As filed with the Securities and Exchange Commission on February 14, 1997
- --------------------------------------------------------------------------------
Registration Nos. 333-
----------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
SUN CAPITAL TRUST
SUN BANCORP, INC.
--------------------------------
(Exact Name of Registrants as Specified in their Charters)
Delaware Requested
New Jersey 6035 52-1382541
- ------------------------------ -------------------------- ----------------------
(States or Other Jurisdictions (Primary Standard Industry (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Nos.)
Organization)
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
Mr. Adolph F. Calovi
President
Sun Bancorp, Inc.
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
- --------------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq. Steven L. Kaplan, Esq.
Lloyd H. Spencer III, Esq. ARNOLD & PORTER
Felicia C. Battista, Esq. 555 Twelfth Street, N.W.
MALIZIA, SPIDI, SLOANE & FISCH, P.C. Washington, D.C. 20004
1301 K Street, N.W., Suite 700 East,
Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Title of Each Class of Amount to be Proposed Proposed Maximum Amount of
Securities Being Registered Registered Offering Price Aggregate Offering Registration Fee
Price(1)
- ------------------------------------------------------------------------------------------------------
_____% Preferred Securities of Sun Capital
Trust (1) 1,150,000 $25.00 $28,750,000 $8,712.12
_____% Junior Subordinated
Debentures ofSun Bancorp, Inc. (2)
Guarantee of Sun Bancorp, Inc. of certain
obligations under the Preferred Securities (3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) Estimated solely for the purpose of calculating the registration fee
exclusive of accrued interest and dividends, if any.
(2) The Junior Subordinated Debentures will be purchased by Sun Capital
Trust with the proceeds of the sale of the Preferred Securities. Such
securities may later be distributed for no additional consideration to
the holders of the Preferred Securities upon the dissolution of the
Trust and the distribution of its assets.
(3) This Registration Statement is deemed to cover the Guarantee. Pursuant
to Rule 457(n) under the Securities Act, no separate registration fee
is payable for the Guarantee.
The prospectus contained in this Registration Statement will be used in
connection with the offering of the following securities: (1)______% Preferred
Securities of Sun Capital Trust; (2)______% Junior Subordinated Debentures of
Sun Bancorp, Inc.; and (3) a Guarantee of Sun Bancorp, Inc. of certain
obligations under the Preferred Securities.
The registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED __________ ____, 1997
[LOGO]
$25,000,000
Sun Capital Trust
___ % Preferred Securities
(Liquidation Amount $25 per Preferred Security)
fully and unconditionally guaranteed, as described herein, by
Sun Bancorp, Inc.
The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of Sun Capital Trust, a statutory business
trust created under the laws of the State of Delaware (the "Issuer Trust"). Sun
Bancorp, Inc. (the "Company") will initially be the holder of all of the
beneficial interests represented by common securities of the Issuer Trust (the
"Common Securities" and, together with the Preferred
(Continued on next page)
-----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
-----------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A
BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER INSURER OR GOVERNMENT AGENCY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) DISCOUNT (2) ISSUER TRUST (3)(4)
- --------------------------------------------------------------------------------
Per Preferred Security... $25.00 (4) $25.00
- --------------------------------------------------------------------------------
Total(5)................. $25,000,000 (4) $25,000,000
================================================================================
- -----------------
(1) Plus accrued Distributions, if any, from , 1997.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $ .
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriter, as compensation for arranging
the investment therein of such proceeds, $ per Preferred Security (or $ in
the aggregate). See "Underwriting."
(5) The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
$3,750,000 aggregate liquidation amount of the Preferred Securities on the
same terms as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public
and Proceeds to Company will be $ and $ , respectively. See "Underwriting."
The Preferred Securities are offered, by the Underwriter subject to
receipt and acceptance by it, prior sale and the Underwriter's right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Preferred Securities will be
made in book-entry form through the book-entry facilities of The Depository
Trust Company on or about , 1997 against payment therefor in immediately
available funds.
ADVEST, INC.
The date of this Prospectus is , 1997
<PAGE>
(cover page continued)
Securities, the "Trust Securities"). The Issuer Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
____% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures," and together with the Trust Securities, the
"Securities") to be issued by the Company. The Junior Subordinated Debentures
will mature on __________, 2027 (the "Stated Maturity"). The Preferred
Securities will have a preference under certain circumstances over the Common
Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Preferred Securities
- -- Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Application will be made to include the
Preferred Securities in Nasdaq's National Market. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred Securities
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from __________, 1997
and payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year commencing June 30, 1997, at the annual rate of % of the
Liquidation Amount of $25 per Preferred Security ("Distributions"). The Company
has the right to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarterly periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. No interest shall be due and
payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank pari passu in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate of
% per annum, compounded quarterly, and holders of Preferred Securities will be
required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust may have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In such
event, a holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of Preferred Securities." The obligations of the
Company under the Guarantee and the Preferred Securities are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated Debentures -- Subordination") of the
Company.
2
<PAGE>
The Preferred Securities are subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or, at the option of the Company, their earlier redemption in
whole upon the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein) and (ii) in whole or in part at
any time on or after __________, 2002 contemporaneously with the optional
redemption by the Company of the Junior Subordinated Debentures in whole or in
part. The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after __________, 2002, in whole at any time or
in part from time to time, or (ii) in whole, but not in part, at any time within
90 days following the occurrence and continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, in each case at a redemption price set
forth herein, which includes the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption. The
ability of the Company to exercise its rights to redeem the Junior Subordinated
Debentures or to cause the redemption of the Preferred Securities prior to the
Stated Maturity may be subject to prior regulatory approval by the Board of
Governors of the Federal Reserve System (the "Federal Reserve"), if then
required under applicable Federal Reserve capital guidelines or policies. See
"Description of Junior Subordinated Debentures -- Redemption" and "Description
of Preferred Securities -- Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Preferred Securities
- -- Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Preferred Securities will be entitled to receive a Liquidation
Amount of $25 per Preferred Security plus accumulated and unpaid Distributions
thereon to the date of payment, subject to certain exceptions, which may be in
the form of a distribution of such amount in Junior Subordinated Debentures. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
3
<PAGE>
MAP
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus is based on the assumption that the Underwriter will not
exercise its over-allotment option.
THE COMPANY
The Company, a New Jersey corporation, is a bank holding company
headquartered in Vineland, New Jersey with one subsidiary, Sun National Bank
(the "Bank"), a national bank. At December 31, 1996, the Company had total
assets of $436.8 million, total deposits of $386.0 million and total
stockholders' equity of $27.4 million. The Bank's deposits are federally insured
by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The Company's principal business is to serve as
a holding company for the Bank.
The Company was incorporated in, and the Bank was chartered in, 1985. In
April 1995, the Company changed its name from Citizens Investments, Inc. to its
present name. It is the Company's strategy to expand its retail market
throughout the southern New Jersey market area. Since 1994, the Company has
successfully completed the acquisition of two commercial banks with a total of
$117 million in assets, and eight branches with $122 million in deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." In addition, the Company entered into an agreement to
acquire four branches, with $73 million in deposits, from First Union National
Bank, Avondale, Pennsylvania. (see "First Union Branch Purchase") and plans
opening two de novo branches. Through its acquisition and expansion program, the
Company has significantly increased its asset size as well as the Bank's retail
network. At December 31, 1993, the Company's total consolidated assets were
$112.0 million as compared to $436.8 million at December 31, 1996.
At December 31, 1996, the Bank provided community banking activities
through eighteen branches located in southern New Jersey. The Bank offers a wide
variety of consumer and commercial lending and deposit services. The loans
offered by the Bank include commercial and industrial loans, home equity loans,
mortgage loans and installment loans. The Bank also offers deposit and personal
banking services including checking, regular savings, money market deposits,
term certificate accounts and individual retirement accounts. The Bank considers
its primary market area to be the New Jersey counties of Atlantic, Burlington,
Cape May, Cumberland, Mercer and Ocean. The Bank's market area contains a
diverse base of customers, including agricultural, manufacturing, transportation
and retail consumer businesses.
The executive office of the Company is located at 226 Landis Avenue,
Vineland, New Jersey 08360 and its telephone number is (609) 691-7700.
Financial Summary
<TABLE>
<CAPTION>
At or for Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C>
Net income.................... $3,013 $ 2,819 $ 1,840 $ 1,128 $ 813
Net income per share (fully diluted) 1.56 1.52 1.42 0.88 0.73
Total assets.................. 436,795 369,895 217,351 112,015 104,162
Loans receivables (net)....... 295,501 183,634 134,861 83,387 82,080
Shareholders' equity.......... 27,415 24,671 20,571 12,306 11,178
Return on average assets...... 0.74% 1.03% 1.09% 1.04% 0.74%
Return on average equity...... 11.99% 12.42% 11.74% 9.61% 7.56%
Net interest margin........... 4.57% 5.30% 5.39% 5.29% 4.96%
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
SUN CAPITAL TRUST
The Issuer Trust is a statutory business trust formed under Delaware law
pursuant to (i) a trust agreement, dated as of February 13, 1997, executed by
the Company, as Depositor, Bankers Trust Company, as Property Trustee and
Bankers Trust (Delaware), as Delaware Trustee, and (ii) the filing of a
Certificate of Trust with the Delaware Secretary of State on February 13, 1997.
Such initial trust agreement will be amended and restated in its entirety (as so
amended and restated, the "Trust Agreement"), as of the date the Preferred
Securities are initially issued. Two individuals will be selected by the holder
of the Common Securities to act as administrators with respect to the Issuer
Trust (the "Administrators"). The Company, while holder of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as Administrators. The Issuer Trust's
business and affairs are conducted by its Property Trustee, Delaware Trustee,
and two Administrators. The Issuer Trust exists for the exclusive purposes of
(i) issuing and selling the Preferred Securities and Common Securities, (ii)
using the proceeds from the sale of Preferred Securities and Common Securities
to acquire the Junior Subordinated Debentures issued by the Company and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Preferred Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Issuer Trust and payments under the Junior Subordinated Debentures will be the
sole revenue of the Issuer Trust. All of the Common Securities will be owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities, except that upon the
occurrence and during the continuance of an Event of Default under the Trust
Agreement resulting from an Event of Default under the Indenture, the rights of
the Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. The
Company will acquire Common Securities representing an aggregate liquidation
amount equal to 3% of the total capital of the Issuer Trust. The Issuer Trust
has a term of 31 years, but may terminate earlier as provided in the Trust
Agreement. The principal executive office of the Issuer Trust is 226 Landis
Avenue, Vineland, New Jersey 08360, and its telephone number is (609) 691-7700.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities Offered..................... The _____% Preferred Securities represent preferred
undivided beneficial interests in the Issuer Trust's
assets, which will consist solely of the Junior
Subordinated Debentures and payments thereunder.
The Trust has granted the Underwriter an option,
exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 150,000
Preferred Securities at the offering price, solely to
cover over-allotments, if any.
Offering Price......................... $__________ per Preferred Security (Liquidation
Amount $25), plus accumulated Distributions, if any,
from __________, 1997.
Distributions.......................... The distributions payable on each Preferred Security
will be fixed at a rate per annum of _____% of the
stated liquidation amount per Preferred Security, will
be cumulative, will accrue from __________, 1997,
the date of issuance of the Preferred Securities, and
will be payable quarterly in arrears, on March 31,
June 30, September 30 and December 31 of each
year, commencing June 30, 1997. See "Description
of Preferred Securities -- Distributions."
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Junior Subordinated Debentures......... The Issuer Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of _____% Junior
Subordinated Debentures of the Company. The
Junior Subordinated Debentures will mature on
__________, 2027. The Junior Subordinated
Debentures will rank subordinate and junior in right
of payment to all Senior Indebtedness of the
Company. In addition, the Company's obligations
under the Junior Subordinated Debentures will be
structurally subordinated to all existing and future
liabilities and obligations of its subsidiaries.
Guarantee.............................. Under the terms of the Guarantee, the Company has
guaranteed the payment of Distributions and
payments on liquidation or redemption of the
Preferred Securities, but only in each case to the
extent of funds held by the Issuer Trust described
herein. The Company and the Issuer Trust believe
that the obligations of the Company under the
Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture taken
together, fully, irrevocable and unconditionally
guarantee all of the Issuer Trust obligations relating
to the Preferred Securities. The obligations of the
Company under the Guarantee and the Preferred
Securities are subordinate and junior in right of
payment to all Senior Indebtedness. See
"Description of Guarantee."
Right to Defer Interest................ The Company has the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures for a period not exceeding 20
consecutive quarters; provided that no Extension
Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. As a consequence
of the Company's extension of the interest payment
period, quarterly Distributions on the Preferred
Securities will be deferred (though such Distribution
would continue to accrue with interest thereon
compounded quarterly, since interest will continue to
accrue and compound on the Junior Subordinated
Debentures during any such Extension Period.
During an Extension Period, the Company will be
prohibited, subject to certain exceptions described
herein, from declaring or paying any cash
distributions with respect to its capital stock or debt
securities that rank pari passu with or junior to the
Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may
commence a new Extension Period, subject to the
foregoing requirements. See "Description of Junior
Subordinated Debentures -- Option to Extend Interest
Payment Period."
Should an Extension Period occur, Preferred
Security holders will continue to include interest
income for United States income tax purposes. See
"Taxation --Interest and Original Issue Discount."
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Redemption............................. The Preferred Securities are subject to mandatory
redemption (i) in whole, but not in part, at the Stated
Maturity upon repayment of the Junior Subordinated
Debentures, (ii) in whole, but not in part,
contemporaneously with the optional redemption at
any time by the Company of the Junior Subordinated
Debentures upon the occurrence and continuation of
a Tax Event, Investment Company Event or Capital
Treatment Event and (iii) in whole or in part at any
time on or after ____________, 2002,
contemporaneously with the optional redemption by
the Company of the Junior Subordinated Debentures
in whole or in part, in each case at the applicable
Redemption Price. See "Description of Preferred
Securities -- Redemption."
Liquidation of the Issuer Trust........ The Company has the right at any time to dissolve
the Issuer Trust and cause the Junior Subordinated
Debentures to be distributed to holders of Preferred
Securities in liquidation of the Issuer Trust, subject
to the Company having received prior approval of
Federal Reserve to do so if then required under
applicable capital guidelines or policies of the
Federal Reserve. See "Description of Preferred
Securities -- Liquidation Distribution Upon
Dissolution."
Voting Rights.......................... Generally, the holders of the Preferred Securities
will not have any voting rights. See "Description of
Preferred Securities -- Voting Rights" and "Risk
Factors -- Limited Voting Rights."
Use of Proceeds........................ The proceeds from the sale of the Preferred
Securities offered hereby will be used by the Issuer
Trust to purchase the Junior Subordinated
Debentures issued by the Company. The proceeds
received by the Company from the sale of the Junior
Subordinated Debentures will be used to repay
existing debt of the Company of approximately $6
million and contribute approximately $_______
million through investments in or advances to the
Bank. The remainder of the proceeds will be held
by the Company and may be used to meet debt
service obligations of the Company under the Junior
Subordinated Debentures. The Bank intends to use
the capital for general corporate purposes including
the First Union branch acquisition and other branch
acquisitions and/or acquisitions of other financial
institutions. The Trust Securities will qualify as Tier
1 capital of the Company, subject to the 25% Capital
Limitation (as defined herein), under the risk-based
capital guidelines of the Federal Reserve. The
portion of the Trust Securities that exceeds the 25%
Capital Limitation will qualify as Tier 2 capital of
the Company. See "Use of Proceeds."
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ERISA Considerations................... Prospective purchasers should consider the
information set forth under "Certain ERISA
Considerations."
Nasdaq National Market Symbol.......... Application has been made to have the Preferred
Securities approved for quotation on the Nasdaq
National Market under the symbol "SNBCP".
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors," beginning on page 12.
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary information regarding the Company should be read in
conjunction with the consolidated financial statements of the Company and notes
beginning on page _____.
<TABLE>
<CAPTION>
At for the Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C>
Selected Results of Operations
Interest income ..................... $ 29,270 $ 20,850 $ 12,194 $ 8,164 $ 8,629
Net interest income ................. 16,736 13,163 8,256 5,319 4,991
Provision for loan losses ........... 900 808 383 2 96
Net interest income after
provision for loan losses ........ 15,836 12,355 7,873 5,317 4,895
Non-interest expense ................ 13,207 10,047 5,991 4,198 4,354
Net Income .......................... 3,013 2,819 1,840 1,128 813
Per Share Data
Net Income
Primary .......................... 1.58 1.52 1.42 0.88 0.73
Fully diluted .................... 1.56 1.52 1.42 0.88 0.73
Book value .......................... 15.25 14.34 12.59 11.52 10.98
Selected Balance Sheet Data
Assets .............................. 436,795 369,895 217,351 112,015 104,162
Cash and investments ................ 117,388 164,251 70,809 24,134 17,670
Loans receivable (net) .............. 295,501 183,634 134,861 83,387 82,080
Deposits ............................ 385,987 335,248 196,019 99,099 91,837
Borrowings and securities
sold under agreements
to repurchase ..................... 21,253 8,000 -- -- --
Shareholders' equity ................ 27,415 24,671 20,571 12,306 11,178
Performance Ratios
Return on average assets ............ 0.74% 1.03% 1.09% 1.04% 0.74%
Return on average equity ............ 11.99% 12.42% 11.74% 9.61% 7.56%
Net interest margin ................. 4.57% 5.30% 5.39% 5.29% 4.96%
Asset Quality Ratios
Non-performing loans to
total loans ....................... 0.43% 1.43% 1.39% 1.84% 0.80%
Non-performing assets to
total loans and other
real estate owned ................ 1.06% 2.19% 2.56% 2.26% 1.19%
Net charge-offs to average
total loans ...................... 0.16% 0.23% 0.29% 0.02% 0.14%
Total allowance for loan
losses to total
non-performing loans .............. 107.26% 64.47% 64.74% 69.10% 128.53%
Capital Ratios
Equity to assets .................... 6.28% 6.67% 9.46% 10.99% 10.73%
Tier 1 risk-based capital ratio ..... 7.44% 8.67% 14.24% 15.59% 9.68%
Total risk-based capital ratio ...... 8.28% 9.64% 15.48% 16.84% 11.10%
Leverage ratio ...................... 5.43% 5.74% 8.44% 10.74% 10.71%
Ratios of Earnings to Fixed Charges(1)
Including interest on deposits ...... 1.35x 1.51x 1.66x 1.62x 1.36x
Excluding interest on deposits ...... 1.41x 1.52x 1.70x 1.62x 1.37x
</TABLE>
(1) The consolidated ratio of earnings to fixed charges has been
computed by dividing income before income taxes, cumulative effect of
changes in accounting principles and fixed charges by fixed charges. Fixed
charges represent all interest expense (ratios are presented both excluding
and including interest on deposits). There were no amortization of notes
and debentures expense and the portion of net rental expense which is
deemed to be equivalent to interest on debt. Interest expense (other than
on deposits) includes interest on notes, federal funds purchased and
securities sold under agreements to repurchase, and other funds borrowed.
