons necessary or appropriate to
carry out the business and affairs of the Partnership and to cause the
Partnership to pay such reasonable fees, expenses, salaries, wages and other
compensation to such Persons as the Board of Directors shall in its sole
discretion determine;
(6) has authority to direct the General Partner to cause the
Partnership to make elections under the Code, as amended, (including, without
limitation, elections under Section 754 or any similar provisions enacted in
lieu thereof, or any corresponding provisions of state tax laws), and in
connection therewith, each of the Partners agrees, upon request of the Board of
Directors or a General Partner, to supply the information necessary to properly
give effect to such elections, and the Partners hereby designate Advanta GP as
the Partnership's "Tax Matters Partner", as such term is used in the Code; and
(7) has authority to delegate particular authority to the
General Partner.
8.02. Certain Compensation Matters. In the event any director's fees or
other fees or remuneration are paid to any of the Class B Limited Partners, or
any of their Affiliates (excluding the Partnership), by any Person in which the
Partnership has a Portfolio Investment, the amount of compensation payable to
the Class B Limited Partners by the Partnership shall be reduced by an amount
equal to the amount of such fees or compensation. In the event the aggregate
credits under this Section 8.02 against compensation payable by the Partnership
to any Class B Limited Partner exceed the aggregate projected amount of
compensation payable by the Partnership to such Class B Limited Partner for the
twelve month period after such credits are determined, such excess shall be
promptly paid to the Partnership by such Class B Limited Partner. Non-cash
remuneration consisting of goods or services paid to a Class B Limited Partner
by any Person in which the Partnership has a
-33-
<PAGE> 38
Portfolio Investment shall be taken into account when received, at fair value
as determined by the Board of Directors.
8.03. Services of the General Partner and Board of Directors. Subject
to any express exceptions set forth in any employment agreement with the
Partnership, during the existence of the Partnership, the General Partner shall
devote its full time and effort to the Partnership business to promote the
interests of the Partnership consistent with the General Partner's fiduciary
duty to the Partnership. Nothing in this Agreement shall be deemed to preclude
any of the General Partner's officers (other than the Class B Limited Partners
to the extent provided by any employment agreement between such parties and the
Partnership), directors or equity owners or any member of the Board of
Directors from engaging in other businesses, and in no event shall any of the
Partners be entitled to any interest in or profits from any such other business
by reason of their being a Partner in the Partnership.
8.04. Compensation and Dealings with Partnership. Except for the
interests granted to the Partners under this Agreement in the Profits or Losses
of and distributions from the Partnership, neither the General Partner nor the
Class A Limited Partner shall receive any compensation for services rendered in
connection with the management or operation of the Partnership or its business.
The Class A Limited Partner may deal with the Partnership in connection with
the management and operation of the Partnership as an independent contractor or
as an agent for others, and may receive from such others or the Partnership
normal profits, compensation, commissions, or other income incident to such
dealings, but only with the prior written consent of the Board of Directors to
such dealings and to the terms and conditions of, and the profits,
compensation, commissions or income to be derived from such dealings. The Class
B Limited Partners may receive compensation for services from the Partnership
in their capacities as employees of the Partnership.
8.05. No Loans to Partners, Etc. The Partnership shall be permitted to
lend funds, securities or other property of the Partnership only with the prior
approval of the Board of Directors. Except for any Tax Payment Loan authorized
under Section 6.02, any Loan to any Partner, any Affiliate of a Partner, or any
director, officer, partner or equity owner of a Partner or Affiliate of a
Partner, other than to a Person in which the Partnership has a Portfolio
Investment must be approved by the Board of Directors and the Class A Limited
Partner.
-34-
<PAGE> 39
8.06 LIABILITY OF THE GENERAL PARTNER, BOARD OF DIRECTORS MEMBERS AND
OTHERS.
(a) The General Partner, the officers, directors and
shareholders of the General Partner, the members of the Board of Directors, the
employees of the Partnership and any person serving at the request of the Board
of Directors or the General Partner on the board of directors of a Person in
which the Partnership has a Portfolio Investment (individually, an "Acting
Member") shall not be liable, responsible or accountable in damages or
otherwise to the Partnership or to any of the Partners for any act or omission
performed or omitted in good faith on behalf of the Partnership and in a manner
reasonably believed to be within the scope of the authority granted to such
Person by this Agreement or by the Board of Directors or the General Partner
and to be in the best interests of the Partnership, except for such person's
own bad faith, gross negligence, recklessness, willful misconduct, fraud or a
material and intentional breach of this Agreement in bad faith.
(b) No Acting Member shall be liable to the Partnership or to
any of the Partners for any tax, or penalty or interest related thereto,
imposed upon the Partnership or any Partner.
(c)(i) The Partnership shall indemnify, hold harmless and
defend each past and present Acting Member and their requisite successors,
heirs and personal representatives, (individually, a "Defended Person"), from
and against any and all loss, claims, damages, liabilities joint and several,
expenses, judgments, fines, settlements and other amounts, including, without
limitation, reasonable attorney's and accountant's fees and disbursements,
arising from any and all claims, demands, actions, suits or proceedings (civil,
criminal, administrative or investigative) in which such Defended Person shall
be involved as a party or otherwise, or be threatened to be made a party, by
reason of any action taken or alleged to have been taken or omitted to have
been taken in connection with or in any way related to the activities or
affairs of the Partnership, if such action or omission:
(A) Was taken or omitted in a manner reasonably
believed by such Defended Person to be within the scope of authority conferred
by law or this Agreement; and
-35-
<PAGE> 40
(B) Was authorized or consented to by the Board of
Directors or the General Partner or was an action taken on behalf of the
General Partner; and
(C) Was taken or omitted in good faith either on behalf
of the Partnership or in furtherance of the interests of the Partnership,
provided that the action or omission of such Defended Person did not constitute
bad faith, gross negligence, recklessness, willful misconduct, fraud or a
material and intentional breach of this Agreement in bad faith.
(ii) To the extent that such Defended Person has been
successful on the merits or otherwise in defense of any proceedings referred to
herein, or in defense of any claim, issue or matter therein, or even if the
Defended Person has been unsuccessful in such, but would otherwise be entitled
to indemnity pursuant to the standards set forth in clauses A, B and C above,
the Partnership shall assume liability for all expenses actually and reasonably
incurred by such Defended Person in connection therewith. The Partnership may,
at its option, choose to assume the defense of a Defended Person by counsel
selected by the Partnership with the consent of such Person, which consent
shall not be unreasonably withheld. The termination of a proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that such Defended
Person did not act in accordance with the standards set forth above. No
settlement of any matter referred to herein shall be entered into by a Defended
Person without the consent of the Partnership, which consent shall not be
unreasonably withheld. If the Partnership shall reject a settlement proposed by
a Defended Person, then, in addition to any other indemnification for which the
Partnership may be liable hereunder, the Partnership shall be liable, without
limitation or restriction hereunder, to indemnify such Defended Person for the
excess of any of the amount for which such Defended Person is ultimately
liable, by judgment, settlement or otherwise, over the amount of the settlement
rejected by the Partnership. The Partnership shall indemnify a Defended Person
from liability with respect to a claim, issue or matter for which such Defended
Person shall have been adjudged to be liable for misconduct in the performance
of such Defended Person's duty to the Partnership only to the extent that the
court in which such action was brought, or another court of appropriate
jurisdiction, determines upon application that, despite the liability, but in
view of all the circumstances of the case, such Defended Person is fairly and
reasonably entitled to be spared from liability for such expenses which such
court shall deem proper.
(iii) It is the intent of this Section that the Partnership will
indemnify the Defended Persons from and
-36-
<PAGE> 41
against liability to the maximum extent permitted by law, subject to the
provisions hereof. The General Partner, however, shall at no time or for any
reason attempt to require the Limited Partners to directly satisfy all or any
portion of the indemnification obligations of the Partnership to the Defended
Persons pursuant to this Section. Accordingly, the Class A Limited Partner
shall have no obligation to provide indemnification under this Agreement to the
extent of its remaining Commitment or otherwise.
(iv) Costs and expenses incurred in defending or responding to
any pending or threatened action, proceeding or investigation shall be advanced
by the Partnership (to a maximum of $250,000 unless a greater amount is
approved by the Board of Directors) on behalf of the Defended Person who is the
subject thereof in advance of the final disposition of such action, proceeding
or investigation. However, any such Defended Person must agree in writing to
repay such advance if it shall ultimately be determined that the Partnership
shall not indemnify such Defended Person from liability pursuant to this
Section.
(v) The indemnification obligation of the Partnership set forth
in this Section shall terminate as of the date the Partnership's Certificate of
Limited Partnership shall have been cancelled and the assets of the Partnership
shall have been distributed as provided herein.
(d) The provisions of this Section shall not be deemed to be exclusive
of any other rights to which the Defended Person may be entitled under any
agreement, or as a matter of law, or otherwise.
(e) The Board of Directors shall have the power to purchase and
maintain insurance, at the expense of the Partnership, on behalf of the Acting
Members against any liability asserted against or incurred by them in any
capacity covered by the indemnification provisions of this Section, whether or
not the Partnership would have the power to indemnify and defend the Defended
Persons against such liability under the provisions of this Agreement. No such
insurance, however, shall apply to suits by any Limited Partner directly or
derivatively.
(f) The Board of Directors or the General Partner may cause the
execution of any of its power hereunder or perform any duties hereunder either
directly or by or through agents or attorneys, and the Board of Directors or
General Partner, as the case may be, shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with
due care by it hereunder.
-37-
<PAGE> 42
8.07. Limitations on the Limited Partners. Nothing contained herein
shall be deemed to confer on a Limited Partner a right, in its capacity as a
Limited Partner, to (a) take part in the control of the business or affairs of
the Partnership; (b) have any voice in the management or operation of any
Partnership property; (c) have the authority or power to act as agent for or on
behalf of the Partnership or any other Partner; (d) do any act which would be
binding on the Partnership or any other Partner; or (e) incur any expenditures
on behalf of or with respect to the Partnership.
ARTICLE IX
BOOKS, RECORDS AND BANK ACCOUNTS
9.01. Books and Records. The General Partner shall keep accurate books
of account and records with respect to the operation of the Partnership and
this Agreement. Such books and records shall be maintained at the principal
place of business of the Partnership, or at such other place as the General
Partner, with notice to the Class A Limited Partner, shall determine. The
General Partner hereby agrees to preserve all financial and accounting records
pertaining to the operation of the Partnership and this Agreement during the
term of the Agreement and for six years thereafter, and during such period the
Class A Limited Partner, shall, at its own cost and expense, have the right to
audit such books and records for the purpose of verifying all records in regard
thereto to the fullest extent authorized and permitted by law, but not more
than one audit may be conducted in any twelve month period. The General Partner
shall have the right to preserve all records and accounts in original form or
on microfilm, magnetic tape, or any similar process.
9.02. Accounting Basis and Fiscal Year. The Partnership shall prepare
its financial statements in accordance with generally accepted accounting
principles as from time to time are in effect on a calendar year basis, taking
account of the allocations in Article IV, and shall prepare its income tax
information returns using the accrual method of accounting on a calendar year
basis.
9.03. Financial Reports. Within 60 days after the end of each
quarter, the General Partner shall cause to be prepared and sent to the Class A
Limited Partner an unaudited balance sheet and statement of profit and loss of
the Partnership. Within 90 days after the end of each fiscal year, or as
promptly thereafter as practicable, the General Partner shall cause to be
prepared and sent to (i) each Limited Partner (other than the
-38-
<PAGE> 43
Special Limited Partners) an audited financial report of the Partnership and
(ii) to each Special Limited Partner a copy of any financial statements of any
person in which a Shared Portfolio Investment has been made (and if such person
files reports with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 a copy of any reports so filed), in each case which have
been received by the Partnership within the prior twelve months, a report of the
distributions, profits and losses of the Partnership attributable to the
Portfolio Investments in which such Special Limited Partner elected to make a
capital contribution pursuant to the provisions of this Agreement, and such
other information relating to such Portfolio Investments as the General Partner
shall determine. Such audited financial report shall be audited by the
Accounting Firm. The cost of all such reporting shall be paid by the Partnership
as a Partnership expense. The Special Limited Partners hereby agree that it
would not be reasonable for the Partnership to be required to send to them, or
permit them to have access to, financial statements, reports or other
information relating to any matters other than the Portfolio Investments with
respect to which they made capital contributions.