- --------------------------------------------------------------------------------
10
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as
"intended," "will be positioned," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. To the extent any of the information
contained or incorporated by reference in this Prospectus constitutes a
"forward-looking statement" as defined in Section 27A(i)(1) of the Securities
Act, the risk factors set forth below are cautionary statements identifying
important factors that could cause actual results to differ materially from
those in the forward-looking statement.
RISK FACTORS RELATING TO THE OFFERING
Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Preferred Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness. At December 31, 1996, the Senior Indebtedness of the
Company aggregated approximately $6.0 million. None of the Junior Subordinated
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, that may be
incurred by the Company. See "Description of Guarantee -- Status of the
Guarantee" and "Description of Junior Subordinated Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
Option to Extend Interest Payment Period; Tax Consequences
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures -- Debenture Events of Default." As a consequence of any
such deferral, quarterly Distributions on the Preferred Securities by the Issuer
Trust will be deferred during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions,
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distribution" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay,
11
<PAGE>
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) 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, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all interest then accrued and unpaid (together with interest
thereon at the annual rate of __________%, compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extension
Period subject to the above conditions. No interest shall be due and payable
during an Extension Period, except at the end thereof. The Company must give the
Issuer Trustees notice of its election to begin an Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on the
Preferred Securities would have been payable but for the election to begin such
Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Preferred Securities -- Distributions" and "Description of
Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount) in respect of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust for United States federal income tax purposes. As a result, a holder of
Preferred Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Preferred Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount" and "-- Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be affected. A holder that disposes of his or its Preferred Securities during an
Extension Period,
12
<PAGE>
therefore, might not receive the same return on his or its investment as a
holder that continues to hold its Preferred Securities. In addition, as a result
of the existence of the Company's right to defer interest payments, the market
price of the Preferred Securities (which represent preferred undivided
beneficial interests in the assets of the Issuer Trust) may be more volatile
than the market prices of other securities on which original issue discount or
interest accrues that are not subject to such deferrals.
Tax Event, Investment Company Event or Capital Treatment Event Redemption
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event and thereby cause a mandatory redemption of the
Preferred Securities. Any such redemption shall be at a price equal to the
liquidation amount of the Preferred Securities, together with accumulated
Distributions to but excluding the date fixed for redemption. The ability of the
Company to exercise its rights to redeem the Junior Subordinated Debentures
prior to the stated maturity may be subject to prior regulatory approval by the
Federal Reserve, if then required under applicable Federal Reserve capital
guidelines or policies. See "Description of Junior Subordinated Debentures --
Redemption" and "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "-- Possible Tax Law Changes Affecting the Preferred Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise to
a Tax Event, which may permit the Company to cause a redemption of the Preferred
Securities prior to __________, 2002.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
13
<PAGE>
A "Capital Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the Preferred Securities, there
is more than an insubstantial risk that the Company will not be entitled to
treat an amount equal to the Liquidation Amount of the Preferred Securities as
"Tier 1 Capital" (or the then equivalent thereof) except as otherwise restricted
under the 25% Capital Limitation (as defined herein), for purposes of the
risk-based capital adequacy guidelines of the Federal Reserve, as then in effect
and applicable to the Company.
Exchange of Preferred Securities for Junior Subordinated Debentures
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company, as holder of the Common Securities, to dissolve the Issuer Trust
may be subject to prior regulatory approval of the Federal Reserve, if then
required under applicable Federal Reserve capital guidelines or policies. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences -- Distribution of Junior Subordinated
Debentures to Securityholders."
Rights Under the Guarantee
Bankers Trust Company will act as the trustee under the Guarantee and will
hold the Guarantee for the benefit of the holders of the Preferred Securities.
Bankers Trust Company will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee under the Trust Agreement.
Bankers Trust (Delaware) will act as Delaware Trustee under the Trust Agreement.
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by or on behalf of the Issuer Trust:
(i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Issuer Trust has funds on hand
available therefor at the payment date, (ii) the Redemption Price with respect
to any Preferred Securities called for redemption, to the extent that the Issuer
Trust has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of the Issuer
Trust (unless the Junior Subordinated Debentures are distributed to holders of
the Preferred Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment, to
the extent that the Issuer Trust has funds on hand available therefor at such
time, and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Guarantee is subordinated as described under "-- Ranking of
14
<PAGE>
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures" and "Description of Guarantee -- Status of the Guarantee." The
holders of not less than a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Preferred Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer Trust, the Guarantee Trustee or any other
person or entity.
If the Company were to default on its obligation to pay amounts payable under
the Junior Subordinated Debentures, the Issuer Trust may lack funds for the
payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities,"
"-- Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
Limited Voting Rights
Holders of Preferred Securities will have limited voting rights relating
generally to the modification of the Preferred Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Preferred Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement. The Property
Trustee and the holders of all the Common Securities may, subject to certain
conditions, amend the Trust Agreement without the consent of holders of
Preferred Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Issuer Trust (i)
will not be taxable as a corporation for United States federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement" and "-- Removal of Issuer Trustees;
Appointment of Successors."
Absence of Market
The Preferred Securities are a new issue of securities with no established
trading market. Application has been made to list the Preferred Securities in
the Nasdaq National Market, but one of the requirements for listing and
continued listing is the presence of two market makers for the Preferred
Securities. The
15
<PAGE>
Company and the Issuer Trust have been advised by the Underwriter that it
intends to make a market in the Preferred Securities. However, the Underwriter
is not obligated to do so and such market making may be interrupted or
discontinued at any time without notice at the sole discretion of the
Underwriter. Moreover, there can be no assurance of a second market maker for
the Preferred Securities. Accordingly, no assurance can be given as to the
development or liquidity of any market for the Preferred Securities.
Market Prices
There can be no assurance as to the market prices for Preferred Securities,
or the market prices for Junior Subordinated Debentures that may be distributed
in exchange for Preferred Securities if a liquidation of the Issuer Trust
occurs. Accordingly, the Preferred Securities or the Junior Subordinated
Debentures that a holder of Preferred Securities may receive on liquidation of
the Issuer Trust may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because holders of Preferred
Securities may receive Junior Subordinated Debentures on termination of the
Issuer Trust, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of Junior Subordinated
Debentures."
Possible Tax Law Changes Affecting the Preferred Securities
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the revenue provisions of those proposals would
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum term of more than 15 years and that is not shown
as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. If enacted as
proposed by the President, this provision would be effective for instruments
issued on or after the date of first action by a Congressional committee with
respect to the proposal. It is not clear from the President's proposals as to
what constitutes Congressional "committee action" with respect to this proposal.
If the provision were to apply to the Junior Subordinated Debentures, the
Company would be unable to deduct interest on the Junior Subordinated
Debentures. There can be no assurance, however, that future legislative
proposals or final legislation will not affect the ability of the Company to
deduct interest on the Junior Subordinated Debentures. Such a change could give
rise to a Tax Event, which may permit the Company to cause a redemption of the
Preferred Securities before ____________, 2002. See "Description of Junior
Subordinated Debentures -- Redemption" and "Description of Preferred
Securities -- Redemption." See also "Certain Federal Income Tax Consequences
- -- Possible Tax Law Changes." Under current law, the Company will be able to
deduct interest on the Junior Subordinated Debentures.
RISK FACTORS RELATING TO THE COMPANY
Status of the Company as a Bank Holding Company
The Company is a legal entity separate and distinct from the Bank, although
the principal source of the Company's cash revenues is dividends from the Bank.
The ability of the Company to pay the interest on and principal of the Junior
Subordinated Debentures will be significantly dependent on the ability of the
Bank to pay dividends to the Company in amounts sufficient to service the
Company's debt
16
<PAGE>
obligations. Payment of dividends by the Bank is restricted by various legal and
regulatory limitations. Two different calculations are performed to measure the
amount of dividends that may be paid: a recent earnings test and an undivided
profits test. Under the recent earnings test, a dividend may not be paid if the
total of all dividends declared by a national bank in any calendar year is in
excess of the current year's net profits combined with the retained net profits
of the two preceding years unless the bank obtains the approval of the OCC.
Under the undivided profits test, dividends may not be paid in excess of a
bank's undivided profits then on hand, after deducting bad debts in excess of
the reserve for loan losses. At December 31, 1996, under the retained earnings
test, which is the more restrictive of the available methods of calculating the
dividend limitations of a national bank, approximately $7.7 million was
available for payment of dividends to the Company from the Bank without prior
regulatory approval.
The right of the Company to participate in the assets of any subsidiary upon
the latter's liquidation, reorganization or otherwise (and thus the ability of
the holders of Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim. As of December 31, 1996, the Company's
subsidiaries had indebtedness and other liabilities of approximately $403.4
million.
The Bank is also subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Company, whether in the form of loans,
extensions of credit, investments, asset purchases or otherwise. Such transfers
by the Bank to the Company are limited in amount to 10% of the Bank's capital
and surplus and, with respect to the Company, to an aggregate of 20% of the
Bank's capital and surplus. Furthermore, such loans and extensions of credit are
required to be secured in specified amounts.
Rapid Growth
During the last three years, the Bank has experienced rapid and significant
growth. The total assets of the Bank have increased from $112.0 million at
December 31, 1993 to $436.8 million at December 31, 1996. Although the Bank
believes that it has adequately managed its growth in the past, there can be no
assurance that the Bank will continue to experience such rapid growth, or any
growth, in the future and, to the extent that it does experience continued
growth, that the Bank will be able to adequately and profitably manage such
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The continued growth has led the Company to undertake the present offering of
Trust Securities. The capital to be raised from the sale of the Trust Securities
offered hereby, is necessary to provide sufficient capital to support the growth
of assets. No assurance can be given that this rapid growth will continue, but,
if it does, there is no assurance that the earnings of the Company and the Bank
can adequately provide the necessary capital for the Bank and the Company to
maintain required regulatory capital levels commensurate with continued rapid
growth. The level of future earnings of the Company also will depend on the
ability of the Company and the Bank to profitably deploy and manage the
increased assets. The rapid growth of the Bank in asset size and the rapid
increase in its volume of total loans during the past two years have increased
the possible risks inherent in an investment in the Company.
Although the Bank has experienced moderate loan losses to date, the rapid
growth of its loan portfolio from loans of $83.4 million at December 31, 1993 to
$295.5 million at December 31, 1996, may result in an increase in loan loss
experience. Due to the high volume of recent loans, many of the loans of the
Bank are unseasoned, thereby increasing the potential for additional loan losses
even though the Bank
17
<PAGE>
continues to utilize the same underwriting criteria and monitoring procedures
that have resulted in the Bank's moderate loan loss experience. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Lending Activities."
Loan Portfolio Considerations
During the past three years, the Company has experienced significant growth
in its loan portfolio. Net loans increased to $295.5 million at December 31,
1996, from $183.6 million at December 31, 1995, from $134.9 million at December
31, 1994. While many components of the loan portfolio have contributed to this
increase over the past three years, much of this loan growth has occurred in the
portfolio of commercial and industrial loans. Commercial and industrial loans
increased by 87.7% or $104.2 million during 1996 as compared to 1995 and
comprised 75.5% of total loans as of December 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
- -Analysis of Loan Portfolio." As a result of this recent growth, a significant
portion of the Company's total loan portfolio may be considered unseasoned and,
therefore, specific payment and loss experience for this portion of the
portfolio has not yet been established. In addition, the nature of commercial
and industrial loans is such that they may present more credit risk to the
Company than other types of loans such as home equity or residential real estate
loans. Further, these loans are concentrated in Cumberland, Burlington,
Atlantic, Ocean and Cape May Counties, in Southern New Jersey. As a result, a
decline in the general economic conditions of Southern New Jersey could have a
material adverse effect on the Company's financial condition and results of
operations taken as a whole. See "Business of the Company--Lending
Activities--Commercial and Industrial Loans."
Competition
The banking business is highly competitive. In its primary market area, the
Bank competes with other commercial banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and
investment banking firms operating locally and elsewhere. The Bank's primary
competitors have substantially greater resources and lending limits than the
Bank and may offer certain services, such as trust services, that the Bank does
not provide at this time. The profitability of the Company depends upon the
Bank's ability to compete in its market area. See "Business -- Competition."
Supervision and Regulation
Bank holding companies and banks operate in a highly regulated environment
and are subject to the supervision and examination by several federal and state
regulatory agencies. The Company is subject to the BHCA and to regulation and
supervision by the Federal Reserve, and the Bank is subject to the regulation
and supervision of the OCC and the FDIC. These laws and regulations govern
matters ranging from the regulation of certain debt obligations, changes in the
control of bank holding companies, and the maintenance of adequate capital to
the general business operations and financial condition of the Bank, including
permissible types, amounts and terms of loans and investments, the amount of
reserves against deposits, restrictions on dividends, establishment of branch
offices, and the maximum rate of interest that may be charged by law. The
Federal Reserve, and the FDIC and the OCC also possess cease and desist powers
over bank holding companies and banks, respectively, to prevent or remedy unsafe
or unsound practices or violations of law. These and other restrictions limit
the manner in which the Company and the Bank may conduct their business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
18
<PAGE>
Federal Reserve. These monetary policies have had and are expected to continue
to have significant effects on the operating results of commercial banks.
Changes in monetary or legislative policies may affect the ability of the Bank
to attract deposits and make loans. See "Supervision and Regulation."
Potential Impact of Changes in Interest Rates
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels and by other economic factors beyond its
control. Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time frame is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time frame is considered liability-sensitive and is
reflected as negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising interest rate environment and will
negatively impact earnings in a falling interest rate environment, while a
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment and negatively impact earnings
in a rising interest rate environment. Fluctuations in interest rates are not
predictable or controllable. The Company has attempted to structure its asset
and liability management strategies to mitigate the impact on net interest
income of changes in market interest rates. At December 31, 1996, the Company
had a one year cumulative negative gap of 8.73%. This negative one year gap
position may, as noted above, have a negative impact on earnings in a rising
interest rate environment. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Gap Analysis."
SUN CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on February 13, 1997. The Issuer Trust will be governed by an Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee
(together with the Delaware Trustee, the "Issuer Trustees"). Two individuals
will be selected by the holder of the Common Securities to act as administrators
with respect to the Issuer Trust (the "Administrators"). The Company, while
holder of the Common Securities, intends to select two individuals who are
employees or officers of or affiliated with the Company to serve as the
Administrators. See "Description of Preferred Securities -- Miscellaneous." The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
All the Common Securities will initially be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that upon the occurrence and during the
continuation of a Debenture Event of Default arising as a result of any failure
by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of
19
<PAGE>
the Preferred Securities. See "Description of Preferred Securities --
Subordination of Common Securities." The Company will acquire Common Securities
in an aggregate liquidation amount equal to 3% of the total capital of the
Issuer Trust. The Issuer Trust has a term of 31 years, but may terminate earlier
as provided in the Trust Agreement. The address of the Delaware Trustee is
Bankers Trust (Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801,
telephone number (302) 576-3301. The address of the Property Trustee, the
Guarantee Trustee and the Debenture Trustee is Bankers Trust Company, Four
Albany Street, 4th Floor, New York, New York 10006, telephone number (212)
250-2500.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The proceeds from the sale of the Preferred Securities are expected
to qualify as Tier 1 or core capital with respect to the Company under the
guidelines established by the Federal Reserve, however capital received from the
proceeds of the sale of the Preferred Securities cannot constitute more than 25%
of the total Tier 1 capital of the Company ("25% Capital Limitation"). Amounts
in excess of the 25% Capital Limitation will constitute Tier 2 capital of the
Company. The net proceeds to be received by the Company from the sale of the
Junior Subordinated Debentures will be used to repay existing debt of the
Company of approximately $6 million and make a $__________ million capital
contribution through investments in or advances to the Bank. The remainder of
the proceeds will be retained by the Company and may be used to meet debt
service obligations of the Company pursuant to the Junior Subordinated
Debentures. Pending such use, the net proceeds may be temporarily invested in
short-term obligations. The precise amounts and timing of the application of
proceeds will depend upon the funding requirements of the Company and its
subsidiaries and the availability of other funds. The Bank intends to use the
capital in connection with the First Union branch acquisition and other branch
acquisitions and/or acquisitions of other financial institutions.
FIRST UNION BRANCH PURCHASE
On December 19, 1996, the Bank entered into a Purchase and Assumption
Agreement to acquire approximately $73 million in deposit liabilities and $2.5
million of loans and four branch offices (the "branch purchase") located in the
southern New Jersey counties of Salem and Burlington from First Union National
Bank, Avondale, Pennsylvania ("First Union"). The Bank has agreed to pay First
Union a premium of approximately $5.9 million (8.03%) for the assumption of the
deposit liabilities and will receive approximately $62.0 million in net
proceeds. The investment and lending activities of the branch purchase will not
transfer to the Bank. The branch purchase will be accounted for using the
purchase method of accounting and is expected to close during the second quarter
of 1997, subject to regulatory approval. See "-- Pro Forma Consolidated Balance
Sheet."
As of December 31, 1996, the cost of funds related to the deposits to be
assumed was approximately 2.65%. Management does not believe there will be a
material deposit outflow after the branch purchase. The Bank has historically
priced its deposit products to be competitive in the markets served. For the
year ended December 31, 1996, the Bank's average cost of deposits was 4.00%. It
is anticipated that this practice, combined with the level of personal service
provided, will allow the Bank to retain a significant portion of the deposits
acquired in the Branch purchase. In this regard, First Union has agreed not to
directly solicit the branch purchase deposit customers, nor establish a branch,
loan production office or ATM within a three mile radius of the branch offices
for a period of three years.
While management does not believe the branch purchase will have a
significant, long-term, adverse impact on its operations, it is expected that
the branch purchase will have a short-term impact on its performance and
financial position ratios, such as its return on average assets and its loan to
deposits ratio, as net cash received in the branch purchase is gradually
invested in investment securities and loans.
20
<PAGE>
Pro Forma Consolidated Statement of Financial Condition
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Branch Purchase Pro Forma
Adjustments Consolidated
Company Dr. Cr. Company
------- --- --- -------
(In thousands)
<S> <C> <C> <C> <C>
Assets
Cash and due from banks............. $17,007 $ 1,234 (1) $ 18,241
Federal funds sold.................. 4,800 68,528 (1) 5,870 (2) 67,458
Investment securities available
for sale.......................... 95,581 95,581
Loans receivable (net).............. 295,501 2,573 (1) 298,074
Bank properties and equipment....... 12,222 760 (1) 13,732
750 (2)
Real estate owned................... 756 756
Accrued interest receivable......... 2,850 2,850
Excess of cost over fair value
of net assets acquired............ 5,365 5,120 (2) 10,485
Deferred taxes...................... 1,071 1,071
Other assets........................ 1,642 1,642
------- --------
Total $436,795 $509,890
======= =======
Liabilities and Shareholders'
Equity:
Liabilities:
Deposits............................ $385,986 73,095 (1) $459,081
Advances from the Federal Home
Loan Bank......................... 10,000 10,000
Loans payable....................... 6,000 6,000
Securities sold under agreements
to repurchase..................... 5,253 5,253
Other liabilities................... 2,141 2,141
------- -------
Total liabilities $409,380 $482,475
------- -------
Commitments and Contingent
Liabilities
Shareholders' Equity
Preferred stock..................... $ -- $ --
Common stock........................ 1,849 1,849
Surplus............................. 18,124 18,124
Retained earnings................... 8,420 8,420
Unrealized (loss) on securities,
net of income taxes............... (978) (978)
------- --------
Total shareholders' equity.......... 27,415 27,415
------- -------
Total............................... $436,795 $509,890
======= =======
</TABLE>
(1) To record branch purchase.
(2) To record 8.03% premium paid on the assumption of deposit liabilities ($5.9
million) and to record the market value of real estate ($750,000). The
excess of cost over fair value of net assets acquired of approximately $5.1
million will be amortized over a 7 year period.
21
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at December 31, 1996, (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities hereby offered
by Sun Capital Trust and application by the Company of the net proceeds from the
corresponding sale of the Junior Subordinated Debentures to Sun Capital Trust as
if the sale of the Preferred Securities had been consummated on December 31,
1996, and assuming the Underwriter's over-allotment was not exercised, and (iii)
the pro forma effect of the First Union branch purchase.
<TABLE>
<CAPTION>
As Adjusted
----------------------------------------------------
Sale of Preferred
Sale of Securities and First
Actual Preferred Securities Union branch purchase
------ -------------------- ---------------------
(dollars in thousands)
<S> <C> <C> <C>
Deposits ........................................ $ 385,987 $ 385,987 $ 459,081
========= ========= =========
Borrowings
Advances from the Federal Home Loan Bank....... $ 10,000 $ 10,000 $ 10,000
Loan Payable .................................. 6,000 -- --
Securities sold under agreements to re5,253ase 5,253 5,253
--------- --------- ---------
Total ......................................... $ 21,253 $ 15,253 $ 15,253
========= ========= =========
Guaranteed preferred beneficial interests in the
Company's subordinated debt ................... $ -- $ 25,000 $ 25,000
SHAREHOLDERS' EQUITY:
Preferred Stock $1 par value, 1,000,000 shares
authorized, none issued ....................... $ -- $ -- $ --
Common Stock $1 par value - 10,000,000 shares
authorized; 1,848,929 outstanding ............. 1,849 1,849 1,849
Surplus ......................................... 18,125 18,125 18,125
Unrealized loss on securities available for sale,
net of income taxes ........................... (978) (978) (978)
Retained Earnings ............................... 8,419 8,419 8,419
--------- --------- ---------
Total Shareholders' equity .................. 27,415 27,415 27,415
--------- --------- ---------
Total Capitalization ............................ $ 434,655 $ 453,655 $ 526,749
========= ========= =========
CAPITAL RATIOS:
Equity to total assets: ......................... 6.70 6.31 5.40
Tier 1 risk-based capital ratio ................. 7.44 11.38 8.25
Total risk-based capital ratio .................. 8.28 11.21 9.07
Leverage ratio (2)(3)(4) ........................ 5.43 7.17 5.12
</TABLE>
(1) Preferred Securities representing beneficial interests in an aggregate
principal amount of $25,000,000 of the _____% Junior Subordinated
Debentures of the Company. The Junior Subordinated Debentures will
mature on __________, 2027.
(2) The leverage ratio is Tier 1 capital divided by the difference between
quarterly average total assets less intangibles.
(3) The capital ratios, as adjusted, are computed including the total
estimated net proceeds from the sale of the Preferred Securities,
in a manner consistent with Federal Reserve guidelines.
(4) Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock which can be included in Tier
1 capital to 25% of total Tier 1 capital.
22
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The primary activity of the Company is the oversight of the Bank. Through
the Bank, the Company engages in community banking activities by accepting
deposit accounts from the general public and investing such funds in a variety
of loans. These community banking activities primarily include providing home
equity loans, mortgage loans, a variety of commercial business loans and, to a
much lesser extent, installment loans. The Company also maintains an investment
securities portfolio. The Company's lending and investing activities are funded
by retail deposits. The largest component of the Company's net income is net
interest income. Consequently, the Company's earnings are primarily dependent on
its net interest income, which is determined by (i) the difference between rates
of interest earned on interest-earning assets and rates paid on interest-bearing
liabilities ( interest rate spread ), and (ii) the relative amounts of
interest-earning assets and interest bearing liabilities. The Company's net
income is also affected by its provision for loan losses, as well as the amount
of non-interest income and non-interest expenses, such as salaries and employee
benefits, professional fees and services, deposit insurance premiums, occupancy
and equipment costs and income taxes.
Overview
Beginning in 1993, the Company embarked upon a strategy to expand its
operations and retail market throughout southern New Jersey through internal
growth and mergers and acquisitions. The Board and management perceived
opportunities to expand the Company as a result of a lack of competitive
commercial banking services being provided to local businesses and the need for
a locally based and managed community bank. Continued consolidation of the
banking industry and a regionalization of decision authority by larger banking
institutions left many businesses and individuals in the Bank's market area
underserved.
In mid 1994 the Company acquired the First National Bank of Tuckahoe,
which operated three branch offices in Cape May County, and Southern Ocean State
Bank, which operated four branches in Ocean County. The two transactions,
combined, resulted in the acquisition of $49 million of loans and $105 million
of deposits and an increase in assets of $117 million. These banks and their
operations were merged into the Bank in 1994.
In 1995, as the result of further consolidation of banks and their
restructuring of operations in New Jersey, the Bank acquired $52 million of
deposits and four branches located in the southern New Jersey counties of
Cumberland, Atlantic and Ocean from NatWest Bank and $70 million of deposits and
four branches located in Cumberland and Burlington counties from New Jersey
National Bank. As a
23
<PAGE>
result of these two branch purchase transactions, the Bank acquired $122 million
of deposits; the corresponding amount of cash received to fund the deposit
transfer was initially used to purchase investment securities. In addition, the
Bank opened a new banking office in Pleasantville in 1995 and an office in Cape
May Court House 1996.
To support and manage the expanded operations of the Bank and to provide
adequate management resources to support the further expansion and growth, the
Bank began to recruit and hire additional experienced commercial loan officers,
credit, loan review and internal audit personnel, operations personnel and
senior level executives. In addition, the Bank has enhanced and expanded its
operational and management information system.
The growth and expansion of operations through mergers and acquisitions
and internal growth has resulted in a significant increase in assets, loans and
deposits since December 31, 1993, and a concomitant increase in net interest
income, non-interest income and non-interest expenses.
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1996 was $3.0 million or $1.58
per share in comparison to $2.8 million or $1.52 per share for the year ended
December 31, 1995. The increase in net income was primarily due to an increase
in net interest income of $3.6 million which was substantially offset by an
increase in non-interest expenses of $3.2 million, an increase in the provision
for loan losses of $92,000 and an increase in income tax expense of $222,000 in
comparison to the results of operations for 1995.
Net income for the year ended December 31, 1995 increased $979,000, or
53.2%, to $2.8 million from $1.8 million for the year ended December 31, 1994.
The increase in net income was generally attributable to a large increase in net
interest income of $4.9 million and an increase of $900,000 in non-interest
income. Net interest income increased from $8.3 million in 1994 to $13.2 million
in 1995; and non-interest income increased from $732,000 in 1994 to $1.7 million
in 1995. This increase was partially offset by increases in non-interest expense
of $4.1 million, an increase in the provision for loan losses of $400,000 and an
increase in income tax expense of $365,000. Non-interest expenses increased from
$6.0 million in 1994 to $10.0 million in 1995. The provision for loan losses
increased from $383,000 in 1994 to $808,000 in 1995. Income tax expense
increased from $775,000 in 1994 to $1.1 million in 1995.
Net Interest Income. Net interest income is the most significant component of
the Company's income from operations. Net interest income is the difference
between interest received on interest-earning assets (primarily loans and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
24
<PAGE>
The following table sets forth a summary of average balances with
corresponding interest income and interest expense as well as average yield and
cost information for the periods presented. Average balances are derived from
daily balances.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- --------------------------- ---------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- ------- ------- -------- ------- ------- -------- -------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $235,744 $ 22,074 9.36 % $155,139 $ 15,101 9.73 % $108,265 $ 9,591 8.86%
Investment securities 129,164 7,127 5.52 85,445 5,286 6.19 33,931 2,151 6.34
Federal funds sold 1,323 68 5.14 7,756 463 5.97 10,988 452 4.11
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total interest-earning assets 366,231 29,269 7.99 248,340 20,850 8.40 153,184 12,194 7.96
Non-interest-earning assets 40,316 24,409 15,076
-------- -------- --------
Total assets $406,547 $272,749 $168,260
======== ======== ========
Interest-bearing liabilities
Interest-bearing deposit accounts $298,538 $ 11,954 4.00 % $202,276 $ 7,640 3.78 % $122,843 $ 3,845 3.13%
Borrowed money 10,397 580 5.58 775 47 6.06 1,202 93 7.74
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total interest-bearing liabilities 308,935 12,534 4.06 203,051 7,687 3.79 124,045 3,938 3.17
Non-interest-bearing liabilities 72,486 47,004 28,551
-------- -------- --------
Total liabilities 381,421 250,055 152,596
Shareholder's equity 25,126 22,694 15,664
-------- -------- --------
Total liabilities and shareholders
equity $406,547 $272,749 $168,260
======== ======== ========
Net interest income $ 16,735 $ 13,163 $ 8,256
======== ======== ========
Interest rate spread (2) 3.93 % 4.61 % 4.79%
==== ==== ====
Net yield on interest earning assets 4.57 % 5.30 % 5.39%
==== ==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 118.55 % 122.30 % 123.49%
====== ====== ======
</TABLE>
- ----------------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
25
<PAGE>
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rate
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
------------------------------- -----------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------------- --------------------------------------
Rate / Rate /
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $7,847 ($575) ($299) $6,973 $4,156 $945 $409 $5,510
Investment securities 2,707 (573) (293) 1,841 3,264 (51) (45) 3,135
Federal funds sold (382) (65) 53 (394) (133) 204 (60) 11
------ ------- ----- ------ ------ ---- ----- ------
Total interest-
earning assets $10,172 ($1,213) ($539) $8,420 $7,287 $1,098 $271 $8,656
====== ======= ===== ====== ====== ==== ===== ======
Interest expense:
Deposit accounts $3,658 $445 $211 $4,314 $2,483 $796 $515 $3,795
Borrowings 584 (4) (47) 533 (33) (20) 7 (46)
------ ------- ----- ------ ------ ---- ----- ------
Total interest-
bearing
liabilities $4,242 $441 $164 $4,847 $2,450 $776 $522 $3,749
====== ======= ===== ====== ====== ==== ===== ======
Net change in interest $5,930 ($1,654) ($703) $3,573 $4,837 $322 ($252) $4,907
====== ======= ===== ====== ====== ==== ===== ======
</TABLE>
Net interest income increased $3,573,000 or 27% to $16,736,000 in 1996
compared to $13,163,000 in 1995. The increase is due primarily to the growth of
average interest-earning assets from $248,340,000 in 1995 to $366,231,000 in
1996, partially offset by a decline in the interest rate spread from 4.61% in
1995 to 3.93% in 1996. The decline in the interest rate spread had a
corresponding impact on the net interest margin which declined 73 basis points
to 4.57% in 1996.
The increase in average interest-earning assets of $117,891,000 reflects
an increase of $80,605,000 in average loans and $43,719,000 in average
investment securities which were funded by an increase of $105,884,000 of
average interest-bearing liabilities and an increase of $25,482,000 of average
non-interest bearing liabilities. This increase in interest-bearing liabilities
reflects the acquisition of the branches and deposits in 1995, the growth of
deposits at existing offices in 1996, the opening of two new branches in 1995
and 1996 and an increase in borrowings in 1996.
The interest rate spread and net interest margin declined in 1996 compared
to 1995 due to a decline in the yield on average interest-earning assets from
8.40% in 1995 to 7.99% in 1996 and an increase in the interest cost of average
interest-bearing liabilities from 3.79% in 1995 to 4.06% in 1996.
The yield on average interest-earning assets declined in 1996 due to a
decline in the yield of loans and investment securities. As general market
interest rates were relatively stable during 1995 and 1996, the decline in the
yield of loans in 1996 reflects the impact of increased competition for new loan
originations The decline in the yield of investment securities was due primarily
to a restructuring of the available for sale investment securities portfolio
during 1996.
26
<PAGE>
The increase in the interest cost of average interest-bearing liabilities
is due principally to an increase in the interest cost of interest-bearing
deposits from 3.78% in 1995 to 4.00% in 1996. The higher interest cost of
deposits in 1996 reflects primarily the increase in certificates of deposit, as
a percentage of total deposits and premium interest rates offered by the Bank on
certificates of deposit, during 1996. The premium rates were offered on selected
maturities of certificates of deposit to generate deposit growth to fund the
significant loan demand experienced by the Bank.
Net interest income increased $4,907,000, or 59%, to $13,163,000 in 1995
compared to $8,256,000 in 1994. The increase is due primarily to an increase in
average earning assets, from $153,184,000 in 1994 to $248,340,000 in 1995,
partially offset by a decline in the interest rate spread from 4.79% in 1994 to
4.61% in 1995. The decline in the spread results from a shift in the deposit mix
from lower cost savings deposits into higher cost time deposits and was offset
by an increase in the yield on earning assets from 7.96% in 1994 to 8.40% in
1995. The yield on earning assets increased due to a shift in investment from
lower yielding federal funds sold to investment securities, an increase in loan
yields from 8.86% in 1994 to 9.73% in 1995, and an increased yield on federal
funds sold from 4.11% in 1994 to 5.97% in 1995.
The $95,156,000 increase in earning assets was largely the result of
branches acquired in 1995 and assets acquired in the Tuckahoe and Ocean
transactions completed in 1994.
The average balance of loans outstanding increased $46,874,000 in 1995, to
$155,139,000 from $108,265,000 in 1994. The increase in loans was a result of
the full year's impact of the acquisition of Tuckahoe and Ocean and the
origination of new loans during the year.
The average balance of investment securities increased from $33,931,000 in
1994 to $85,445,000 in 1995 as a direct result of the acquisitions that occurred
in mid-1994 and branch acquisitions in 1995. The positive impact on interest
income resulting from increased balances was slightly offset by a decline in
yield from 6.34% to 6.19% in 1995.
Average interest-bearing deposit balances increased 65% from $122,843,000
in 1994 to $202,276,000 in 1995, primarily due to the bank and branch
acquisitions. The impact on interest expense was augmented by an increase in the
cost of deposits from 3.13% in 1994 to 3.78% in 1995. The increased interest
costs resulted from a shift in deposit composition and an increased cost on time
deposits. In 1994, savings and time deposits each comprised 31% of total
deposits, while time deposits in 1995 increased to 39% of deposits and savings
declined to 23% of deposits. In addition, the cost of time deposits increased
from 3.95% to 5.48% primarily due to generally higher market rates.
Interest on borrowed funds decreased $46,000 from $93,000 in 1994 to
$47,000 in 1995. The decrease was primarily due to a decrease in average
balances, from $1,202,000 in 1994 to $775,000 in 1995. As a result of the cash
it received from its 1994 and 1995 acquisitions, the Bank had a significantly
lower need to borrow funds.
Provision for Loan Losses. The Company recorded a provision of $900,000 in 1996
compared with $808,000 in 1995 and $383,000 in 1994. Management regularly
performs an analysis to identify the inherent risk of loss in its loan
portfolio. This analysis includes evaluation of concentrations of credit, past
loss experience, current economic conditions, amount and composition of the loan
portfolio (including loans being specifically monitored by management),
estimated fair value of underlying collateral, loan commitments outstanding,
delinquencies, and other factors.
27
<PAGE>
The Bank will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, the Bank's determination as
to the amount of its allowance for loan losses is subject to review by the OCC,
as part of its examination process, which may result in the establishment of an
additional allowance based upon the judgment of the OCC after a review of the
information available at the time of the OCC examination.
Non-Interest Income. Other operating income increased $95,000, or 5.7%, from
$1,651,000 for the year ended December 31, 1995 to $1,746,000 for the year ended
December 31, 1996. The increase was primarily a result of an increase in service
charges on deposit accounts and other service charges, partially offset by a
reduction of gains on asset sales. Gains on sales of investment securities
declined by $170,000, from $377,000 in 1995 to $207,000 in 1996. During 1995,
the Company recognized $208,000 as gains on the sales of loans. During 1996,
there were no sales of loans in which gains or losses were recorded. Service
charges on deposit accounts increased $397,000, from $660,000 for the year ended
December 31, 1995 to $1,057,000 in 1996. The increase was due to a larger
customer base in 1996 as a result of the branch acquisitions in 1995 and the
growth of the Bank's business and higher fees on deposit accounts. Other service
charges increased $88,000, from $28,000 in 1995 to $116,000 in 1996. The
increase was also a result of a larger customer base.
Other operating income increased $919,000, or 125%, from $732,000 for the
year ended December 31, 1994 to $1,651,000 for the same period in 1995. The
increase was due to an increase in service charges on deposit accounts augmented
by gains on sales of loans and investment securities. Service charges on deposit
accounts increased $241,000, from $419,000 for the year ended December 31, 1994,
to $660,000 in 1995. The increased income was a result of a larger customer base
resulting from bank acquisitions occurring during 1994 and branch acquisitions
occurring during 1995. During 1995, the Company recorded gains on sales of loans
amounting to $208,000, and gains on sales of investment securities amounting to
$377,000. During 1994, there were no gains on sales of loans or investment
securities.
Non-Interest Expenses. Other operating expenses increased $3,160,000, from
$10,047,000 for the year ended December 31, 1995 to $13,207,000 for the year
ended December 31, 1996. The increase reflects the Company's strategy to build
an infrastructure to support planned expansion. Non-interest expense was
directly impacted by increased salaries and employee benefits, equipment
expense, data processing and amortization of intangibles, partially offset by a
reduction of insurance expense. Salaries and employee benefits increased
$1,837,000, from $4,689,000 for the year ended December 31, 1995 to $6,526,000
during 1996. The increase was a result of a higher number of officers and other
employees during 1996. In addition, during 1996 the Company began a 401(k)
benefits plan. As a result of the Company match, as well as administrative
costs, the Company incurred approximately $91,000 during 1996. Equipment costs
increased $359,000, from $459,000 for the year ended December 31, 1995 to
$818,000 in 1996. Equipment costs increased as a result of the need for more
equipment to operate a larger organization, as well as upgrades to the Company's
telephone system and establishment of a computer network. Data processing fees
increased $451,000, from $635,000 for the year ended December 31, 1995 to
$1,086,000 for 1996. The increase was a result of maintaining a larger deposit
and loan base during 1996. The amortization of the excess cost over fair value
of assets increased $484,000, from $343,000 for the year ended December 31, 1995
to $827,000 in 1996. The increase was a result of a full year of amortizing the
intangibles associated with the 1995 acquisitions. Insurance expenses declined
$187,000, from $383,000 for the year ended December 31, 1995, to $196,000 for
28
<PAGE>
1996. The reduction of insurance expense was a result of lower insurance
premiums assessed by the Federal Deposit Insurance Corporation amounting to
$181,000.