9.04 BANK ACCOUNTS. The assets of the Partnership shall be held by
one or more custodian banks appointed by the Board of Directors. All funds of
the Partnership shall be deposited in one or more accounts maintained at the
custodian bank(s). All such funds and assets shall be and remain the property of
the Partnership and shall be received, held and disbursed by the General Partner
or its designee for the purposes specified in this Agreement. There shall not be
deposited in any of said accounts any funds other than funds belonging to the
Partnership, and no other funds shall in any way be commingled with such funds.
The General Partner may, subject to any policies adopted by the Board of
Directors, invest such funds in such temporary investments as they may deem
appropriate, including but not limited to banking and savings accounts, U.S.
government obligations, prime grade commercial paper, certificates of deposit,
money market instruments, or similar low risk, high quality income securities.
The General Partner shall not be liable or responsible for any loss resulting
from the failure of any custodian bank so designated.
-39-
<PAGE> 44
ARTICLE X
ASSIGNABILITY AND PURCHASE OF INTERESTS
10.01. Substitution and Assignment of a Partner's Interest.
(a) A Partner may not sell, transfer, assign, pledge or
otherwise dispose of (collectively, "disposition") all or any part of its
Partnership Interest (except by operation of law) except pursuant to an
amendment to the Agreement, signed by the General Partner and the Class A
Limited Partner, setting forth the terms and conditions of any such
disposition; no transferee of a Partnership Interest pursuant to this provision
or any other provision of this Agreement shall become a General Partner or a
substituted Limited Partner under the Act unless approved by the General
Partner and the Board of Directors, which approval may be withheld arbitrarily.
Notwithstanding the foregoing, no transfer of a Limited Partner's interest will
be permitted if it affects the continuity of the Partnership under Section 708
of the Code.
(b) If any transfer of all or any portion of a Partnership
Interest is made pursuant to any provision of this Agreement, the assignor and
assignee shall be jointly and severally liable to the Partnership to pay any
fees and expenses incurred by the Partnership as a result of such transfer,
promptly after demand therefor is made.
10.02. Admission of Additional Partners. Additional Partners may be
admitted to the Partnership only pursuant to, and upon the terms set forth in,
an amendment to the Agreement executed by the General Partner and the Class A
Limited Partner upon authorization to do so by the respective boards of
directors of such Partners.
10.03. Withdrawal of Partners. A Limited Partner (other than a Special
Limited Partner) may withdraw from the Partnership at any time. A General
Partner may withdraw from the Partnership at any time; provided, that such
withdrawal will not be permitted if it affects the continuity of the
Partnership under Section 708 of the Code.
-40-
<PAGE> 45
ARTICLE XI
DISSOLUTION AND TERMINATION
11.01. Event of Dissolution. The Partnership shall be dissolved upon
the earliest of:
(a) a date designated by written agreement of the General
Partner and the Class A Limited Partner or in a notice to dissolve, provided
pursuant to Section 2.01, from the Class A Limited Partner to the General
Partner;
(b) the withdrawal, Bankruptcy or dissolution of a General
Partner unless (i) the remaining General Partner, if any, agrees to continue
the Partnership or (ii) if there is no remaining General Partner, within thirty
(30) days a majority in interest of the remaining Partners agree in writing to
continue the Partnership and admit a new General Partner;
(c) at 12:00 midnight, on the date provided for in Section
2.01, unless extended by agreement of the Partners; and
(d) a date designated in a notice to dissolve by the Board of
Directors provided pursuant to the terms of Section 3.02.
11.02. Liquidation.
(a) Dissolution of the Partnership shall be effective on the
day on which the event occurs giving rise to the dissolution, but the
Partnership shall not terminate until the Partnership's Certificate of Limited
Partnership shall have been canceled and the assets of the Partnership shall
have been distributed as provided herein. Notwithstanding any possible
implication to the contrary, which implication is not intended, and in
accordance with applicable law, dissolution of the Partnership shall not
require the liquidation of any Portfolio Investment to occur at any faster rate
than ordinary prudent business judgment would have required absent the
dissolution, within the limit of the Initial Term.
(b) Upon the dissolution of the Partnership, a full account of
the assets and liabilities of the Partnership shall be taken and the assets and
liabilities of the Partnership shall be liquidated by the General Partner,
subject to Section 11.02(e), in the manner determined by the Board of
Directors, and the proceeds thereof, as and when available, shall be applied as
follows and in the following order of priority:
-41-
<PAGE> 46
(i) to the payment of all debts, taxes, obligations and
liabilities of the Partnership, and the necessary expenses of liquidation
(including, without limitation, any liabilities to Partners); and where a
contingent debt, obligation or liability exists, a reserve shall be set up to
meet it, and, if and when said contingency shall cease to exist, the assets, if
any, remaining in said reserve shall be distributed as provided in this Article
XI; and
(ii) then to the Partners in accordance with Section 6.01(a)(i).
(c) Upon any termination of the Partnership, the name of the
Partnership and its good will shall not be appraised, sold or otherwise
liquidated but shall be and remain the exclusive property of the Advanta GP.
(d) Within 60 days after the termination of the Partnership, and at
such time as the liquidation of the Partnership shall have been completed, the
General Partner shall cause to be prepared and forwarded to each Partner
financial statements of the Partnership, prepared in accordance with Section
9.02 hereof.
(e) The liquidation of the Partnership shall be administered by the
General Partner, unless the event causing the dissolution of the Partnership is
an event set forth in Section 11.01(b), and has occurred with respect to the
General Partner, in which case the liquidation of the Partnership shall be
managed by a liquidator appointed by the Class A Limited Partner.
(f) Except as otherwise provided herein, during the period of
liquidation of the Partnership following its dissolution, the Partners shall
continue to be entitled to their respective interests in the Profits or Losses
of the Partnership as set forth in Article IV.
(g) During the period of its liquidation, the Partnership will
continue to pay and bear those expenses chargeable to the Partnership during
its term.
(h) Notwithstanding any other provision of this Agreement, on
liquidation the General Partner shall contribute to the capital of the
Partnership an amount equal to the lesser of the aggregate deficit balance in
their Capital Accounts, if any, or 1.01% of the capital contributed by the
Limited Partners to the Partnership in excess of the capital contributed
previously by the General Partner.