Other operating expenses increased $4,056,000, from $5,991,000 for the
year ended December 31, 1994 to $10,047,000 in 1995. The increase was due to
increased salaries and employee benefits, date processing expense, amortization
of intangibles and other expenses. Salaries and employee benefits increased
$2,062,000, from $2,627,000 for the year ended December 31, 1994 to $4,689,000
in 1995. The increase was a result of higher staffing levels as a result of the
acquisitions that occurred during 1995 and 1994. Data processing fees increased
by $316,000, from $319,000 for the year ended December 31, 1994 to $635,000 in
1995. This increase was also due to added processing in connection with the
larger deposit and loan base resulting from the 1994 and 1995 acquisitions. The
amortization of the excess cost over fair value of assets acquired increased
$209,000, from $134,000 for the year ended December 31, 1994 to $343,000 in
1995. The increase was a direct result of the 1994 and 1995 acquisitions. Other
expenses increased by $892,000, from $714,000 for the year ended December 31,
1994, to $1,606,000 in 1995. In 1995, these expenses increased in almost all
categories as a result of operating a larger organization than in 1994.
Income Tax Expense. Income taxes increased $222,000, or 19%, from $1,140,000 for
the year ended December 31, 1995 to $1,362,000 for 1996. The increase was due to
increased pre-tax income. For the same reason, income taxes increased by
$365,000, from $775,000 for the year ended December 31, 1994 to $1,140,000 in
1995.
LIQUIDITY AND CAPITAL RESOURCES
A major source of the Company's funding is its retail deposit branch
network, which management believes will be sufficient to meet its long-term
liquidity needs. The ability of the Company to retain and attract new deposits
is dependent upon the variety and effectiveness of its customer account
products, customer service and convenience, and rates paid to customers. The
Company also obtains funds from the repayment and maturities of loans and
maturities of investment securities, while additional funds can be obtained from
a variety of sources including loans sales, securities sold under agreements to
repurchase, FHLB advances, and other secured and unsecured borrowings. It is
anticipated that FHLB advances and securities sold under agreements to
repurchase will be secondary sources of funding, and management expects there to
be adequate collateral for such funding requirements.
The Company's primary uses of funds are the origination of loans, the
funding of the Company's maturing certificates of deposit, deposit withdrawals,
and the repayment of borrowings. Certificates of deposit scheduled to mature
during the twelve months ending December 31, 1997 total $169.5 million. The
Company may renew these certificates, attract new replacement deposits, and
replace such funds with borrowings.
The Company anticipates that cash and cash equivalents on hand, the cash
flow from assets as well as other sources of funds will provide adequate
liquidity for the Company's future operating, investing and financing needs. In
addition to cash and cash equivalents of $21.8 million at December 31, 1996, the
Company has substantial additional secured borrowing capacity with the FHLB and
other sources.
Net cash provided by operating activities for the year ended December 31,
1996 totalled $3.8 million, as compared to $4.1 million for the year ended
December 31, 1995. Net cash provided by operating activities for the year ended
December 31, 1995 totalled $4.1 million an increase of $2.6 million from the
year ended December 31, 1994.
29
<PAGE>
Net cash used in investing activities for the year ended December 31, 1996
totalled $64.4 million, a decrease from the year ended December 31, 1995 of
$80.7 million. The decrease was primarily attributable to the 1995 Branch
acquisitions which resulted in an increase in investment securities of $97.6
million, offset by an increase in cash used for loan originations of
approximately $62.0 million, and net proceeds from sale of investment securities
and mortgage-backed securities of approximately $50 million.
Net cash used in investing activities for the year ended December 31, 1995
totalled $145.1 million, an increase from the year ended December 31, 1994 of
$137.6 million. This increase was primarily attributable to the 1995 Branch
acquisitions which resulted in an increase in investment securities of $97.6
million and an increase in loan originations of $47.8 million.
Net cash provided by financing activities for the year ended December 31,
1996 totalled $65.1 million. This is a result of a net increase in deposits of
$50.7 million, an increase in net borrowings of $13.3 million, and a $1.1
million increase resulting from the proceeds of the exercise of stock options.
The increase in deposits and net borrowings were used primarily to fund the
increase in loan originations and investment securities.
Net cash provided by financing activities for the year ended December 31,
1995 totalled $148.1 million. This is a result of an increase in deposits
resulting from Branch acquisitions of $122.5 million, a net increase in
customers deposits of $16.7 million, and an increase in net borrowings of $8
million. The increase in deposits and net borrowings were used primarily to fund
the increase in loan originations and investment securities.
The Company has significant sources of liquidity, including distributions
from the Bank, investment securities, cash and amounts due from other banks,
secondary sources of liquidity, which include the ability to borrow funds from
the Federal Reserve discount window of $5.0 million, lines of credit with the
FHLB of $40.2 million, and lines of credit at correspondent banks of $18.0
million.
The Company has experienced a significant increase in commercial loan
demand, and expects such demand to continue into 1997. Management has
demonstrated the ability to meet this increased need for funds by attracting
higher levels of time deposits and utilizing lines of credit. For long-term
liquidity requirements, it has the ability to liquidate portions of its
investment portfolio, the entire balance of which was reclassified as available
for sale. The Company believes it has adequate liquidity resources to satisfy
its current and anticipated obligations.
The Company monitors its capital levels relative to its business
operations and growth and has maintained the Bank's and its capital levels in
excess of the regulatory requirements. During 1996, in order to maintain the
Bank's total risk-based capital level in excess of 10%, the Company entered into
a $6 million line of credit with another bank. At December 31, 1996, the Company
had fully drawn down this line of credit and the proceeds were invested in the
Bank as additional common stock.
Due to the pending branch purchase and the Company's anticipated further
growth, the Company intends to raise approximately $25 million of additional
capital through a public offering of capital securities during 1997.
The increase of commercial loans has also had the effect of lowering the
Company's risk-based capital ratios. In general, commercial loans are
categorized as having a 100% risk-weighting using the calculations required by
the Company's regulators. The rate at which commercial loans have grown has
outpaced the growth rate of the Company's capital.
30
<PAGE>
It is the Company's intent to maintain risk-based capital levels that are
acceptable to its regulators. Management monitors capital levels and, when
appropriate, will recommend a capital raising effort to the Company's board of
directors. The Company has the ability to raise capital through a private
placement, public offering or qualifying convertible debt, as may be
appropriate. The following table sets forth the Bank's risk-based capital levels
at December 31, 1996:
<TABLE>
<CAPTION>
To Be Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based Capital $28,907,862 9.34% $12,380,480 4.00% $18,570,720 6.00%
Total Risk-Based Capital 31,503,174 10.18% 24,760,960 8.00% 30,951,200 10.00%
Leverage 28,907,862 6.81% 16,974,791 4.00% 21,218,489 5.00%
</TABLE>
The following table sets forth the Company's risk-based capital levels at
December 31, 1996:
<TABLE>
<CAPTION>
To Be Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based Capital $23,027,487 7.44% $12,385,363 4.00% $18,578,045 6.00%
Total Risk-Based Capital 25,622,799 8.28% 24,770,727 8.00% 30,963,409 10.00%
Leverage 23,027,487 5.43% 16,978,392 4.00% 15,481,704 5.00%
</TABLE>
Asset and Liability Management
The Company's exposure to interest rate risk results from the difference
in maturities on interest-bearing liabilities and interest-earning assets and
the volatility of interest rates. Because the Company's assets have a longer
maturity than its liabilities, the Company's earnings will tend to be negatively
affected during periods of rising interest rates. Conversely, this mismatch
should benefit the Company during periods of declining interest rates.
Management monitors the relationship between the interest rate sensitivity of
the Company's assets and liabilities. In this regard, the Company emphasizes the
origination of short-term commercial loans and revolving home equity loans and
de-emphasizes the origination of long-term mortgage loans.
31
<PAGE>
Gap Analysis
Banks have become increasingly concerned with the extent to which they are
able to match maturities of interest-earning assets and interest-bearing
liabilities. Such matching is facilitated by examining the extent to which such
assets and liabilities are interest rate sensitive and by monitoring an
institution's interest rate sensitivity gap. An asset or liability is considered
to be interest rate sensitive if it will mature or reprice within a specific
time period. The interest rate sensitivity gap is defined as the excess of
interest-earning assets maturing or repricing within a specific time period over
interest-bearing liabilities maturing or repricing within that time period. On a
monthly basis, the Bank monitors its gap, primarily its six-month and one-year
maturities and works to maintain its gap within a range that does not exceed a
negative 15% of total assets. The Company attempts to maintain its ratio of rate
sensitive assets to rate sensitive liabilities between 75% to 125%.
The Bank has a negative position with respect to its exposure to interest
rate risk. Management monitors its gap position at monthly meetings. The
Asset/Liability Committee of the Bank's Board of Directors meets quarterly to
discuss the Bank's interest rate risk. The Bank uses simulation models to
measure the impact of potential changes of up to 200 basis points in interest
rates on the net interest income of the Company. As described below, sudden
changes to interest rates should not have a material impact to the Bank's
results of operations. Should the Bank experience a positive or negative
mismatch in excess of the approved range, it has a number of remedial options.
It has the ability to reposition its investment portfolio to include securities
with more advantageous repricing and/or maturity characteristics. It can attract
variable or fixed-rate loan products as appropriate. It can also price deposit
products to attract deposits with maturity characteristics that can lower its
exposure to interest rate risk.
At December 31, 1996, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing during the same time period by $38 million, representing a negative
cumulative one-year gap ratio of 8.73%. As a result, the yield on
interest-earning assets of the Bank should adjust to changes in interest rates
at a slower rate than the cost of the Bank's interest-bearing liabilities.
Because the Bank had positive gap characteristics in its shorter maturity
periods, the Bank's one-year gap mismatch would have a negligible effect on the
Bank's net interest margin during periods of rising or declining market interest
rates.
The following table summarizes the maturity and repricing characteristics
of the Bank's interest-earning assets and interest-bearing liabilities as of
December 31, 1996. All amounts are categorized by their actual maturity or
repricing date with the exception of interest-bearing demand deposits and
savings deposits. The Bank's historical experience with both interest-bearing
demand deposits and savings deposits reflects an insignificant change in deposit
levels for these core deposits. As a result, the Bank allocates approximately
35% to the 0-3 month category and 65% to the 1-5 year category.
32
<PAGE>
<TABLE>
<CAPTION>
Maturity/Repricing Time Periods
(Amounts in Thousands)
0-3 Months 4-12 Months 1-5 Years Over 5 Years Total
---------- ----------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Loans Receivable $141,565 $ 38,460 $ 88,388 $ 29,683 $ 298,096
Investment Securities - 8,730 61,168 25,683 95,581
Federal Funds Sold 4,800 - - - 4,800
-------- --------- -------- -------- ---------
Total interest-earning assets 146,365 47,190 149,556 55,366 398,477
-------- --------- -------- -------- ---------
Interest-bearing demand deposits 21,173 - 35,951 - 57,124
Savings deposits 25,769 - 37,738 - 63,507
Time certificates under $100,000 41,529 93,339 16,747 - 151,615
Time certificates $100,000 or more 18,805 15,810 2,626 - 37,241
Federal Home Loan Bank advances 10,000 - - - 10,000
Securities sold under agreements
to repurchase 5,253 - - - 5,253
-------- --------- -------- -------- ---------
Total interest-bearing liabilities 122,529 109,149 93,062 - 324,740
-------- --------- -------- -------- ---------
Periodic Gap $ 23,836 $ (61,959) $ 56,494 $ 55,366 $ 73,737
======== ========= ======== ======== =========
Cumulative Gap $ 23,836 $ (38,123) $ 18,371 $ 73,737
======== ========= ======== ========
Cumulative Gap Ratio 5.46% -8.73% 4.21% 16.88%
======== ========= ======== ========
</TABLE>
Impact of Inflation and Changing Prices
The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which requires the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Nearly all the assets and liabilities of the Company are monetary.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
FINANCIAL CONDITION
General - The Company has experienced significant growth in its statement of
financial condition. The increase has been the result of acquisitions and
internal growth. Increases were most prevalent in loans, generally commercial
loans, and deposits. The Company's assets increased by $66.9 million, or 18%,
from $369.9 million at December 31, 1995 to $436.8 million at December 31, 1996.
The increase in assets primarily reflects the Company's deployment of proceeds
into the loan portfolio, from sales of investment securities and increased
deposit levels. Comparing balances from December 31, 1996 to 1995, the Company's
net loans receivable increased $111.9 million, federal funds sold increased $4.8
million and investment securities decreased $51.4 million. Total liabilities
increased $64.2 million, or 19%, from $345.2 million at December 31, 1995 to
$409.4 million at December 31, 1996. Deposits increased $50.7 million and
borrowed funds increased $13.2 million.. Before the effect of unrealized gains
or losses on securities held for sale, shareholders' equity increased $4.1
million, or 17%, from $24.3 million at December 31, 1995 to $28.4 million at
December 31, 1996.
Loans - Net loans receivable increased $111.9 million, or 61%, from $183.6
million at December 31, 1995 to $295.5 million at December 31, 1996.
Approximately $104.2 million of this increase was in commercial loans --
predominately commercial real estate loans. This significant increase was a
result of a considerably larger commercial lending staff available to offer
competitively priced loans. Installment loans increased $8.7 million, mostly due
to a more active consumer lending department and
33
<PAGE>
an increase in financing of mobile homes. Residential real estate loans
decreased $568,000 as a result of scheduled principal repayments. During 1996,
the Bank used outside loan correspondents to originate residential mortgages.
These loans were originated using the Bank's underwriting standards, rates and
terms, and were approved according to the Bank's lending policy prior to
origination. Prior to closing, the Bank usually had commitments to sell these
loans with servicing released, at par and without recourse, in the secondary
market. Secondary market sales were generally scheduled to close shortly after
the origination of the loan. Set forth below is selected data relating to the
composition of the Bank's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
ANALYSIS OF LOAN PORTFOLIO
(Dollars in thousands) At December 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------
$ % $ % $ % $ % $ %
Type of Loan:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $223,116 75.50 $118,874 64.73 $ 69,249 51.35 $ 41,642 49.94 $ 34,475 42.00
Home equity 22,070 7.47 25,129 13.68 26,799 19.87 23,510 28.19 22,257 27.12
Residential
real estate 31,777 10.75 29,287 15.95 29,633 21.97 19,151 22.97 26,213 31.94
Installment 21,133 7.15 12,409 6.76 10,787 8.00 151 0.18 219 0.27
Less: Loan loss
allowance 2,595 0.88 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net loans $295,501 100.00 $183,634 100.00 $134,861 100.00 $ 83,387 100.00 $ 82,080 100.00
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Type of Security:
Residential real
estate:
1-4 family $ 84,036 28.44 $68,904 37.52 $ 72,466 53.73 $ 49,777 59.69 $ 52,532 64.00
Other 11,115 3.76 6,295 3.43 839 0.62 757 0.91 372 0.45
Commercial
real estate 166,893 56.48 85,239 46.42 48,845 36.22 28,682 34.40 23,930 29.15
Commercial
business 20,455 6.92 13,822 7.53 6,621 4.91 5,031 6.03 6,099 7.43
Consumer 15,229 5.15 11,214 6.11 6,511 4.83 151 0.18 219 0.27
Other 368 0.12 225 0.11 1,186 0.88 56 0.07 12 0.01
Less: Loan loss
allowance 2,595 0.88 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net loans $295,501 100.00 $183,634 100.00 $134,861 100.00 $ 83,387 100.00 $ 82,080 100.00
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
34
<PAGE>
The following table sets forth the estimated maturity of the Bank's loan
portfolio at December 31, 1996. The table does not include prepayments or
scheduled principle prepayments. Adjustable rate mortgage loans are shown as
maturing based on contractual maturities.
<TABLE>
<CAPTION>
Due Due after Allowance
within 1 through Due after for
1 year 5 years 5 years Loan Loss Total
------ ------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 40,553 $109,168 $ 73,800 $(1,301) $ 222,220
Home equity 22,069 (490) 21,579
Residential real estate 2,331 1,606 27,805 (139) 31,603
Installment 867 6,444 13,453 (167) 20,597
Unassigned reserve (498) (498)
------- -------- -------- ------- ---------
$43,751 $117,218 $137,127 $(2,595) $ 295,501
======= ======== ======== ======= =========
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1997, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Adjustable
Fixed Rates Rates Total
(In thousands)
Commercial and industrial $l97,729 $ 84,885 $182,614
Home equity 621 21,111 21,732
Residential real estate 23,588 5,237 28,825
Installment 19,897 19,897
-------- -------- --------
$141,835 $111,233 $253,068
======== ======== ========
Non-Performing and Problem Assets
Loan Delinquencies - The Bank's collection procedures provide that after a
commercial loan is ten days past due, or a residential mortgage loan is fifteen
days past due, a late charge is added. The borrower is contacted by mail or
telephone and payment is requested. If the delinquency continues, subsequent
efforts are made to contact the borrower. If the loan continues to be delinquent
for ninety days or more, the Bank usually initiates foreclosure proceedings
unless other repayment arrangements are made. Each delinquent loan is reviewed
on a case by case basis in accordance with the Bank's lending policy.
Commercial loans and commercial real estate loans are placed on nonaccrual
at the time the loan is 90 days delinquent unless the credit is well secured and
in the process of collection. Generally, commercial loans are charged off no
later than 120 days delinquent unless the loan is well secured and in the
process of collection or other extenuating circumstances support collection.
Residential real estate loans are typically charged off at 90 days delinquent.
In all cases, loans must be placed on nonaccrual or charged off at an earlier
date if collection of principal or interest is considered doubtful.
Non-Performing Assets - During 1996, the Company experienced a decline in the
amount of loans that were on non-accrual. Total non-performing assets declined
by $903,000, or 22%, from $4,079,000 at
35
<PAGE>
December 31, 1995 to $3,176,000 at December 31, 1996. The ratio of
non-performing assets to net loans was .82% at December 31, 1996 compared to
1.74% at December 31, 1995. In 1995, non-performing assets increased by
$563,000, from $3,516,000 at December 31,1994 to $4,079,000 at December 31,
1995. Although the dollar amount increased, the ratio of non-performing assets
to net loans decreased, from 1.84% at December 31, 1994 to 1.74% at December 31,
1995. The following table sets forth information regarding loans that are
delinquent ninety days or more. Management of the Bank believes that all loans
accruing interest are adequately secured and in the process of collection. At
the dates shown, the Bank had no restructured loans within the definition of
SFAS No. 15.
Foreclosed Real Estate - Real estate acquired by the Bank as a result of
foreclosure is classified as Real Estate Owned until such time as it is sold.
When Real Estate Owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair value less disposal costs. Any
write-down of Real Estate Owned is charged to operations. At December 31, 1996,
the Bank had $755,628 classified as Real Estate Owned.
Non-Performing Assets
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
--------- ------- ------- ------ -------
Loans accounted for on a non-accrual basis:
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 354 $ 1,721 $ 1,174 $1,074 $ 428
Home equity 337 295 341 204 33
Residential real estate 586 607 342 265 199
Installment -- 35 40 -- --
--------- ------- ------- ------ -------
Total $ 1,277 $ 2,658 $ 1,901 $1,543 $ 660
========= ======= ======= ====== =======
Accruing loans that are contractually past
due 90 days or more:
Commercial and industrial $ 404 $ 135 $ 525 $ -- $ --
Home equity 62 279 30 -- --
Residential real estate 572 64 20 2 183
Installment 105 67 7 -- --
--------- ------- ------- ------ -------
Total $ 1,143 $ 545 $ 582 $ 2 $ 183
========= ======= ======= ====== =======
Total non-accrual and 90-day past due loan $ 2,420 $ 3,203 $ 2,483 $1,545 $ 843
Real estate owned 756 876 1,033 359 144
--------- ------- ------- ------ -------
Total non-performing assets $ 3,176 $ 4,079 $ 3,516 $1,904 $ 987
========= ======= ======= ====== =======
Total non-accrual and 90-day past due loans to net loans 0.82% 1.74% 1.84% 1.85% 1.03%
Total non-accrual and 90-day past due loans to total assets 0.55% 0.87% 1.14% 1.38% 0.81%
Total non-performing assets to total assets 0.73% 1.10% 1.62% 1.70% 0.95%
Total allowance for loan losses to total non-performing loans 107.26% 64.47% 64.74% 69.10% 128.53%
</TABLE>
Interest income that would have been recorded on loans on non-accrual
status, under the original terms of such loans, would have totaled $151,614 for
the year ended December 31, 1996.
Allowances for Losses on Loans and Real Estate Owned - It is the policy of
management to provide for losses on unidentified loans in its portfolio in
addition to classified loans. A provision for loan losses is charged to
operations based on management's evaluation of the potential losses that may be
incurred in the Bank's loan portfolio. Management also periodically performs
valuations of Real Estate Owned and establishes allowances to reduce book values
of the properties to their net realizable values when necessary. The following
table sets forth information with respect to the Bank's allowance for losses on
loans at the dates indicated.
36
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for losses on loans, beginning of period $2,065 $ 1,607 $1,067
Charge-offs:
Commercial 307 286 312
Mortgage 9 73 1
Installment 85 67 37
------ ------- ------
Total charge-offs 401 426 350
------ ------- ------
Recoveries
Commercial 6 33 22
Mortgage 4 28
Installment 21 15 13
------ ------- ------
Total recoveries 31 76 35
------ ------- ------
Net charge-offs 370 350 315
Provision for loan losses 900 808 383
Allowance on acquired loans -- -- 472
------ ------- ------
Allowance for losses on loans, end of period$ $2,595 $ 2,065 $1,607
====== ====== ======
Net loans charged off as a percent of average
loans outstanding 0.16% 0.23% 0.29%
</TABLE>
The following table sets forth the allocation of the Bank's allowance for
loan losses by loan category and the percent of loans in each category to total
loans receivable at the dates indicated. The portion of the loan loss allowance
allocated to each loan category does not represent the total available for
future losses that may occur within the loan category since the total loan loss
allowance is a valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995 1994
---- ---- ----
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Balance at end of period applicable to:
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 1,301 74.98% $ 1,094 64.02 % $ 847 50.60%
Residential real estate 139 10.65 403 15.96 231 21.94
Home equity 490 7.40 319 13.34 155 19.58
Installment 167 6.97 54 6.68 47 7.88
Unallocated 498 - 195 - 327 -
------------ ------ ------------ ------ --------- ------
Total allowance $ 2,595 100.00% $ 2,065 100.00 % $ 1,607 100.00%
============ ====== ============ ====== ========= ======
</TABLE>
37
<PAGE>
Investment Securities - Substantially all of the Company's investment portfolio
is held at the Bank's wholly-owned subsidiary, Med-Vine, Inc. ("Med-Vine").
Total investment securities decreased $51.4 million, or 35.0%, from $147.0
million at December 31, 1995 to $95.6 million at December 31, 1996. During 1996,
the investment portfolio was managed by a professional portfolio manager. Under
the arrangement with the manager, the board-approved investment policy of
Med-Vine and the Bank was implemented and every securities transaction was
approved by the investment officers of Med-Vine, the Bank and/or the investment
committee of the Board of Directors. The investment portfolio, in most part, had
been acquired in connection with the Bank's purchase of The First National Bank
of Tuckahoe and Southern Ocean State Bank in 1994, and which were subsequently
contributed to Med-Vine. The portfolios were comprised of investments which were
generally illiquid and of small par values. The bank acquisitions originally
increased investments by approximately $59 million. The branch acquisitions
resulted in cash being converted to investments of approximately $115 million.
During the course of the year, the manager restructured the portfolio by selling
a large number of these investments, then reinvesting them mostly in larger
blocks of government and municipal bonds. Some of these investments were sold
during the year to fund the rapid growth of commercial loans.
The investment policy of the Bank is established by senior management and
approved by the Board of Directors. Med-Vine's investment policy is identical to
that of the Bank. It is based on asset and liability management goals and is
designed to provide a portfolio of high quality investments that optimizes
interest income and provides acceptable limits of safety and liquidity. Prior to
the fourth quarter of 1995, investment securities were purchased with the intent
to hold them until their maturity. During the fourth quarter of 1995, in
accordance with the implementation of the SFAS No. 115 Guide, the bank
reclassified its entire portfolio of investment securities as available for
sale. As a result, the investment securities are carried at their approximate
market value.
38
<PAGE>
The following table sets forth the carrying value of the Bank's investment
securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------------
Net Estimated Net Estimated
Amortized Unrealized Market Amortized Unrealized Market
Available for Sale: Cost Gains (Losses) Value Cost Gains (Losses) Value
- ------------------- ---- -------------- ----- ---- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury securities $ 51,954,682 $ (920,871) $ 51,033,811 $ 41,674,219 $ 230,269 $ 41,904,488
Mortgage-backed securities 63,061 - 63,061 41,734,347 263,520 41,997,867
State and political subdivision securities 20,168,222 (328,816) 19,839,406 16,666,509 75,082 16,741,591
Other securities 24,877,433 (232,327) 24,645,106 46,304,169 60,781 46,364,950
------------ ---------- ------------ -------------- ----------- ------------
Total securities available for sale $ 97,063,398 $(1,482,014) $ 95,581,384 $ 146,379,244 $ 629,652 $147,008,896
============ ========== ============ ============== =========== ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------
Net Estimated
Amortized Unrealized Market
Cost Gains (Losses) Value
---- -------------- -----
Held to maturity:
<S> <C> <C> <C>
U. S. Treasury securities $ 20,033,8$6 $ (369,712) $19,664,174
Government agency and
mortgage-backed securities 19,334,650 (504,981) 18,829,669
State and political subdivision securities 13,550,137 (287,346) 13,262,791
Other securities 7,093,062 (177,500) 6,915,562
------------ -------- -----------
Total securities held to maturity 60,011,735 (1,339,539) 58,672,196
------------ -------- -----------
Available for sale:
U. S. Treasury securities
Government agency and
mortgage-backed securities
State and political subdivision securities
Other securities 313,250 313,250
------------ -----------
Total securities available for sale 313,250 - 313,250
------------ -------- -----------
Total investment securities $ 60,324,985 $(1,339,539) $59,298,446
============ =========== ===========
</TABLE>
39
<PAGE>
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's investment
portfolio at December 31, 1996. All securities are classified as being available
for sale, therefore the carrying value is the estimated market value.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Total
------------------ ----------------- ------------------ ------------------ -----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Obligations $7,960 5.40% $ 43,074 5.55% $ 51,034 5.53%
Government agency and
mortgage-backed securities 11,632 6.22 $ 2,976 6.78% $ 51 8.50 % 14,659 6.34
Municipal obligations 716 4.27 250 4.34 12,714 4.75 6,159 4.87 19,839 4.77
Other securities 110 5.00 5,107 6.03 30 7.35 4,802 6.36 10,948 6.18
------- ---- -------- ---- ---------- ---- ------- ---- -------- ----
Total $ 8,786 5.30% $ 60,063 5.71%$ 15,720 5.14% $11,012 5.53% $ 95,581 5.56%
======= ==== ======== ==== ========== ==== ======= ==== ======== ====
</TABLE>
Deposits - Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including checking, regular savings, money market,
certificates of deposit and individual retirement accounts. Deposit account
terms vary according to the minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors. The Bank
regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity, and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it solicit funds outside the State of
New Jersey.
Deposits at December 31, 1996 amounted to $386.0 million, an increase of
$50.8 million, or 15%, over the December 31, 1995 balance of $335.2 million.
Demand deposits, including N.O.W. accounts and money market accounts, increased
$4.8 million, from $128.8 million at December 31, 1995 to $133.6 million at
December 31, 1996. Savings deposits decreased $3.5 million, from $67.0 million
at December 31, 1995 to $63.5 million at December 31, 1996. Certificates of
deposit under $100,000 increased $35.1 million, from $116.5 million at December
31, 1995 to $151.6 million at December 31, 1996. Certificates of deposit of
$100,000 or more increased $14.2 million, from $23.0 million at December 31,
1995 to $37.2 million at December 31, 1996. The increase in certificates of
deposit was due in large part to promotional rates offered on certain
certificates of deposit during the year in response to rates offered by other
financial institutions in the Bank's market areas, as well as in response to a
general increase in overall market rates for certificates of deposit.
The following table sets forth average deposits by various types of demand
and time deposits:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------
1996 Avg. Yield 1995 Avg. Yield 1994 Avg. Yield
---- ---------- ---- ---------- ---- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 65,556 $ 45,562 $ 26,949
Interest bearing demand deposits 62,270 1.78% 48,609 2.19% 29,186 2.43%
Savings deposits 65,393 2.23 57,470 2.28 44,968 3.10
Time deposits 170,875 5.49 96,256 5.48 45,611 3.95
--------- ---- --------- ---- ---------- ----
Total $ 364,094 3.28% $ 247,897 3.09% $ 146,714 3.66%
========= ==== ========= ==== ========== ====
</TABLE>
40
<PAGE>
The following table indicates the amount of certificates of deposit of
$100,000 or more by remaining maturity at December 31, 1996:
(In thousands)
Remaining maturity:
Three months or less $ 18,805
Over three through six months 6,389
Over six through twelve months 9,421
Over twelve months 2,626
-----------
$ 37,241
===========
Borrowings - Borrowed funds increased $13.3 million, from $8 million at December
31, 1995 to $21.3 million at December 31, 1996. Of the increase, $2 million
represents an increase in advances from the Federal Home Loan Bank. Beginning in
1996, the Company sold securities under agreements with customers to repurchase
them, at par, on the next business day. The securities sold were U.S. Treasury
Notes. At December 31, 1996, securities sold under agreements to repurchase
amounted to $5.3 million. At December 30, 1996, the Company obtained a $6
million revolving line of credit from a correspondent bank with a term of 36
months. The floating rate of interest is the prime rate plus fifty basis points.
At December 31, 1996, there was $6 million outstanding at an interest rate of
8.75%. The proceeds of the loan were contributed to the bank as capital.
Federal Home Loan Bank Advances
1996 1995
Amount outstanding at December 31, (Dollars in thousands)
Advances $ 10,000 $ 8,000
Interest rate 7.375% 5.875%
Approximate average amount outstanding 5,265 $ 150
Approximate weighted average rate 5.44% 5.44%
Deposits are the primary source of funds for the bank's lending
activities, investment activities and general business purposes. Should the need
arise, the Bank has the ability to access lines of credit from various sources
including the Federal Reserve Bank, the Federal Home Loan Bank and various other
correspondent banks. In addition, on an overnight basis, the Bank has the
ability to offer securities sold under agreements to repurchase.
BUSINESS OF THE COMPANY
General
The Company is a one-bank holding company headquartered in Vineland, New
Jersey engaged primarily in commercial and consumer banking services through its
sole subsidiary, the Bank. The Company's principal business is to serve as a
holding company for the Bank and was incorporated in 1985. In April 1995, the
Company changed its name from Citizens Investments, Inc. to its present name.
41
<PAGE>
The Bank has one wholly-owned subsidiary, Med-Vine, Inc., a Delaware
corporation, which was formed in 1992 to hold a majority of the Company's
investment portfolio.
As previously discussed, the Company is focused on a strategy to expand
its franchise throughout southern New Jersey. Continued consolidation of the
banking industry, and a regionalization of decision authority by larger banking
institutions resulted in many area businesses and individuals in the Bank's
market underserved. The opportunities provided in this market prompted the Board
and management to actively pursue strategic acquisitions.
In June 1994, The First National Bank of Tuckahoe ("Tuckahoe") was merged
into the Bank and, in July 1994, Southern Ocean State Bank ("Ocean") was merged
into the Bank. The Tuckahoe and Ocean mergers increased the asset size of the
Bank by approximately $119 million and increased deposit liabilities by
approximately $105 million. On July 14, 1995, the Bank purchased four branch
offices from NatWest Bank and on November 24, 1995, the Bank purchased four
branch offices from the New Jersey National Bank (the "branch purchases"). The
branch purchases increased deposit liabilities of the Bank by approximately $123
million. On December 19, 1996, the Bank entered into a Purchase and Assumption
Agreement to acquire four branch offices including the assumption of
approximately $73 million of deposit liabilities from First Union. The First
Union branch purchase is subject to regulatory approval and is expected to close
during the second quarter of 1997.
The Bank offers a wide variety of commercial and consumer lending and
deposit services through its eighteen branch offices located throughout southern
New Jersey. The commercial loans offered by the Bank include short- and
long-term business loans, lines of credit, non-resident mortgage loans, and real
estate construction loans. Consumer loans include home equity loans, residential
real estate loans, and installment loans. The Bank also offers deposits and
personal banking services, including commercial banking services, retail deposit
services such as certificates of deposit, money market accounts, savings
accounts and automatic teller machine ("ATM") access and individual retirement
accounts, and personal brokerage services through a third party.
Market Area
The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through 18
branch offices and one loan administration office located in the southern New
Jersey counties of Atlantic, Burlington, Cape May, Cumberland, Mercer and Ocean
("primary market areas"). The Bank's deposit gathering base and lending area is
concentrated in the communities surrounding its offices.
The Bank is a community-based financial institution headquartered in
Cumberland County, New Jersey. The city of Vineland is approximately 30 miles
southeast of Philadelphia, Pennsylvania, and 30 miles southeast of Camden, New
Jersey. The Philadelphia International Airport is approximately 45 minutes from
Vineland.
Southern New Jersey is among the fastest growing population areas in New
Jersey and has a significant number of retired residents who have traditionally
provided the Bank with a stable source of deposit funds. The economy of the
Bank's primary market area is based upon a mixture of the agriculture,
transportation, manufacturing and tourism trade. The area is also home to
commuters working in New Jersey suburban areas around New York and Philadelphia.
42
<PAGE>
Management considers the Bank's reputation for customer service as its
major competitive advantage in attracting and retaining customers in its market
area. The Bank also believes it benefits from its community orientation, as well
as its established deposit base and level of core deposits.
Lending Activities
General. The principal lending activity of the Bank is the origination of
commercial business and industrial loans, home equity loans, mortgage loans and
to a much lesser extent, installment loans. All loans are originated in the
Bank's market area. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a description of the Bank's loan
portfolio.
Commercial and Industrial Loans. The Bank originates several types of
commercial and industrial loans. Included as commercial loans are short- and
long-term business loans, lines of credit, non-residential mortgage loans and
real estate construction loans. The primary focus of the Bank is on the
origination of commercial loans secured by real estate. The majority of the
Bank's customers for these loans are small- to medium-sized businesses located
in the southern part of New Jersey.
Loans secured by commercial properties or by tangible goods generally
involve a greater degree of risk than residential mortgage loans and carry
larger loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the mobility of collateral, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by commercial real estate or by tangible goods is typically
dependent upon the successful operation of the related real estate or commercial
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. This cash flow shortage may result in the
failure to make loan payments. In such cases, the Company may be compelled to
modify the terms of the loan. In addition, the nature of these loans is such
that they are generally less predictable and more difficult to evaluate and
monitor. As a result, repayment of these loans may be subject to a greater
extent than residential loans to adverse conditions in the real estate market or
economy.
Home Equity Loans. The Bank originates home equity loans, secured by first
or second mortgages owned or being purchased by the loan applicant. Home equity
loans are consumer revolving lines of credit. The interest rate charged on such
loans is usually a floating rate related to the prime lending rate. Home equity
loans may provide for interest only payments for the first two years with
principal payments to begin in the third year. A home equity loan is typically
originated as a fifteen year note that allows the borrower to draw upon the
approved line of credit during the same period as the note. The Bank generally
requires a loan to value ratio in the range of 70% to 80% of the appraised
value, less any outstanding mortgage.
Residential Real Estate Loans. The Bank uses outside loan correspondents
to originate residential mortgages. These loans are originated using the Bank's
underwriting standards, rates and terms, and are approved according to the
Bank's lending policy prior to origination. Prior to closing, the Bank usually
has commitments to sell these loans, at par and without recourse, in the
secondary market. Secondary market sales are generally scheduled to close
shortly after the origination of the loan.
The majority of the Bank's residential mortgage loans consist of loans
secured by owner-occupied, single-family residences. The Bank's mortgage loan
portfolio consists of both fixed-rate and adjustable-rate loans secured by
various types of collateral as discussed below. Management generally originates
residential mortgage loans in conformity with Federal National Mortgage
Association ("FNMA") standards so that the loans will be eligible for sale in
the secondary market. Management expects to
43
<PAGE>
continue offering mortgage loans at market interest rates, with substantially
the same terms and conditions as it currently offers.
The Bank's residential mortgage loans customarily include due-on-sale
clauses, which are provisions giving the Bank the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells or otherwise disposes of the real property serving as security for the
loan. Due-on-sale clauses are an important means of adjusting the rates on the
Bank's fixed-rate mortgage portfolio. The Bank usually exercises its rights
under these clauses.
Installment Loans. The Bank originates installment, or consumer loans
secured by a variety of collateral, such as new and used automobiles. The Bank
makes a very limited number of unsecured installment loans. Through its merger
with Ocean in 1994, the Bank acquired a credit card portfolio which it intends
to eliminate once current customers have paid off their lines of credit. No new
advances or charges are being accepted.
Loan Solicitation and Processing. Loan originations are derived from a
number of sources such as loan officers, customers, borrowers and referrals from
real estate brokers, accountants and attorneys.
Upon receipt of a loan application, a credit report is ordered and
reviewed to verify specific information relating to the loan applicant's credit
worthiness. For mortgage loans, written verifications of employment and deposit
balances are requested by the Bank. The Bank requires that an appraisal of the
real estate intended to secure the proposed loan is undertaken by a certified
independent appraiser approved by the Bank. After all of the required
information is obtained, the Bank then makes its credit decision. Depending on
the type, collateral and amount of the credit request, various levels of
approval may be necessary. In general, loans of $100,000 or more must be
presented at an Officers' Loan Committee which has the authority to approve
unsecured loans to $750,000 and secured loans to $1.5 million. The Officers'
Loan Committee is comprised of the Bank's CEO, senior lending officer and
regional lending officers. Credit requests in excess of the Officers' Loan
Committee must also be presented to the Bank's Board of Directors for approval.
Loans under $100,000 are generally approved by various levels of Bank
management.
Title insurance policies are required on all first mortgage loans. Hazard
insurance coverage is required on all properties securing loans made by the
Bank.