-42-
<PAGE> 47
(i) Upon and after the dissolution of the Partnership,
Advanta GP and the Class A Limited Partner and any of their affiliates shall be
entitled to form another partnership, which may have the same purposes and the
same name as the Partnership, without any other General Partner or any Limited
Partner having any right in or restriction against such new partnership of any
kind, unless Advanta GP, the Class A Limited Partner and any such affiliates
shall agree to admit such parties as partners in such new partnership.
No later than the completion of the liquidation of the
Partnership as contemplated herein, the General Partner or the liquidator
appointed by the Limited Partners shall cause the cancellation of the
Partnership's Certificate of Limited Partnership.
ARTICLE XII
PURCHASE RIGHT OF ADVANTA
12.01. Advanta's Purchase Right.
(a) At any time, with respect to any Portfolio Investment
other than GEII held by the Partnership for not less than thirty-six (36)
months, Advanta shall have the right to require the Board of Directors to
engage, within thirty days after notice from Advanta, two appraisers, each to
provide an opinion of the fair market value of such Portfolio Investment
(defined as an amount in U.S. Dollars that a ready, willing and able buyer
would pay to a ready, willing and able seller, both assumed to be of equal
competence and experience and acting without coercion or duress in a fair
market). The expense of engaging such appraisers shall be borne by Advanta and
shall not be Advances under this Agreement. The average of such determinations
of fair market value shall be the "Appraised Value" under this Agreement. Upon
written notice within thirty (30) days after receipt of the Appraised Value,
Advanta shall have the right to buy any Portfolio Investment of the Partnership
at such Portfolio Investment's Appraised Value, subject to the following
restrictions:
(1) Advanta must purchase not less than 100% of the
Partnership's interest in the Portfolio Investment; and
(2) where the Partnership's Portfolio Investment
represents less than a majority of the voting control and value of the investee
entity, Advanta must (coincident with the purchase of the Partnership's
Portfolio Investment) purchase from other sources a sufficient additional
interest in the
-43-
<PAGE> 48
investee entity so that, when combined with the Portfolio Interest, Advanta
will have acquired a majority of the voting control and value of the investee
entity.
(b) The closing of a purchase made pursuant to Section 12.01(a)
shall occur within thirty (30) days after the Partnership's receipt of such
notice that Advanta desires to make such purchase, pursuant to such other
precise details as may be determined by the Board of Directors.
ARTICLE XIII
GENERAL PROVISIONS
13.01. Power of Attorney. Each Limited Partner, by the execution of
this Agreement, does hereby irrevocably constitute and appoint the General
Partner its true and lawful agent and attorney in fact, with full power and
authority in its name, to make, execute, acknowledge, deliver, file and record
such documents and instruments as may be necessary or appropriate to establish,
maintain or terminate the legal existence of the Partnership, including, but
not limited to, (a) the Partnership's Certificate of Limited Partnership, (b)
such amendments to the Partnership's Certificate of Limited Partnership, as
amended from time to time, as are required under the Act, (c) all certificates
and other instruments which may be required to effect the dissolution and
termination of the Partnership pursuant to the provisions hereof, (d) such
documents and instruments as are necessary to cancel the Partnership's
Certificate of Limited Partnership and any amendment thereto pursuant to
Article VIII hereof, and (e) all other instruments, documents, certificates and
amendments that may from time to time be required by any federal, state or
local law to effectuate, implement, continue and defend the valid and
subsisting existence of the Partnership or which may otherwise be required by
law.
13.02. Indulgences, Etc. Neither the failure nor any delay on the part
of any party to exercise any right under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right preclude
any other or further exercise of the same or of any other right nor shall any
waiver of any right with respect to any occurrence be construed as a waiver of
such right with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted
such waiver.
13.03. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and
-44-
<PAGE> 49
enforcement (including, without limitation, provisions concerning limitations
of actions), shall be governed by and construed in accordance with the laws of
the State of Pennsylvania (notwithstanding any conflict-of-law doctrines of any
state or other jurisdiction to the contrary), and without the aid of any canon,
custom or rule of law requiring construction against the draftsman.
13.04. Notices.
(a) All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when personally
delivered, or on the day specified for delivery when deposited with a courier
service such as Federal Express for delivery to the intended addressee, or two
days following the day when deposited in the United States mails, by registered
or certified mail, postage prepaid, return receipt requested, addressed as set
forth below:
(i) If to Advanta GP:
Advanta GP Corp.
Welsh and McKean Rds.
P.O. Box 844
Spring House, Pennsylvania 19477-0844
Attention: Chief Executive Officer;
with a copy, given in the manner prescribed above, to:
Gene S. Schneyer, Esquire,
Vice President and
General Counsel
c/o Advanta Corp.
Welsh and McKean Rds.
P.O. Box 844
Spring House, Pennsylvania 19477-0844
(ii) If to Class A Limited Partner:
Advanta Investment Corp.
c/o Advanta Corp.
Welsh and McKean Rds.
P.O. Box 844
Spring House, Pennsylvania 19477-0844
Attention: Chief Executive Officer;
-45-
<PAGE> 50
with a copy, given in the manner prescribed above, to:
Gene S. Schneyer, Esquire,
Vice President and
General Counsel
c/o Advanta Corp.
Welsh and McKean Rds.
P.O. Box 844
Spring House, Pennsylvania 19477-0844
(iii) If to any Limited Partner:
To the address shown for such Partner on the
Partnership's books and records
(b) In addition, notice by mail shall be by air mail if
posted outside of the continental United States.
(c) Any party may alter the address to which communications
or copies are to be sent by giving notice of such change of address in
conformity with the provisions of this paragraph for the giving of notice.
13.05. Schedules. Schedules attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
13.06. Binding Nature of Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective legal
successors and permitted assigns, except that none of the parties hereto may
assign or transfer their rights or obligations under this Agreement without the
prior written consent of the General Partner, and any such purported assignment
shall be void.
13.07. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
13.08 Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for
any reason any other
-46-
<PAGE> 51
or others of them may be invalid or unenforceable in whole or in part.
13.09. Entire Agreement; Amendment. This Agreement, together with
the Allocation and Vesting Agreement and the several employment agreements of
the various Class B Limited Partners, contains the entire understanding among
the parties hereto with respect to the subject matter hereof, and supersedes
all prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement
may not be modified or amended other than by an agreement in writing, which
agreement in writing shall be binding on all parties hereto (even if such
parties have not consented to such modification or amendment) if such agreement
is executed by the General Partner and the Class A Limited Partner; provided,
however, that if such amendment or modification would have a material adverse
effect on Hollin and/or Neems, then such agreement shall not be binding on such
party who shall be so materially adversely affected without such party's
execution of such agreement. In the event of any inconsistency among this
Agreement, the Allocation and Vesting Agreement and the aforementioned several
employment agreements, the provisions of this Agreement shall prevail over the
provisions of the other agreements and the provisions of the several employment
agreements shall prevail over the Allocation and Vesting Agreement.