Loan applicants are notified of the credit decision by letter. If the loan
is approved, the loan commitment specifies the terms and conditions of the
proposed loan including the amount, interest rate, amortization term, a brief
description of the required collateral, and the required insurance coverage. The
borrower must provide proof of fire, flood (if applicable) and casualty
insurance on the property serving as collateral, which insurance must be
maintained during the full term of the loan. Generally, title insurance endorsed
to the Bank is required on all first mortgage loans.
Loan Commitments. When a commercial loan is approved, the Bank issues a
written commitment to the loan applicant. The commitment indicates the loan
amount, term and interest rate and is valid for approximately 45 days.
Approximately 90% of the Bank's commitments are accepted or rejected by the
customer before the expiration of the commitment. At December 31, 1996, the Bank
had approximately $29.0 million in commercial loan commitments outstanding.
44
<PAGE>
Investment Securities Activities
General. The investment policy of the Bank is established by senior
management and approved by the Board of Directors. It is based on asset and
liability management goals and is designed to provide a portfolio of high
quality investments that optimize interest income and provides acceptable limits
of safety and liquidity. The Bank's investment goal is to invest available funds
in instruments that meet specific requirements of the Bank's asset and liability
management goals. The investment activities of the Bank consist primarily of
investments in federal funds, securities issued or guaranteed by the United
States Government or its agencies, states and political subdivisions and
corporate bonds. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a description of the Bank's investment
portfolio.
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
the amortization, prepayment or sale of loans, maturities or sale of investment
securities and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a description of the Bank's sources of funds.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including checking, regular savings, money market
deposits, term certificate accounts and individual retirement accounts. Deposit
account terms vary according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other factors. The
Bank regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it solicit funds outside the State of
New Jersey.
Competition
The Bank faces substantial competition both in attracting loans and in
lending funds. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. In order to compete with the many
financial institutions serving its primary market area, the Bank's operating
goal is to continue to provide a broad range of financial services with a strong
emphasis on customer service to individuals and businesses in southern New
Jersey.
The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional and money center banks in the Bank's market area.
Competition for funds also include a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from other insured financial institutions such as
commercial banks, thrift institutions, credit unions, multi-state regional and
money center banks, and mortgage-bankers many of whom have far greater resources
then the Bank. Non-bank competition, such as investment brokerage houses, have
intensified in recent years for all banks since the non-bank competitors are not
subject to same regulatory burdens as banks.
45
<PAGE>
Properties
The Company and the Bank operate from their main office and 17 branch
offices. The Bank leases its main office and four branch offices. The remainder
of the branch offices are owned by the Bank. In addition, the Bank has entered
into a Purchase and Assumption Agreement with First Union to acquire four branch
offices, and the Bank plans to open two de novo branch offices.
Personnel
At December 31, 1996, the Bank had 158 full-time and 43 part-time
employees, all of whom were on the payroll of the Bank. None of the Bank's
employees are represented by a collective bargaining group. The Bank believes
that its relationship with its employees is good.
Legal Proceedings
There are various claims and lawsuits in which the Company or the Bank are
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which the Bank holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to the
Bank's business. In the opinion of management, no material loss is expected from
any such pending claims or lawsuits.
MANAGEMENT
Directors and Executive Officers
The Board of Directors of the Company is currently composed of six
members, each of whom serves for a term of one year. Executive officers are
elected annually by the Board of Directors and serve at the Board's discretion.
46
<PAGE>
The following table sets forth information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Shares of
Current Stock Percent
Director/Executive Director Term Beneficially of
Officer Age (1) Position Since Expires Owned (3) Class
------- ------- -------- ----- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Bernard A. Brown (2) 72 Chairman of the 1985 1997 931,960 42.32%
Board
Sidney R. Brown (2) 39 Director, Treasure 1990 1997 43,498 1.98%
Adolph F. Calovi 74 Director, President 1985 1997 218 0.01%
and Chief Executive
Officer
Peter Galetto, Jr. 43 Director, Secretary 1990 1997 18,604 0.84%
Philip W. Koebig, III 54 Director, Executive 1995 1997 95,525 4.34%
Vice President
Anne E. Koons (2) 44 Director 1990 1997 38,228 1.74%
</TABLE>
- -----------------------
(1) At December 31, 1996
(2) Bernard A. Brown is the father of Sidney R. Brown and Anne E. Koons. Sidney
R. Brown is the brother of Anne E. Koons.
(3) Includes shares held directly by the individual as well as by such
individual's spouse, shares held in trust and in other forms of indirect
ownership over which shares the individual effectively exercises sole
voting and investment power and shares which the named individual has a
right to acquire within sixty days of December 31, 1996, pursuant to the
exercise of stock options.
Biographical Information
Directors and Executive Officers of the Company. The principal occupation
of each director and executive officer of the Company is set forth below. All
directors and executive officers have held their present positions for five
years unless otherwise stated. All of the directors reside in the State of New
Jersey.
Bernard A. Brown has been the Chairman of the Board of Directors of the
Company since its inception in January, 1985. Mr. Brown is also the Chairman of
the Board of Directors of the Bank. For many years, Mr. Brown has been the
Chairman of the Board of Directors and President of NFI Industries, Inc., a
trucking conglomerate headquartered in Vineland, New Jersey.
Sidney R. Brown has been the Treasurer and a director of the Company since
April, 1990. Mr. Brown is an officer and director of NFI Industries, Inc., and
one of the general partners of The Four B's, a partnership which has extensive
real estate holdings in the Eastern United States. Its primary objective is
investing in and consequent development of commercial real estate, leasing
and/or sale. Mr. Brown is currently an officer and director of several other
corporations and partnerships in the transportation, equipment leasing,
insurance, warehousing and real estate industries.
Adolph F. Calovi has been the President, Chief Executive Officer and a
director of the Company since its inception in January, 1985. Mr. Calovi is a
director of Sun National Bank and from 1985 to 1994 was its President and Chief
Executive Officer.
47
<PAGE>
Peter Galetto, Jr. has been the Secretary and a director of the Company
since April 1990. Mr. Galetto is the President/Sales for Stanker & Galetto,
Inc., located in Vineland, New Jersey. He is also the President of the
Cumberland Technology Enterprise Center. Mr. Galetto has been the
Secretary/Treasurer of Trimark Building Contractors. He is also an officer and
director of several other corporations and organizations.
Philip W. Koebig, III has been the Executive Vice President of the Company
since 1994. He has been a director of the Company since 1995. Mr. Koebig is also
a director, President and Chief Executive Officer of Sun National Bank since
January, 1995. From 1990 to 1994, Mr. Koebig had been President and Chief
Executive Officer of Covenant Bank for Savings, Haddonfield, New Jersey. He also
serves on the Board of Directors of numerous charitable organizations and
corporations.
Anne E. Koons has been a director of the Company since April, 1990. Ms.
Koons is a real estate agent with Fox & Lazo, and a travel agent for Leisure
Time Travel. Ms. Koons is also a Commissioner of the Camden County Improvement
Authority and a member of the Cooper Medical Center's Foundation Board.
Additional Executive Officers of the Bank. Set forth below is biographical
information of certain executive officers of the Bank who are not also executive
officers of the Company.
Robert F. Mack has been with the Bank since 1992 and serves as its Senior
Vice President and Chief Financial Officer. Mr. Mack has twenty-five years of
extensive banking experience having worked for several commercial banks in New
Jersey.
Bart A. Speziali has been with the Bank since 1992 as the Senior Lending
Officer and Senior Vice President. Mr. Speziali has over twenty years of banking
experience in the southern New Jersey marketplace.
James S. Killough joined the Bank in February 1997 as Senior Vice
President of Administrations, Operations and Retail Banking. Before joining the
Bank, Mr. Killough was president and chief professional officer for the United
Way of Camden County, New Jersey for two years. Prior to that, Mr. Killough was
executive vice president for Central Jersey Bank and Trust and Midlantic
National Bank/South.
Executive Compensation
The Company has no full time employees, relying upon employees of the Bank
for the limited services required by the Company. All compensation paid to
officers and employees is paid by the Bank.
Summary Compensation Table. The following table sets forth compensation
awarded to the Chief Executive Officer and Executive Vice President of the
Company who, for the year ended December 31, 1996, received total salary and
bonus payments from the Bank in excess of $100,000. Except as set forth below,
no executive officer of the Company had a salary and bonus during the year ended
December 31, 1996 that exceeded $100,000 for services rendered in all capacities
to the Company.
48
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options(#) Compensation
------------------ ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Adolph F. Calovi 1996 $ 131,000 $ -- -- $ --
President and Chief 1995 131,000 -- -- --
Executive Officer 1994 130,500 -- -- 2,743(1)
Philip W. Koebig, III 1996 $ 174,044 22,500 10,500 $ 10,583(2)
Executive Vice 1995 150,000 -- 52,499 10,383(3)
President 1994 25,965 -- -- 240(4)
</TABLE>
- ---------------
(1) Constitutes life insurance premiums.
(2) Constitutes life and disability insurance premiums of $7,253 and $3,330 in
country club dues.
(3) Constitutes life and disability insurance premiums of $7,253 and $3,130 in
country club dues.
(4) Constitutes life and disability insurance premiums.
Stock Option Plan. The Company has adopted the 1985 Stock Option Plan and
the 1995 Stock Option Plan (the "Option Plans"). Officers, directors and
employees are eligible to receive, at no cost to them, options under the Option
Plans. Options granted under the Option Plans may be either incentive stock
options (options that afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of the Internal
Revenue Code and that do not normally result in tax deductions to the Company)
or options that do not so qualify. The option price may not be less than 100% of
the fair market value of the shares on the date of the grant. Option shares may
be paid in cash, shares of the common stock, or a combination of both.
Options granted under the 1985 Stock Option Plan are exercisable at the
fair market value of the common stock at the time of the grant and until the
year 2001. Options granted under the 1995 Stock Option Plan are exercisable at
the fair market value of the common stock at the time of the grant and for ten
years thereafter.
49
<PAGE>
The following table sets forth additional information concerning options
granted under the Option Plans.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
Individual Grants Potential Realizable
----------------- Value at Assumed
Annual Rates of Stock
Price Appreciation for
Percent of Total Option Term
Number of Options Granted Exercise
Options to Employees Price Expiration
Name Granted in Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------- -------------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Philip W. Koebig, III 10,500 8.34 16.67 July 16, 2006 87,518 175,035
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
-----------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-money
Shares Acquired Value Options at Options at
Name on Exercise (#) Realized Fiscal Year-End Fiscal Year-End
- ---- --------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Adolph F. Calovi 101,346 $953,152 -- --
</TABLE>
Directors' Compensation. Each member of the Board of Directors, except for
the Chairman and employee directors, received a fee of $300 for each meeting
attended for the year ended December 31, 1996. For the year ended December 31,
1996, director fees totaled $26,700.
Employment Agreements. The Company has an employment agreement, dated
January 2, 1995, with Adolph F. Calovi, its President and CEO. Under the terms
of the agreement, Mr. Calovi will receive an annual salary of $131,000 for each
of the four years of the agreement. In addition, he will receive all benefits
offered officers of the Company, and will also have the use of a Company-owned
automobile.
If, during the term of the agreement, Mr. Calovi's employment terminates
for any reason except voluntary resignation, embezzlement, fraud, or due to a
material default by Mr. Calovi of his employment obligations, the Company will
be fully liable for all remaining salary payments under the agreement.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Company during the year ended December 31, 1996
consisted of Anne E. Koons, Sidney R. Brown and Philip W. Koebig, III. All are
members of the Board of Directors of the Company. Mr. Koebig is also a Director
and Officer of the Bank and did not participate in matters involving his
personal compensation.
50
<PAGE>
Compensation Committee Report on Executive Compensation
The Personnel Committee (the "Committee") has furnished the following
report on executive compensation:
Compensation Policies. Under the supervision of the Board of Directors,
the Company has developed and implemented compensation policies, plans and
programs which seek to enhance the profitability of the Company, and thus
shareholder value, by aligning closely the financial interests of the Company's
employees, including its Chief Executive Officer ("CEO"), Chairman of the Board
and the Company's other senior management, with those of its shareholders. With
regard to compensation actions affecting the CEO, the Executive Committee of the
Board of Directors, consisting of the members of the Personnel Committee, as
well as all of the non-employee members of the Board of Directors, acted as the
approving body.
The executive compensation program of the Company is designed to:
o Support a pay-for-performance policy that differentiates
compensation based on corporate and individual performance;
o Motivate employees to assume increased responsibility and reward
them for their achievement;
o Provide compensation opportunities that are comparable to those
offered by other leading companies, allowing the Company to compete
for and retain talented executives who are critical to the Company's
long-term success; and
o Align the interests of executives with the long-term interests of
stockholders through award opportunities that can result in
ownership of Common Stock.
At present, the executive compensation program is comprised of salary,
annual cash incentive opportunities, long-term incentive opportunities in the
form of stock options, and miscellaneous benefits typically offered to
executives in comparable corporations. Annual base salaries for all executive
officers are generally set somewhat below competitive levels so that the Company
relies to a large degree on annual and longer term incentive compensation to
attract and retain corporate officers and other employees and to motivate them
to perform to the full extent of their abilities. The Committee considers the
total compensation (earned or potentially available) in establishing each
element of compensation so that total compensation paid is competitive with the
market place, based on an independent consultant's survey of salary
competitiveness of other financial institutions. The Committee intends to be
advised periodically by independent compensation consultants concerning salary
competitiveness.
As to Mr. Koebig and other executive officers, as an executive's level of
responsibility increases, a greater portion of his or her potential total
compensation opportunity is based on Company performance incentives rather than
on salary. Reliance on Company performance causes greater variability in the
individual's total compensation from year to year. By varying annual and
long-term compensation and basing both on corporate performance, the Company
believes executive officers are encouraged to continue focusing on building
profitability and shareholder value.
Salaries. Effective January 1, 1997, the Board of Directors, acting on the
recommendation of the Committee, increased the base salary paid to Mr. Koebig.
The increase reflected consideration of competitive data provided by an
independent consulting firm, the Committee's and the Board's assessment
51
<PAGE>
of Mr. Koebig's performance, over the previous year and recognition of the
improvement in performance by the Company during 1996 as compared with the
Company's goals included in its business plan. The other executive officers were
also granted salary increases based on competitive data, individual performance,
position tenure and internal comparability considerations.
Mr. Calovi has been President, Chief Executive Officer and a director of
the Company since its inception in 1985. Mr. Calovi's salary of $131,000 is
fixed in his employment agreement and is based upon his prior years of service
to the Bank and the Company. Mr. Calovi's compensation of $131,000 is for term
of four years. See " -- Employment Agreement."
Stock Option Awards. The Company's 1995 Stock Option Plan (the "Plan") is
designed to align a significant portion of the executive compensation program
with shareholder interests. The Plan, approved by shareholders in 1995, provides
for the granting of stock-based awards. To date, the only type of award granted
under the Plan to executive officers and other key employees consists of stock
options.
In 1997, the Committee adopted a policy relating to the granting of awards
to executive officers and certain key employees under the Plan, to be carried
out by the Stock Option Committee. Under this policy, awards may be granted to
plan participants by the Stock Option Committee utilizing objective criteria
adopted by the Personnel Committee and approved by the Board of Directors, after
taking into account the practices of other publicly traded financial
institutions and such other factors as deemed appropriate. The formula adopted
is based on a Plan participant's grade level and the Company's return on equity
and return on assets for each fiscal year. Plan participants may receive a base
award of stock options for each year in which the Company's return on equity
exceeds its target. In addition, under the formula, no awards under the Plan
will be granted in any year in which the Company does not achieve its targets.
Personnel Committee
Anne E. Koons
Sidney R. Brown
Philip W. Koebig, III
52
<PAGE>
Stock Performance Graph
The following graph compares the cumulative total shareholder return of
the Common Stock of the Company with that of (a) the total return index for
domestic companies listed on the Nasdaq Stock Market and (b) the total return
index for banks listed on the Nasdaq Stock Market. These total return indices of
the Nasdaq Stock Market are computed by the Center for Research in Securities
Prices ("CRSP") at the University of Chicago. All three investment comparisons
assume the investment of $100 at the market close on August 31, 1996 and the
reinvestment of dividends when paid. The Company's Common Stock began trading on
the Nasdaq Small Cap Market on August 31, 1996. The graph provides comparisons
at the end of the fiscal year of the Company.
There can be no assurance that the Company's stock performance will
continue with the same or similar trends depicted in the graph below. The
Company will not make or endorse any predictions as to future stock performance.
[GRAPHIC OMITTED]
- -------------------------------------------------------------
8/96 12/31/96
- -------------------------------------------------------------
CRSP Nasdaq U.S. Index $100.00 $112.94
- -------------------------------------------------------------
CRSP Nasdaq Bank Index 100.00 116.00
- -------------------------------------------------------------
Sun Bancorp, Inc. 100.00 104.76
- -------------------------------------------------------------
53
<PAGE>
Certain Relationships and Related Transactions
Bernard A. Brown, the Chairman of the Board of Directors of the Company
and of the Bank, is, with his wife, the owner of Vineland Construction Company.
The Company and the Bank lease office space in Vineland, New Jersey from
Vineland Construction Company. The Company believes that the transactions with
Vineland Construction Company are on terms substantially the same, or at least
as favorable to the Bank, as those that would be provided by a non-affiliate.
The Company paid $361,731 to Vineland Construction during the year ended
December 31, 1996.
The Bank has a policy of offering various types of loans to officers,
directors and employees of the Bank and of the Company. These loans have been
made in the ordinary course of business and on substantially the same terms and
conditions (including interest rates and collateral requirements) as, and
following credit underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions by the Bank with its other
unaffiliated customers and do not involve more than the normal risk of
collectiblity, nor present other unfavorable features.
SUPERVISION AND REGULATION
Introduction
Bank holding companies and banks are extensively regulated under both
federal and state law. The following information describes certain aspects of
that regulation applicable to the Company and the Bank, and does not purport to
be complete. The discussion is qualified in its entirety by reference to all
particular statutory or regulatory provisions.
The Company is a legal entity separate and distinct from the Bank.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Bank is necessarily subject to the prior claims of
creditors of the Bank, except to the extent that claims of the Company in its
capacity as creditor may be recognized. The principal source of the Company's
revenue and cash flow is dividends from the Bank. There are legal limitations on
the extent to which a subsidiary bank can finance or otherwise supply funds to
its parent holding company.
The Company
General. As a registered holding company, the Company is regulated under
the BHCA and is subject to supervision and regular inspection by the Federal
Reserve. The BHCA requires, among other things, the prior approval of the
Federal Reserve in any case where the Company proposes to (i) acquire all or
substantially all of the assets of any bank, (ii) acquire direct or indirect
ownership or control of more than 5 percent of the voting shares of any bank, or
(iii) merge or consolidate with any other bank holding company.
Acquisitions/Permissible Business Activities. The BHCA currently permits
bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
certain nationwide- and state-imposed concentration limits. Effective June 1,
1997, the Bank will have the ability, subject to certain restrictions, including
state opt-out provisions, to acquire by acquisition or merger branches outside
its home state. States may affirmatively opt-in to permit these transactions
earlier, which New Jersey, among other states, have done. The establishment of
new interstate branches also will be possible in those states with laws that
expressly permit it.