13.10. Section Headings. The article, section and subsection headings
in this Agreement are for convenience only; they form no part of this Agreement
and shall not affect its interpretation.
13.11. Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context indicates is appropriate.
13.12. Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
13.13. Interpretation. As used herein, (i) "include", "includes" and
"including" are deemed to be followed by "without
-47-
<PAGE> 52
limitation" whether or not they are in fact followed by such words or words
of like import, (ii) references to any agreement or other document are to it as
amended and supplemented from time to time, (iii) references to any act,
statute or law are to it as amended and supplemented from time to time, include
any successor provision or any comparable act, statute or law that may be
enacted as its replacement, and include all rules and regulations promulgated
under such act, statute or law, (iv) references to Article, Section or another
subdivision or to an attachment, Exhibit or Schedule are to an Article, Section
or subdivision hereof or an attachment, Exhibit or Schedule hereto, and (v)
"hereof", "herein", "hereunder" and comparable terms refer to the entirety
hereof and not to any particular Article, Section or other subdivision hereof or
attachment hereto.
IN WITNESS WHEREOF, the parties have executed the Agreement of Limited
Partnership as of the date first above written.
ADVANTA GP CORP.
Attest: /s/ By: /s/
---------------------------- -------------------------------
Secretary or Assistant Authorized Officer
Secretary
ADVANTA INVESTMENT CORP.
Attest: /s/ By: /s/
---------------------------- -------------------------------
Secretary or Assistant Authorized Officer
Secretary
/s/ MITCHELL L. HOLLIN
-------------------------------(SEAL)
Mitchell L. Hollin
/s/ MICHAEL NAJJAR
-------------------------------(SEAL)
Michael Najjar
/s/ GARY H. NEEMS
-------------------------------(SEAL)
Gary H. Neems
Special Limited Partners:
/s/ ROBERT HALL
-------------------------------
Robert Hall
-48-
<PAGE> 53
/s/ ROBERT ROCK
-------------------------------
Robert Rock
/s/ JAMES STERN
-------------------------------
James Stern
-49-
<PAGE> 54
SCHEDULE A
Initial
Capital
-------
Advanta GP $100.00
Class A Limited Partner $100.00
Mitchell L. Hollin $100.00
Michael Najjar $100.00
Gary H. Neems $100.00
<PAGE> 55
EXHIBIT A
Special Limited Partner Investment Amount
- ----------------------- -----------------
Robert Hall $10,000
Robert Rock $25,000
James Stern $25,000
<PAGE> 1
EXHIBIT 10-T
Mr. William J. Razzouk
Page 1
September 5, 1996
Mr. William J. Razzouk
c/o Rossie, Luckett, Parker & Laughlin
675 Oakleaf Office Lane
Memphis, TN 38117-4863
Dear Bill:
This letter, when signed by you and us, shall confirm and constitute the
agreement between you and Advanta Information, Inc. (the "Company") relating to
your employment with the Company as follows:
1. Title and Duties. Your title will be Chief Executive Officer and
Director of the Company. In that capacity you will perform such
senior executive duties on a full-time basis consistent with your
position as the Board of Directors of the Company reasonably
determines, including oversight of the business and operations of the
Company. Advanta Corp. ("Advanta") hereby agrees to vote or cause to
be voted all shares of common stock of the Company beneficially owned
by Advanta and/or its affiliates in favor of your election to the
Board of Directors of Advanta Information, Inc., during the term of
your employment with the Company.
2. Start Date. Your employment will commence on or about October 1,
1996.
3. Base Salary. Your base salary in this position will be not less than
$475,000 annually, payable in periodic installments in accordance with
the Company's regular payroll practices in effect from time to time
(but no less frequently than monthly). The Board shall have the
discretion to review your Base Salary periodically.
4. Annual Bonus. You shall be eligible to participate in Advanta's
Management Incentive Plan (AMIP). Your target bonus will be 75% of
your Base Salary each year. Your AMIP bonus for the portion of the
year in 1996 during which you are employed shall be prorated based on
the number of days you are employed, provided that your bonus for this
period shall be calculated on the basis of an annual minimum of
$525,000, also prorated based on the number of days you are employed
in 1996. Your minimum AMIP bonus for 1997 attributable to the number
of days worked by you in 1997 up to the completion of your first year
of employment shall be calculated on the basis of an annual minimum of
<PAGE> 2
Mr. William J. Razzouk
Page 2
$525,000, prorated based on the number of days you are employed in
1997 prior to the completion of your first year of employment.
5. Advanta Restricted Stock Award.
(a) Upon commencement of your employment with the Company, Advanta
will grant and convey to you one hundred thousand (100,000)
shares of Class B restricted stock (the "Bonus Shares"). The
Bonus Shares shall vest (i.e., become free of restrictions) at
the rate of twenty-five thousand (25,000) shares on each of
the first four anniversaries of the date of your employment,
provided you are still employed by the Company on the
anniversary date. You will receive non-preferential cash
dividends (so long as Advanta is paying dividends on Class B
Shares) on all of the Bonus Shares both before and after they
vest. While any Bonus Shares remain restricted, the
restricted Bonus Shares (and any securities received as a
dividend or distribution with respect to such restricted Bonus
Shares) may not be sold, transferred, pledged or hypothecated
by you (other than to a family member or family trust to
facilitate your estate planning goals, in which case such
restrictions will apply to the Bonus Shares held by such
family member or family trust). While Bonus Shares remain
restricted, the stock certificates for such shares shall be
held by Advanta, and copies thereof shall be delivered to you
(as is our practice with respect to all restricted shares
under the AMIP bonus plan). Such restricted shares shall bear
a restrictive legend indicating that they are subject to the
restrictions described above and, in certain circumstances (as
more fully set forth below) to forfeiture and return to
Advanta without the payment to you of any consideration
therefor. As Bonus Shares vest, certificates for the vested
shares (and for any securities received as a dividend or
distribution with respect thereto), free of the restrictive
legend described in the preceding sentences shall be delivered
to you. Upon the Company's termination of your employment for
any reason other than "Cause" as defined below prior to your
having become vested in the first 50,000 cumulative shares,
there will be accelerated vesting of your Bonus Shares to the
extent necessary to provide you with a cumulative total of
50,000 class B vested shares. In the event you terminate your
employment, or we terminate your employment for "Cause", any
Bonus Shares which have not at that time already vested shall
be forfeited by you and returned to Advanta without payment of
any consideration. In the event of your death or the
termination of your employment due to Disability occurring at
any time while you are employed by the Company, a percentage
equal to the product of 25% and the number of complete years
of service with the Company prior to such termination of all
unvested restricted stock conveyed to you pursuant to this
paragraph 5 will immediately vest, except that in the event of
your death or Disability in the first year of your employment
you shall be deemed to have completed one year of service
<PAGE> 3
Mr. William J. Razzouk
Page 3
for purposes of this computation. For purposes of this
agreement, a Disability shall mean any physical or mental
condition which in the Company's judgment makes you unable to
perform your essential duties hereunder, with or without
reasonable accommodation. Except in the event of a
termination for Cause, it is specifically understood that the
Bonus Shares shall vest without regard to your personal
performance or the performance of the Company during the term
of your services.
(b) In the event of a change of control of Advanta, all of your
Bonus Shares shall immediately vest. For purposes of this
agreement, a change in control of Advanta shall be deemed to
have occurred upon the earliest to occur of the following
events: (i) the date the stockholders of Advanta (or the Board
of Directors, if stockholder action is not required) approve a
plan or other arrangement pursuant to which Advanta will be
dissolved or liquidated, or (ii) the date the stockholders of
Advanta (or the Board of Directors, if stockholder action is
not required) approve a definitive agreement to sell or
otherwise dispose of substantially all of the assets of
Advanta (other than to an affiliate of Advanta), or (iii) the
date the stockholders of Advanta (or the Board of Directors,
if stockholder action is not required) and the stockholders of
the other constituent corporation (or its board of directors
if stockholder action is not required) have approved a
definitive agreement to merge or consolidate Advanta with or
into such other corporation, other than, in either case, a
merger or consolidation of Advanta in which holders of shares
of Advanta's Class A Common Stock immediately prior to the
merger or consolidation will have, directly or indirectly, at
least a majority of the voting power of the surviving
corporation's voting securities immediately after the merger
or consolidation, which voting securities are to be held in
the same proportion as such holders' ownership of Class A
Common Stock of Advanta immediately before the merger or
consolidation, or (iv) the date any entity, person or group,
within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Securities Exchange Act of 1934, as amended, (other than
(A) Advanta or any of its subsidiaries or any employee benefit
plan (or related trust) sponsored or maintained by Advanta or
any of its subsidiaries or (B) any person who, on the date of
this agreement, shall have been the beneficial owner of or
have voting control over shares of Common Stock of Advanta
possessing more than twenty-five percent (25%) of the
aggregate voting power of Advanta's Common Stock) shall have
become the beneficial owner of, or shall have obtained voting
control over, more than twenty five percent (25%) of the
outstanding shares of Advanta's Class A Common Stock or (v)
the first day after the date of this agreement when directors
are elected such that a majority of the Board of Directors
shall have been members of the Board of Directors for less
than two (2)
<PAGE> 4
Mr. William J. Razzouk
Page 4
years, unless the nomination for election of each new director
who was not a director at the beginning of such two (2) year
period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of such period.
6. Advanta Information, Inc. Stock Award.
(a) Simultaneously with the commencement of your employment, the
Company will sell to you, for a purchase price of $0.01 per
share, a number of shares of common stock of the Company which
currently represents 6% of the outstanding shares of common
stock on an after-issued, fully diluted basis. If the Company
issues any shares of its common stock or options or other
securities exercisable for or convertible into shares of its
common stock after the date of this agreement and prior to the
date that a registration statement on Form S-1 (or a successor
form) with respect to shares of common stock of the Company
has been declared effective ("IPO") under the Securities Act
of 1933, as amended ("Securities Act"), such issuance will not
dilute your fully diluted equity interest in the Company at
that time in respect of the shares issued to you hereunder,
and the avoidance of dilution will be effected without the
issuance of additional shares to you. You shall have the
right to vote the shares and to receive dividends, if any,
declared with respect to the shares. However, shares which
have not vested in accordance with the vesting schedule set
forth below may not be transferred, encumbered or sold by you.
(b) On the day before each yearly anniversary of the commencement
of your employment with the Company, twenty five percent (25%)
of the shares of common stock of the Company issued to you
pursuant to paragraph (a) above shall vest, provided that you
are employed by the Company on such date. In the event of (i)
an IPO, (ii) a sale by the Company of all or substantially all
of the assets of the Company or by Advanta of all or
substantially all of its equity ownership of the Company to an
entity not affiliated with Advanta, (iii) a change in control
of Advanta or the Company (as defined in paragraph 5(b) as to
Advanta and, as to the Company, applying the same definition,
with "the Company" substituted for "Advanta" wherever it
appears), or (iv) a termination of your employment by the
Company other than for Cause (as defined in paragraph 9), all
of your shares shall immediately vest. In addition, upon
termination of your employment with the Company due to your
death or Disability (as defined in paragraph 5(a)) occurring
at any time while you are employed by the Company after the
first anniversary of the commencement of your employment with
the Company, a percentage equal to the product of 25% and the
number of complete years of service with the Company prior to
such termination of all unvested stock
<PAGE> 5
Mr. William J. Razzouk
Page 5
purchased by you pursuant to this paragraph 6 will immediately
vest. Except as set forth in the immediately preceding
sentence, any shares which have not vested prior to the
termination of your employment with the Company for any reason
shall no longer be eligible for vesting and shall be
repurchased by the Company for $0.01 per share. Upon tender
of the purchase price by the Company, the purchase of such
shares shall be deemed to have been consummated. You agree to
take all actions as may be reasonably necessary to effect the
transfer of such shares to the Company upon the tender of the
purchase price therefor.