54
<PAGE>
Interstate branches will be subject to certain laws of the states in which they
are located. Competition may increase further as banks branch across state lines
and enter new markets.
Under the BHCA, the Company is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5 percent of any
class of voting shares of any nonbanking corporation. Further, the Company may
not engage in any business other than managing and controlling banks or
furnishing certain specified services to subsidiaries, and may not acquire
voting control of nonbanking corporations except those corporations engaged in
businesses or furnishing services that the Federal Reserve deems to be closely
related to banking.
Community Reinvestment. Bank holding companies and their subsidiary banks
are subject to the provisions of the Community Reinvestment Act of 1977, as
amended ("CRA"). Under the terms of the CRA, the Bank's record in meeting the
credit needs of the community served by the Bank, including low- and
moderate-income neighborhoods, is generally annually assessed by the Office of
the Comptroller of the Currency (the "OCC"). When a bank holding company applies
for approval to acquire a bank or other bank holding company, the Federal
Reserve will review the assessment of each subsidiary bank of the applicant bank
holding company, and such records may be the basis for denying the application.
At December 31, 1996, the Bank was rated "Satisfactory" with respect to CRA.
Source of Strength Policy. Under Federal Reserve policy, a bank holding
company is expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such bank. Consistent
with its "source of strength" policy for subsidiary banks, the Federal Reserve
has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with the corporation's capital needs, asset quality and overall
financial condition.
The Bank
General. The Bank is subject to supervision and examination by the OCC. In
addition, the Bank is insured by and subject to certain regulations of the FDIC.
The Bank is also subject to various requirements and restrictions under federal
and state law, including requirements to maintain reserves against deposits,
restrictions on the types, amount and terms and conditions of loans that may be
granted and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank.
Dividend Restrictions. Dividends from the Bank constitute the principal
source of income to the Company. The Bank is subject to various statutory and
regulatory restrictions on its ability to pay dividends to the Company. Under
such restrictions, the amount available for payment of dividends to the Company
by the Bank totaled $7.7 million at December 31, 1996. In addition, the OCC has
the authority to prohibit the Bank from paying dividends, depending upon the
Bank's financial condition, if such payment is deemed to constitute an unsafe or
unsound practice. The ability of the Bank to pay dividends in the future is
presently, and could be further, influenced by bank regulatory and supervisory
policies.
Affiliate Transaction Restrictions. The Bank is subject to federal laws
that limit the transactions by subsidiary banks to or on behalf of their parent
company and to or on behalf of any nonbank subsidiaries. Such transactions by a
subsidiary bank to its parent company or to any nonbank subsidiary are limited
to 10 percent of a bank subsidiary's capital and surplus and, with respect to
such parent company and all such nonbank subsidiaries, to an aggregate of 20
percent of such bank subsidiary's
55
<PAGE>
capital and surplus. Further, loans and extensions of credit generally are
required to be secured by eligible collateral in specified amounts. Federal law
also prohibits banks from purchasing "low-equity" assets from affiliates.
FDIC Insurance Assessments. Deposits of the Bank are insured by the Bank
Insurance Fund ("BIF") of the FDIC and are subject to FDIC insurance
assessments. The amount of FDIC assessments paid by individual insured
depository institutions is based on their relative risk as measured by
regulatory capital ratios and certain other factors. During 1995, the FDIC's
Board of Directors significantly reduced premium rates assessed on deposits
insured by the BIF. Under the current regulations, the Company is assessed a
premium on BIF-insured deposits.
Enforcement Powers of Federal Banking Agencies. Federal banking agencies
possess broad powers to take corrective action as deemed appropriate for an
insured depository institution and its holding company. The extent of these
powers depends on whether the institution in question is considered "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" or "critically undercapitalized". At December 31, 1996, the
Bank exceeded the required ratios for classification as "well capitalized." The
classification of depository institutions is primarily for the purpose of
applying the federal banking agencies' prompt corrective action powers and is
not intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution.
The agencies' prompt corrective action powers can include, among other
things, requiring an insured depository institution to adopt a capital
restoration plan which cannot be approved unless guaranteed by the institution's
parent company; placing limits on asset growth and restrictions on activities;
including restrictions on transactions with affiliates; restricting the interest
rate the institution may pay on deposits; prohibiting the payment of principal
or interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval and, ultimately,
appointing a receiver for the institution. Among other things, only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval.
Capital Guidelines. Under the risk-based capital guidelines applicable to
the Company and the Bank, the minimum guideline for the ratio of total capital
to risk-weighted assets (including certain off- balance-sheet activities) is
8.00 percent. At least half of the total capital must be "Tier 1" capital, which
primarily includes common shareholders' equity and qualifying preferred stock,
less goodwill and other disallowed tangibles. "Tier 2" capital includes, among
other items, certain cumulative and limited-life preferred stock, qualifying
subordinated debt and the allowance for credit losses, subject to certain
limitations, less required deductions as prescribed by regulation.
In addition, the federal bank regulators established leverage ratio (Tier
1 capital to total adjusted average assets) guidelines providing for a minimum
leverage ratio of 3 percent for bank holding companies and banks meeting certain
specified criteria, including that such institutions have the highest regulatory
examination rating and are not contemplating significant growth or expansion.
Institutions not meeting these criteria are expected to maintain a ratio which
exceeds the 3 percent minimum by at least 100 to 200 basis points. The federal
bank regulatory agencies may, however, set higher capital requirements when
particular circumstances warrant. Under the federal banking laws, failure to
meet the minimum regulatory capital requirements could subject a bank to a
variety of enforcement remedies available to federal bank regulatory agencies.
56
<PAGE>
At December 31, 1996, the Bank's total and Tier 1 risk-based capital
ratios and leverage ratios exceeded the minimum regulatory capital requirements.
Legislative Proposals and Reforms
In recent years, significant legislative proposals and reforms affecting
the financial services industry have been discussed and evaluated by Congress.
In the last Congress, such proposals included legislation to revise the
Glass-Steagall Act and the BHCA to expand permissible activities for banks,
principally to facilitate the convergence of commercial and investment banking.
Certain proposals also sought to expand insurance activities of banks. It is
unclear whether any of these proposals, or any form of them, will be
reintroduced in the current Congress and become law. Consequently, it is not
possible to determine what effect, if any, they may have on the Company and the
Bank.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities will represent
preferred undivided beneficial interests in the assets of the Issuer Trust and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Preferred Securities and
the Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trustees.
General
The Preferred Securities will be limited to $25,000,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$3,750,000 aggregate liquidation amount of Preferred Securities for exercise of
the Underwriters' over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "-- Subordination of Common
Securities." The Junior Subordinated Debentures will be registered in the name
of the Issuer Trust and held by the Property Trustee in trust for the benefit of
the holders of the Preferred Securities and Common Securities. The Guarantee
will be a guarantee on a subordinated basis with respect to the Preferred
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of such Preferred Securities when the Issuer Trust
does not have funds on hand available to make such payments. See "Description of
Guarantee."
Distributions
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and Distributions on each Preferred
Security will be payable at the annual rate of % of the stated Liquidation
Amount of $25, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each a "Distribution Date"), to the holders of the
Preferred Securities at the close of business on 15th day of March, June,
September and December (whether or not a Business Day (as defined below)) next
preceding the relevant Distribution Date. Distributions on the Preferred
Securities will be cumulative. Distributions will accumulate from __________
____, 1997. The first
57
<PAGE>
Distribution Date for the Preferred Securities will be June 30, 1997. The amount
of Distributions payable for any period less than a full Distribution period
will be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. Distributions payable for
each full Distribution period will be computed by dividing the rate per annum by
four. If any date on which Distributions are payable on the Preferred Securities
is not a Business Day, then payment of the Distributions payable on such date
will be made on the next succeeding day that is a Business Day (without any
additional Distributions or other payment in respect of any such delay), with
the same force and effect as if made on the date such payment was originally
payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions,
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) 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, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company must
give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such
58
<PAGE>
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Property Trustee will give notice of the Company's
election to begin a new Extension Period to the holders of the Preferred
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of Junior Subordinated Debentures -- Option To Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The payment
of Distributions and other amounts payable on the Preferred Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after , 2002, in whole at any time or in part from time to time, or (ii)
in whole, but not in part, at any time within 90 days following the occurrence
and during the continuation of a Tax Event, Investment Company Event or Capital
Treatment Event (each as defined below), in each case subject to possible
regulatory approval. See "-- Liquidation Distribution Upon Dissolution." A
redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of a Like Amount of the Preferred Securities and Common Securities at
the Redemption Price.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities like the Trust
Securities will qualify as Tier 1 capital of the issuer up to an amount not to
exceed 25% of the Issuer's Tier 1 capital, or any subsequent limitation adopted
by the Federal Reserve.
59
<PAGE>
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the State of New Jersey or the City of New York
are authorized or required by law or executive order to remain closed, or (c) a
day on which the Property Trustee's Corporate Trust Office or the Corporate
Trust Office of the Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Preferred Securities based upon
the relative Liquidation Amounts of such classes and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Issuer Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof),
except as otherwise restricted under the 25% Capital Limitation, for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
60
<PAGE>
If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder of
all the Junior Subordinated Debentures, the Company will pay Additional Sums (as
defined below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Preferred Securities and Common Securities of the Issuer
Trust will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. With respect to Preferred Securities not
held in book-entry form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of the Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. If
any date fixed for redemption of Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Company pursuant to
the Guarantee as described under "Description of Guarantee," Distributions on
such Preferred Securities will continue to accumulate at the then applicable
rate, from the Redemption Date originally established by the Issuer Trust for
such Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common
61
<PAGE>
Securities to be redeemed shall be allocated pro rata to the Preferred
Securities and the Common Securities based upon the relative Liquidation Amounts
of such classes. The particular Preferred Securities to be redeemed shall be
selected on a pro rata basis not more than 60 days prior to the Redemption Date
by the Property Trustee from the outstanding Preferred Securities not previously
called for redemption, or if the Preferred Securities are then held in the form
of a Global Preferred Security (as defined below), in accordance with DTC's
customary procedures. The Property Trustee shall promptly notify the securities
registrar for the Trust Securities in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities selected
for partial redemption, the Liquidation Amount thereof to be redeemed. For all
purposes of the Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Preferred Securities shall relate, in
the case of any Preferred Securities redeemed or to be redeemed only in part, to
the portion of the aggregate Liquidation Amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in respect
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Preferred
Securities then called for redemption, shall have been made or provided for, and
all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Preferred Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Preferred Securities have been cured, waived or otherwise eliminated.
See "-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Preferred Securities and not on behalf of the
holders of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
62
<PAGE>
Liquidation Distribution Upon Dissolution
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves
the Issuer Trust prior to the stated maturity of the Preferred Securities and
the dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "-- Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accumulated and unpaid Distributions thereon to
the date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer Trust on its
Preferred Securities shall be paid on a pro rata basis. The holders of the
Common Securities will
63
<PAGE>
be entitled to receive distributions upon any such liquidation pro rata with the
holders of the Preferred Securities, except that if a Debenture Event of Default
has occurred and is continuing as a result of any failure by the Company to pay
any amounts in respect of the Junior Subordinated Debentures when due, the
Preferred Securities shall have a priority over the Common Securities. See "--
Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of 30
days; or
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and
64
<PAGE>
continuation of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the Issuer Trustees and the
Company by the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Preferred 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" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not been
appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
Removal of Issuer Trustees; Appointment of Successors
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee resigns,
such Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Preferred Securities may appoint a successor. If a successor has not been
appointed by the holders, any holder of Preferred Securities or Common
Securities or the other Issuer Trustee may petition a court in the State of
Delaware to appoint a successor. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories by a nationally recognized
statistical rating organization and have capital and surplus of at least
$50,000,000. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
65
<PAGE>
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust
The Issuer 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 entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) such successor entity has
a purpose substantially identical to that of the Issuer Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Issuer Trust has received an opinion from independent counsel
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 Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all 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 Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer Trust or the successor entity to be taxable as a corporation for United
States federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided above and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Preferred Securities, (i) to cure any ambiguity, correct
or supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, provided that any such
amendment does not adversely affect
66
<PAGE>
in any material respect the interests of any holder of Trust Securities, or (ii)
to modify, eliminate or add to any provisions of the Trust Agreement to such
extent as may be necessary to ensure that the Issuer Trust will not be taxable
as a corporation for United States federal income tax purposes at any time that
any Trust Securities are outstanding or to ensure that the Issuer Trust will not
be required to register as an "investment company" under the Investment Company
Act, and any amendments of the Trust Agreement will become effective when notice
of such amendment is given to the holders of Trust Securities. The Trust
Agreement may be amended by the holders of a majority of the Common Securities
and the Property Trustee with (i) the consent of holders representing not less
than a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities and (ii) receipt by the Issuer Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Issuer Trustees in accordance with such amendment will not affect the Issuer
Trust's not being taxable as a corporation for United States federal income tax
purposes or the Issuer Trust's exemption from status as an "investment company"
under the Investment Company Act, except that, without the consent of each
holder of Trust Securities affected thereby, the Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date or (ii)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer
Trust, the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each holder
of the Preferred Securities. The Property Trustee may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee will notify each holder of Preferred Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each registered holder of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the
67
<PAGE>
Issuer Trustees or any affiliate of the Company or any Issuer Trustees, will,
for purposes of such vote or consent, be treated as if they were not
outstanding.
Expenses and Taxes
In the Indenture, the Company, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Preferred Securities) and
all costs and expenses of the Issuer Trust (including costs and expenses
relating to the organization of the Issuer Trust, the fees and expenses of the
Issuer Trustees and the costs and expenses relating to the operation of the
Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Issuer
Trust might become subject. The foregoing obligations of the Company under the
Indenture are for the benefit of, and shall be enforceable by, any person to
whom any such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Issuer Trust or any other
person before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is exchangeable
in whole or in part for the Preferred Securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective principal
amounts of the Preferred Securities represented by such global security.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of Participants) and on the records
of Participants (with respect to interests of Persons held through
Participants). Beneficial owners will not receive written confirmation from DTC
of their purchase, but are expected to receive written confirmations from the
Participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
68
<PAGE>
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Issuer Trustees, the Administrators, any Paying Agent
or any other agent of the Company or the Issuer Trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Issuer
Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Issuer Trustees. If DTC notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriter), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
69
<PAGE>
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the Underwriter in
immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Preferred Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
70
<PAGE>
Miscellaneous
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money, issue debt or mortgage or pledge
any of its assets.
Governing Law
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
General
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from , 1997, at the annual rate of % of the principal amount thereof,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, an "Interest Payment Date"), commencing June 30, 1997, to
the person in whose name each Junior Subordinated Debenture is registered at the
close of business on the 15th day of March, June, September or December (whether
or not a Business Day) next preceding such Interest Payment Date. It is
anticipated that, until the liquidation, if any, of the Issuer Trust, each
Junior Subordinated Debenture will be registered in the name of the Issuer Trust
and held by the Property Trustee in trust for the benefit of the holders of the
Trust Securities. The amount of interest payable for any period less than a full
interest period will be computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period. The amount
of interest payable for any full interest period will be computed by dividing
the rate per annum by four. If any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date
71
<PAGE>
will be made on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay), with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of %, compounded quarterly and computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of additional interest payable for any full
interest period will be computed by dividing the rate per annum by four. The
term "interest" as used herein includes quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on ___________, 2027.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"-- Subordination."
Option to Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. During any such Extension Period
the Company shall have the right to make partial payments of interest on any
interest payment date. At the end of such Extension Period, the Company must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of %, compounded quarterly and computed on the basis of a 360-day
year of twelve 30-day months and the actual days elapsed in a partial month in
such period, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Preferred Securities while outstanding) will be required to accrue interest
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's
72
<PAGE>
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholders rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Issuer Trustees notice of
its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Preferred Securities would have
been payable but for the election to begin such Extension Period and (ii) the
date the Property Trustee is required to give notice to holders of the Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after __________, 2002, in whole at any time or
in part from time to time, or (ii) in whole, but not in part, at any time within
90 days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Preferred Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior
to their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve. The redemption of the
Junior Subordinated Debentures also could be subject to the additional prior
approval of the Federal Reserve under its current risk-based capital guidelines.
The redemption price for Junior Subordinated Debentures is the outstanding
principal amount of the Junior Subordinated Debentures plus accrued interest
(including any Additional Interest or any Additional Sums) thereon to but
excluding the date fixed for redemption.
73
<PAGE>
Additional Sums
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Preferred Securities -- Redemption."
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Issuer Trust. If the Junior Subordinated Debentures are distributed
to holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
Preferred Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in New York, New
York or at the offices of any Paying Agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
74
<PAGE>
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Company
The Company has covenanted 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 or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) 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, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by the Issuer Trust,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated Indenture and has not
rescinded such notice, or such Extension Period, or any extension thereof, is
continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the
75
<PAGE>
Issuer Trust, other than (a) in connection with a distribution of Junior
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of the Issuer Trust or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause the Issuer Trust to continue not to be taxable as a
corporation for United States federal income tax purposes.
Modification of Junior Subordinated Indenture
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (1) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures, (2) add further covenants, restrictions or
conditions for the protection of holders of the Junior Subordinated Debentures,
(3) cure ambiguities or correct the Junior Subordinated Debentures in the case
of defects or inconsistencies in the provisions thereof, so long as any such
cure or correction does not adversely affect the interest of the holders of the
Junior Subordinated Debentures in any material respect, (4) change the terms of
the Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form, (5) evidence
or provide for the appointment of a successor Debenture Trustee, or (6) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act. The Junior Subordinated Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Preferred Securities remain outstanding, no
such modification may be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the outstanding Preferred
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
Debenture Events of Default
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date
in the case of an Extension Period); or
76
<PAGE>
(ii) failure to pay any principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity,
upon redemption, by declaration of acceleration or otherwise;
or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture
for 90 days after written notice to the Company from the
Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar
proceeding with respect to the Company or all or substantially
all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event
of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of Preferred
Securities -- Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "-- Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
77
<PAGE>
Enforcement of Certain Rights by Holders of Preferred Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Preferred
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities by
the Company in connection with a Direct Action.