(c) The parties acknowledge and agree that Advanta will receive
$1.00 nominal value of a preferred stock of the Company for
each dollar invested in the Company (although the preferred
stock shall be issued with a nominal value of $1,000 per
share). It is further agreed that if Great Expectations
International, Inc. (or its successor in interest) ("G/E") is
acquired from Advanta Partners LP by Advanta or any of its
subsidiaries, G/E will be included in the Company at its cost.
The preferred stock shall be non-participating, non-voting and
non-convertible and shall have a cumulative 8% cash dividend.
Advanta will not seek to amend the certificate of designations
of the preferred stock in respect of the conversion feature
other than in connection with an IPO in which event Advanta
could elect to convert the preferred stock into common stock
of the Company at the IPO price.
The parties acknowledge and agree that Advanta's interpersonal
relationship services businesses (other than G/E which is
dealt with above) will be conducted by the Company and its
subsidiaries, including future development of "Connections
Calendar" which will be performed by the Company or a
subsidiary of the Company, whether or not G/E is acquired from
Advanta Partners LP.
(d) At any time after an IPO and prior to the date that all of the
shares of common stock of the Company which are owned by you
may be sold at one time without registration under the
Securities Act (whether pursuant to Rule 144 thereunder or
otherwise), you shall have the right, subject to standard
restrictions, to participate in any registered offering by the
Company or selling stockholders (other than an offering
registered on Form S-8 or a successor form) of shares of the
Company's common stock. In addition, before any sale by
Advanta and/or its affiliates in one or a series of related
transactions of 10% or more of the Company's common stock to
an unaffiliated party, you shall be given an opportunity to
participate in such a sale on a proportionate basis with
Advanta and/or its affiliates.
<PAGE> 6
Mr. William J. Razzouk
Page 6
(e) The parties acknowledge and agree that you intend to make a
Section 83(b) election under the Internal Revenue Code of
1986, as amended, with respect to the shares of Company common
stock issued to you pursuant to the terms of this agreement
and the Company hereby agrees to assist you in making such
election to the extent reasonably requested by you.
7. Stock Options. After you have become vested in 50,000 of your Bonus
Shares you shall become eligible to participate in the Advanta Corp.
Stock Option Plan and to receive such grants as are made by the
applicable committee of Advanta's Board on an annual basis.
8. Expense Reimbursement. The Company will pay for all of your
reasonable and necessary business expenses in accordance with
Advanta's expense reimbursement policies.
9. Term; Termination for Cause. Although you and we are entering into
this agreement with the hope and expectation that this will be a
multi-year partnership, either you or we may terminate your services
at any time upon thirty (30) days prior written notice to the other,
provided however that you may not voluntarily terminate your
employment for any reason for one (1) year after your start date. We
may, by notice to you, terminate your employment for "Cause" or
without cause. As used herein, "Cause" shall mean: (a) your willful
refusal or failure to perform a material and substantial part of your
duties hereunder, it being understood that "Cause" shall not exist
unless and until you have received written notice from us detailing
the alleged willful refusal or failure, and you have been accorded at
least thirty (30) days to cure; or (b) your commission of a felony, or
of any act of fraud, inappropriation or criminal conduct involving or
relating in any material way to the Company, or of personal dishonesty
materially injurious to the Company. If we terminate your employment
for "Cause," you shall be entitled to receive your Base Salary until
the date of termination and your AMIP Bonus, pro-rated through the
date of termination, which AMIP Bonus shall be subject to the
discretion of the Board. This agreement shall terminate immediately
in the event of your death, whereupon your estate shall be entitled to
receive an amount equal to your salary and accrued benefits for any
days which you spent in the employ of the Company prior to your death,
together with the proceeds of all life insurance and any vested shares
pursuant to this agreement.
10. Confidentiality Agreement. You agree to execute a Confidentiality and
Non-competition Agreement in the form attached hereto as Exhibit A,
the execution of which is in consideration of your employment by the
Company.
11. Benefits; Relocation. The Company will provide you with such group
life, health and disability plans and programs, if any, as are
available generally to employees of Advanta, provided that the Company
will at its expense and provided you are insurable, purchase a term
life insurance policy providing a death benefit of
<PAGE> 7
Mr. William J. Razzouk
Page 7
$1,000,000 for a beneficiary of your designation for as long as you
are employed. You shall not be required to relocate to Pennsylvania
until the second anniversary of your employment. If you do relocate
sooner, you shall be entitled to a relocation bonus of $350,000 for
each year earlier than the two-year period, prorated for each full
month after you have completed your move. Prior to your relocation,
your reasonable expenses in traveling to Horsham and staying here
shall be reimbursed in accordance with Advanta's reimbursement
policies.
12. Indemnification. During and after the term of your employment with
the Company, you shall be entitled to the full indemnification
benefits provided under the Company's by-laws which shall be
substantially similar to those set forth in Article VII of Advanta's
by-laws, a copy of which has been provided to you. Any permissive
provision therein relating to rights of indemnification shall be
deemed mandatory to the maximum extent permitted by law. If the
Company fails to make any payments due to you under the terms of such
indemnification, Advanta hereby agrees to promptly make payment
thereof on behalf of the Company.
13. Miscellaneous.
(a) The Company may deduct and withhold from your compensation,
and from any option or stock awards hereunder, any taxes
required to be deducted or withheld under any applicable law.
(b) The Company has the right to obtain key-man insurance on your
life, at the Company's sole cost and expense. You agree to
cooperate with the Company in obtaining any such insurance and
to submit to the usual and customary medical and other
examinations and to sign all requisite applications therefor.
(c) You represent and warrant to the Company that there are no
restrictions, agreements or understandings whatsoever to which
you are a party that would prevent or make unlawful your
execution or performance of this agreement.
(d) You understand that the services to be rendered and the duties
to be performed by you hereunder are of a special, unique and
personal nature and that you may not assign your rights or
delegate your obligations under this agreement.
(e) You shall be considered an employee of the Company within the
meaning of all federal, state, and local laws and regulations
governing unemployment, insurance, workers' compensation,
industrial accident, labor and taxes.
(f) This agreement and the Confidentiality and Non-competition
Agreement to be executed represent the entire understanding
between the parties with
<PAGE> 8
Mr. William J. Razzouk
Page 8
respect to this relationship and supersede all prior oral and
written agreements and negotiations relating to the subject
matter of this agreement.
(g) All clauses and covenants contained in this agreement are
severable, and in the event any of them shall be held to be
invalid by any court, such clauses or covenants shall be
limited as permitted under applicable law or, if they are not
susceptible to such limitation, this agreement shall be
interpreted as if such invalid clauses or covenants were not
contained herein.
(h) This agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania,
without regard to principles of conflicts of law.
(i) All notice of any kind which either party may be required or
may desire to serve upon the other party hereunder shall be in
writing and sent by hand delivery or nationally recognized
overnight courier service providing receipt of delivery, or by
certified or registered mail, return receipt requested,
postage prepaid. Notice to the Company shall be sent to the
above address or any address, as may be provided hereafter.
(j) Nothing in this agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or
substantially all of its assets to another entity that assumes
this agreement and all obligations of the Company hereunder,
subject to your rights hereunder if such a transaction is
consummated. Thereafter, the term "Company" shall mean such
other entity and this agreement shall continue in full force
and effect.
<PAGE> 9
Mr. William J. Razzouk
Page 9
Bill, assuming the foregoing accurately reflects our understanding, please
indicate your acceptance of its terms below. We both agree that we intend to
be legally bound by this agreement.
Very truly yours,
ADVANTA INFORMATION, INC.
By: /s/
-----------------------------
Accepted and agreed this
5th day of September 1996
ADVANTA CORP.
By: /s/
-----------------------------------------
Accepted and agreed this
6th day of September 1996
/s/ WILLIAM J. RAZZOUK
- -------------------------------------------
William J. Razzouk
<PAGE> 1
EXHIBIT 21
CURRENT LIST OF SUBSIDIARIES OF REGISTRANT
Advanta Corp. (DE)
Advanta Residual Holding Corp. (DE)
Colonial National Corp. (DE)
Advanta National Bank USA
Colonial Mortgage Management Corp. (CA)
Advanta Financial Corp. (UT)*
Advanta Capital L.L.C. (DE)
Advanta National Bank
Advanta GP Corp. (DE)
Advanta 101 GP Corp. (DE)
Advanta Investment Corp. (DE)
Advanta Investment Corp. II (DE)
Advanta Information Services, Inc. (DE)
Advanta International Corporation I (DE)
Advanta International Corporation II (DE)
Advanta UK (Scotland)**
Advanta Leasing Holding Corp. (DE)
Advanta Business Services Corp. (DE)***
Advanta Leasing Receivables Corp. (DE)
Advanta Leasing Receivables Corp. II (DE)
Advanta Leasing Receivables Corp. III (NV)
Advanta Business Receivables Corp. (NV)
Advanta Commercial Credit Corp. (NV)
Mt. Vernon Leasing, Inc. (NJ)
Service Partners I Corp. (NV)
Service Partners II Corp. (NV)
Colorado Credit Card Service, LLC (CO)****
Advanta Service Corp. (DE)
Advanta Life Insurance Company (AZ)
Advanta Insurance Company (AZ)
Advanta Insurance Agency Inc. (DE)
TSO National Life Insurance Company (AZ)
Direct National Life Insurance Company (AZ)
AICM, Inc. (AZ)
Advanta Name Corp. (DE)
Advanta Advertising, Inc. (DE)
ADVANTENNIS Corp. (DE)
Colonial National Automotive Financial Corp. (DE)
Advanta Mortgage Holding Company (DE)
Advanta Auto Finance Corporation (NV)
Advanta Mortgage Corp. USA (DE)
Advanta Finance Corp. (NV)
Advanta Mortgage Corp. Midatlantic (PA)
Advanta Mortgage Corp. Midatlantic II (PA)
Advanta Mortgage Corp. New Jersey (NJ)
Advanta Mortgage Corp. Northeast (NY)
Advanta Mortgage Corp. Midwest (PA)
Advanta Financial Investments, Inc. (PA)
Advanta Nominee Services, Inc. (DE)
Advanta Mortgage Conduit Services, Inc. (DE)
Advanta Mortgage Receivables, Inc. (DE)
Advanta Mortgage Receivables Inc. (DE)
* Formerly Colonial National Financial Corp.
** Advanta International Corp. I and Advanta International Corp. II each
owns 50% of Advanta UK.
*** Formerly Advanta Leasing Corp.
**** The Managing Member of Colorado Credit Card Service, LLC is Service
Partners I Corp. and Service Partners II Corp. is also a Member.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements; File No.33-12510, No. 33-19290, No. 33-31456,
No. 33-32969, No. 33-33350, No. 33-39331, No. 33-47308, No. 33-47305,
No. 33-50256, No. 33-50254, No. 33-50258, No. 33-55492, No. 33-57516,
No. 33-53205, No. 33-53475, No. 33-54991, No. 33-58029, No. 33-59219,
No. 33-61555, No. 33-62601, No. 33-60419, No. 333-01681, No. 333-01833,
No. 333-04471, No. 333-04465, No. 333-04468, No. 333-04469, No. 333-05701,
and No. 333-18993.
Arthur Andersen LLP
Philadelphia, PA
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 165,875
<INT-BEARING-DEPOSITS> 546,783
<FED-FUNDS-SOLD> 338,926
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 785,600
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,702,187
<ALLOWANCE> 89,184
<TOTAL-ASSETS> 5,583,959
<DEPOSITS> 1,860,058
<SHORT-TERM> 1,068,989
<LIABILITIES-OTHER> 309,781
<LONG-TERM> 1,393,095
0
1,010
<COMMON> 435
<OTHER-SE> 850,591
<TOTAL-LIABILITIES-AND-EQUITY> 5,583,959
<INTEREST-LOAN> 267,823
<INTEREST-INVEST> 80,142
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 347,965
<INTEREST-DEPOSIT> 110,879
<INTEREST-EXPENSE> 269,700
<INTEREST-INCOME-NET> 78,265
<LOAN-LOSSES> 96,862
<SECURITIES-GAINS> 2,382
<EXPENSE-OTHER> 523,174
<INCOME-PRETAX> 264,761
<INCOME-PRE-EXTRAORDINARY> 175,657
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,657
<EPS-PRIMARY> 3.89
<EPS-DILUTED> 3.89
<YIELD-ACTUAL> 1.84
<LOANS-NON> 29,822
<LOANS-PAST> 40,597
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 53,494
<CHARGE-OFFS> 80,396
<RECOVERIES> 9,820
<ALLOWANCE-CLOSE> 89,184
<ALLOWANCE-DOMESTIC> 89,110
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 74
</TABLE>