The holders of the Preferred Securities are not able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
except under the circumstances described in the preceding paragraph. See
"Description of Preferred Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
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 in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at the Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Junior Subordinated Indenture will cease to be of further effect (except as
to the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
78
<PAGE>
Subordination
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by setoff or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or
a portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person and all dividends of another person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise; provided
that "Senior Indebtedness" shall not include (i) any obligations which, by their
terms, are expressly stated to rank pari passu in right of payment with, or to
not be superior in right of payment to, the Junior Subordinated Debentures, (ii)
any Senior Indebtedness of the Company which when incurred and without respect
to any election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company, (iii) any indebtedness of
the Company to any of its subsidiaries, (iv) indebtedness to any executive
officer or director of the Company, or (v) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company in
connection with the issuance of such financing entity of securities that are
similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
79
<PAGE>
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Information Concerning the Debenture Trustee
The Debenture Trustee, other than during the occurrence and continuance of
a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time
as trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
Governing Law
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
80
<PAGE>
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit of
the holders from time to time of the Preferred Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
General
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth in the Guarantee and described herein, the Guarantee
Payments (as defined below) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Issuer Trust may have or assert other than the defense of payment. The following
payments with respect to the Preferred Securities, to the extent not paid by or
on behalf of the Issuer Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
such Preferred Securities, to the extent that the Issuer Trust has funds on hand
available therefor at such time, (ii) the Redemption Price with respect to any
Preferred Securities called for redemption, to the extent that the Issuer Trust
has funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the
Preferred Securities on liquidation of the Issuer Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the Preferred Securities or by
causing the Issuer Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Preferred Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the Preferred Securities and will not have
funds legally available therefor. The Guarantee will rank subordinate and junior
in right of payment to all Senior Indebtedness of the Company. See "-- Status of
the Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Preferred Securities on a subordinated basis. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of
81
<PAGE>
the Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
Amendments and Assignment
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of the Capital Securities --
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
82
<PAGE>
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
as Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Preferred Securities must restore payment of any sums
paid under the Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer Trust has funds available for such payment)
are irrevocably guaranteed, on a subordinated basis, by the Company as and to
the extent set forth under "Description of Guarantee." Taken together, the
Company's obligations under the Junior Subordinated Debentures, the Junior
Subordinated Indenture, the Trust Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. If and to the extent that the Company does not make
payments on the Junior Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of amounts payable with respect
to the Preferred Securities when the Issuer Trust does not have sufficient funds
to pay such amounts. In such event, the remedy of a holder of the Preferred
Securities is to institute a legal proceeding directly against the Company for
enforcement of payment of the Company's obligations under Junior Subordinated
83
<PAGE>
Debentures having a principal amount equal to the Liquidation Amount of the
Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
Sufficiency of Payments
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for any and all costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
Enforcement Rights of Holders of Preferred Securities
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Preferred
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination."
Limited Purpose of Issuer Trust
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and the Issuer Trust exists for the
sole purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company payments on Junior
Subordinated Debentures held, while a holder of Preferred Securities is entitled
to receive Distributions or other amounts distributable with respect to the
Preferred Securities from the Issuer Trust (or from the Company under the
Guarantee) only if and to the extent the Issuer Trust has funds available for
the payment of such Distributions.
84
<PAGE>
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Preferred Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Issuer Trust, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Preferred Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences of the purchase, ownership and disposition of Preferred
Securities. This summary only addresses the tax consequences to a person that
acquires Preferred Securities on their original issue at their original offering
price and that is, except as noted below, (i) an individual citizen or resident
of the United States, (ii) a corporation, partnership, or other entity organized
under the laws of the United States or any state thereof or the District of
Columbia, (iii) an estate the income of which is subject to United States
federal income tax regardless of source or (iv) a trust if (a) a United States
court of law is able to exercise primary supervision over the trust's
administration and (b) one or more United States fiduciaries have the authority
to control all of the trust's substantial decisions (a "United States Person").
This summary does not address all tax consequences that may be applicable to a
United States Person that is a beneficial owner of Preferred Securities, nor
does it address the tax consequences to, except as noted below, (i) persons that
are not United States Persons, (ii) persons that may be subject to special
treatment under United States federal income tax law, such as banks, insurance
companies, thrift institutions, regulated investment companies, real estate
investment trusts, tax-exempt organizations and dealers in securities or
currencies, (iii) persons that will hold Preferred Securities as part of a
position in a "straddle" or as part of a "hedging," "conversion" or other
integrated investment transaction for United States federal income tax purposes,
(iv) persons whose functional currency is not the United States dollar or (v)
persons that do not hold Preferred Securities as capital assets.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of the Malizia, Spidi, Sloane & Fisch, P.C., in its
capacity as special tax counsel to the Company and the Issuer Trust. This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of Preferred
Securities. In particular, legislation has been proposed that could adversely
affect the Company's ability to deduct interest on the Junior Subordinated
Debentures, which may in turn permit the Company to cause a redemption of the
Preferred Securities. See "-- Possible Tax Law Changes." The authorities on
which this summary is based are
85
<PAGE>
subject to various interpretations, and it is therefore possible that the United
States federal income tax treatment of the purchase, ownership and disposition
of Preferred Securities may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Junior Subordinated Debentures and the Issuer Trust
Under current law and assuming compliance with the terms of the Trust
Agreement, the Issuer Trust will not be taxable as a corporation but will
instead be classified as a grantor trust for United States federal income tax
purposes. As a result, each beneficial owner of Preferred Securities (a
"Securityholder") will be treated for federal income tax purposes as a holder of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust. Accordingly, each Securityholder will be required to include in its gross
income its pro rata share of the interest income, including original issue
discount ("OID"), paid or accrued with respect to the Junior Subordinated
Debentures whether or not cash is actually distributed to the Securityholders.
See "-- Interest Income and Original Issue Discount." The Junior Subordinated
Debentures will be classified as indebtedness of the Company for United States
federal income tax purposes.
Interest Income and Original Issue Discount
Under recently issued Treasury regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with OID. The Company believes that the
likelihood of its exercising its option to defer payments of interest is remote.
Based on the foregoing, the Company believes that the Junior Subordinated
Debentures will not be considered to be issued with OID at the time of their
original issuance and, accordingly, a Securityholder should include in gross
income such Securityholder's allocable share of interest on the Junior
Subordinated Debentures in accordance with such Securityholder's method of tax
accounting.
Under the Regulations, if the Company exercised its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior Subordinated
Debentures remained outstanding. In such event, all of a Securityholder's
taxable interest income with respect to the Junior Subordinated Debentures would
be accounted for as OID on an economic accrual basis regardless of such
Securityholder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income. Consequently, a Securityholder
would be required to include in gross income OID even though the Company would
not make any actual cash payments during an Extension Period.
The Regulations have not been addressed in any published rulings or other
published interpretations by the IRS, and it is possible that the IRS could take
a position contrary to the interpretation herein.
86
<PAGE>
Because income on the Preferred Securities will constitute interest or
OID, corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
Subsequent uses of the term "interest" in this summary include income in
the form of OID.
Distribution of Junior Subordinated Debentures to Securityholders
Under current law, a distribution by the Issuer Trust of the Junior
Subordinated Debentures as described under the caption "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution" will be non-taxable and
will result in the Securityholder receiving directly its pro rata share of the
Junior Subordinated Debentures previously held indirectly through the Issuer
Trust, with a holding period and aggregate tax basis equal to the holding period
and aggregate tax basis such Securityholder had in its Preferred Securities
before such distribution. If, however, the liquidation of the Issuer Trust were
to occur because the Issuer Trust is subject to United States federal income tax
with respect to income accrued or received on the Junior Subordinated
Debentures, the distribution of Junior Subordinated Debentures to
Securityholders by the Issuer Trust would be a taxable event to the Issuer Trust
and each Securityholder, and the Securityholder would recognize gain or loss as
if the Securityholder had exchanged its Preferred Securities for the Junior
Subordinated Debentures it received upon the liquidation of the Issuer Trust. A
Securityholder will accrue interest in respect of Junior Subordinated Debentures
received from the Issuer Trust in the manner described above under "-- Interest
Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of Junior
Subordinated Debentures -- Redemption"), the Junior Subordinated Debentures may
be redeemed by the Company for cash and the proceeds of such redemption
distributed by the Issuer Trust to holders in redemption of their Preferred
Securities. Under current law, such a redemption would, for United States
federal income tax purposes, constitute a taxable disposition of the redeemed
Preferred Securities, and a holder would recognize gain or loss as if it sold
such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
Sales of Preferred Securities
A Securityholder that sells Preferred Securities will recognize gain or
loss equal to the difference between its adjusted tax basis in the Preferred
Securities and the amount realized on the sale of such Preferred Securities.
Assuming that the Company does not exercise its option to defer payment of
interest on the Junior Subordinated Debentures, and the Preferred Securities are
not considered issued with OID, a Securityholder's adjusted tax basis in the
Preferred Securities generally will be its initial purchase price. If the Junior
Subordinated Debentures are deemed to be issued with OID as a result of the
Company's deferral of any interest payment, or otherwise, a Securityholder's tax
basis in the Preferred Securities generally will be its initial purchase price,
increased by OID previously includible in such Securityholder's gross income to
the date of disposition and decreased by distributions or other payments
received on the Preferred Securities since and including the date of
commencement of the first Extension Period. Such gain or loss generally will be
a capital gain or loss (except to the extent of any accrued interest with
respect to such Securityholder's pro rata share of the Junior Subordinated
Debentures required to be included in income) and generally will be a long-term
capital gain or loss if the Preferred Securities have been held for more than
one year.
Should the Company exercise its option to defer any payment of interest on
the Junior Subordinated Debentures, the Preferred Securities may trade at a
price that does not accurately reflect
87
<PAGE>
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. In the event of such a deferral, a Securityholder that
disposes of its Preferred Securities between record dates for payments of
distributions thereon will be required to include in income as ordinary income
its share of accrued but unpaid interest on the Junior Subordinated Debentures
to the date of disposition as OID, but may not receive the cash related thereto.
However, such Securityholder will add such amount to its adjusted tax basis in
the Preferred Securities. To the extent the selling price is less than the
Securityholder's adjusted tax basis, such Securityholder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
Backup Withholding Tax and Information Reporting
The amount of interest income paid or accrued on the Preferred Securities
held of record by United States Persons (other than corporations and other
exempt Securityholders) will be reported to the IRS. "Backup" withholding at a
rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions.
Payment of the proceeds from the disposition of Preferred Securities to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the Securityholder establishes an exemption from
information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the IRS.
It is anticipated that income on the Preferred Securities will be reported
to Securityholders on Form 1099 and mailed to Securityholders by January 31
following each calendar year.
These backup withholding tax and information reporting rules currently are
under review by the United States Treasury Department and proposed Treasury
regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules to the Preferred Securities could be changed.
United States Alien Securityholders
For purposes of this discussion, a "United States Alien Securityholder" is
any corporation, individual, partnership, estate or trust that for United States
federal income tax purposes is not a United States Person.
Under current United States federal income tax law: (i) payments by the
Issuer Trust or any of its paying agents to any holder of Preferred Securities
that is a United States Alien Securityholder will not be subject to United
States federal withholding tax, provided that (a) the beneficial owner of the
Preferred Securities does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the Preferred Securities is not a controlled
foreign corporation that is related to the Company through stock ownership, and
(c) either (A) the beneficial owner of the Preferred Securities certifies to the
Issuer Trust, or its agent, under penalties of perjury, that it is not a United
States Securityholder and provides its name and address, or (B) a securities
clearing organization, bank or other financial institution that holds customers'
88
<PAGE>
securities in the ordinary course of its trade or business (a "Financial
Institution") and holds the Preferred Securities certifies to the Issuer Trust
or its agent under penalties of perjury that such statement has been received
from the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Issuer Trust or its agent with a copy
thereof; and (ii) a United States Alien Securityholder of Preferred Securities
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of Preferred Securities.
Possible Tax Law Changes
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the revenue provisions of those proposals would
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum term of more than 15 years and that is not shown
as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. If enacted as
proposed by the President, this provision would be effective for instruments
issued on or after the date of first action by a Congressional committee with
respect to the proposal. It is not clear from the President's proposals as to
what constitutes Congressional "committee action" with respect to this proposal.
If the proposed provision were to apply to the Junior Subordinated Debentures,
the Company would be unable to deduct interest on the Junior Subordinated
Debentures. There can be no assurance, however, that future legislative
proposals or final legislation will not affect the ability of the Company to
deduct interest on the Junior Subordinated Debentures. Such a change could give
rise to a Tax Event, which may permit the Company to cause a redemption of the
Preferred Securities, as described more fully in this Prospectus under
"Description of Preferred Securities -- Redemption." Under current law, the
Company will be able to deduct interest on the Junior Subordinated Debentures.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Code with respect to many employee benefit plans
("Plans") that are subject to ERISA. The purchase of the Preferred Securities by
a Plan that is subject to the fiduciary responsibility provisions of ERISA or
the prohibited transaction provisions of Section 4975(e)(1) of the Code) and
with respect to which the Company, or any affiliate of the Company is a service
provider (or otherwise is a party in interest or a disqualified person) may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless the Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption. Any pension or other employee benefit
plan proposing to acquire any Preferred Securities should consult with its
counsel.
89
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated __________, 1997, among the Company, the Issuer
Trust and the underwriters named therein (the "Underwriters"), the Issuer Trust
has agreed to sell to the Underwriters, and the Underwriters have severally
agreed to purchase from the Issuer Trust the following respective aggregate
Liquidation Amount of Preferred Securities at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
Underwriter: Number of Shares:
Advest, Inc..........................
------------
Total................................ $25,000,000
============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Preferred Securities offered hereby if any
of such Preferred Securities are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After the public offering, the offering price and
other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional $3,750,000 aggregate Liquidation Amount of the Preferred Securities
at the public offering price, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus, plus accrued interest, if any,
from __________, 1997. To the extent that the Underwriter exercises such option,
the Company will be obligated, pursuant to the option, to sell such Preferred
Securities to the Underwriters. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the Preferred
Securities offered hereby. If purchased, the Underwriters will offer such
additional Preferred Securities on the same terms as those on which the
$25,000,000 aggregate Liquidation Amount of the Preferred Securities are being
offered.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $__________ per Preferred Security (or $__________ in the
aggregate) for the account of the Underwriters.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
90
<PAGE>
The Preferred Securities are a new issue of securities with no established
trading market. The Company and the Issuer Trust have been advised by the
Underwriters that they intend to make a market in the Preferred Securities.
However, the Underwriters are not obligated to do so and such market making may
be interrupted or discontinued at any time without notice at the sole discretion
of each of the Underwriters. Application has been made by the Company to list
the Preferred Securities in the Nasdaq National Market, but one of the
requirements for listing and continuing listing is the presence of two market
makers for the Preferred Securities, and the presence of a second market maker
cannot be assured. Accordingly, no assurance can be given as to the development
or liquidity of any market for the Preferred Securities.
The Company and the Issuer Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act.
The Underwriters may in the future perform various services to the
Company, including investment banking services, for which it has or may receive
customary fees for such services.
VALIDITY OF SECURITIES
The validity of the Guarantee and the Junior Subordinated Debentures and
certain tax matters will be passed upon for the Company by Malizia, Spidi,
Sloane & Fisch, P.C., Washington, D.C., counsel to the Company. Certain legal
matters will be passed upon and for the Underwriters by Arnold & Porter,
Washington, D.C., and New York, New York. Certain matters of Delaware law
relating to the validity of the Preferred Securities, the enforceability of the
Trust Agreement and the creation of the Issuer Trust will be passed upon by
Richards, Layton & Finger, special Delaware counsel to the Company and the
Issuer Trust. Malizia, Spidi, Sloane & Fisch, P.C. and Arnold & Porter will rely
as to certain matters of Delaware law on the opinion of Richards, Layton &
Finger.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for the three years ended December 31, 1996, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this Prospectus, and have been included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. This Prospectus does not contain all the
information set forth in the Registration Statement and exhibits thereto, which
the Company has filed with the Commission under the Securities Act and to which
reference is hereby made.
91
<PAGE>
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"Sun Capital Trust," "Description of Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
92
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Sun Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Sun Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of income, shareholders'
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Sun Bancorp, Inc. 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.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 31, 1997
F-1
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 17,006,758 $ 17,242,366
Federal funds sold 4,800,000
------------- -------------
Cash and cash equivalents 21,806,758 17,242,366
Investment securities available for sale (amortized cost -
$97,063,398; 1996 and $146,379,244; 1995) 95,581,384 147,008,896
Loans receivable (net of allowance for loan losses - $2,595,312;
1996 and $2,064,640; 1995) 295,500,668 183,633,631
Bank properties and equipment 12,222,507 11,419,175
Real estate owned 755,628 876,302
Accrued interest receivable 2,850,399 2,564,921
Excess of cost over fair value of net assets acquired 5,365,218 6,191,919
Deferred taxes 1,070,535 205,169
Other assets 1,641,959 752,257
------------- -------------
TOTAL $ 436,795,056 $ 369,894,636
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 385,986,905 $ 335,247,796
Advances from the Federal Home Loan Bank 10,000,000 8,000,000
Loan payable 6,000,000
Securities sold under agreements to repurchase 5,253,048
Other liabilities 2,140,527 1,976,044
------------- -------------
Total liabilities 409,380,480 345,223,840
------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
SHAREHOLDERS' EQUITY
Preferred stock $1 par value, 1,000,000 shares authorized, none issued
Common stock $1 par value, 10,000,000 shares authorized:
issued and outstanding; 1,848,929 shares; 1996 and 1,651,175 shares; 1995 1,848,929 1,651,175
Surplus 18,124,359 17,197,275
Retained earnings 8,419,417 5,406,774
Unrealized (loss) gain on securities available for sale, net of income taxes . (978,129) 415,572
------------- -------------
Total shareholders' equity 27,414,576 24,670,796
------------- -------------
TOTAL $ 436,795,056 $ 369,894,636
============= =============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $22,073,767 $15,100,885 $ 9,590,994
Interest on investment securities 7,127,393 5,285,877 2,151,351
Interest on federal funds sold 68,366 463,001 452,117
----------- ----------- -----------
Total interest income 29,269,526 20,849,763 12,194,462
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 11,953,591 7,639,933 3,844,753
Interest on borrowed funds 580,412 47,158 93,796
----------- ----------- -----------
Total interest expense 12,534,003 7,687,091 3,938,549
----------- ----------- -----------
Net interest income 16,735,523 13,162,672 8,255,913
PROVISION FOR LOAN LOSSES 900,000 807,660 382,671
----------- ----------- -----------
Net interest income after provision for loan losses 15,835,523 12,355,012 7,873,242
----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 1,057,139 659,811 419,363
Other service charges 115,999 28,068 17,224
Gain on sale of fixed assets 45,207 46,487 21,164
Gain on sale of loans 207,984
Gain on sale of investment securities 206,538 377,126
Other 320,890 331,513 274,533
----------- ----------- -----------
Total other income 1,745,773 1,650,989 732,284
----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits 6,525,903 4,689,269 2,626,679
Occupancy expense 1,407,875 1,269,514 1,090,833
Equipment expense 817,696 459,460 249,951
Provision for losses on real estate owned 78,000 120,000
Professional fees and services 352,970 249,760 164,770
Data processing expense 1,085,874 634,753 318,552
Amortization of excess cost over fair value of assets acquired 826,701 342,562 134,435
Postage and supplies 420,120 335,055 173,823
Insurance 196,110 382,554 397,961
Other 1,573,404 1,606,404 713,733
----------- ----------- -----------
Total other expenses 13,206,653 10,047,331 5,990,737
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,374,643 3,958,670 2,614,789
INCOME TAXES 1,362,000 1,140,000 775,134
----------- ----------- -----------
NET INCOME $ 3,012,643 $ 2,818,670 $ 1,839,655
============= =========== ===========
Earnings per common and common equivalent share
Net income $ 1.58 $ 1.52 $ 1.42
=========== =========== ===========
Earnings per common share - assuming full dilution
Net income $ 1.56 $ 1.52 $ 1.42
=========== =========== ===========
Weighted average shares 1,797,900 1,720,295 1,200,503
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss)
on Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 1,017,522 $ 10,540,290 $ 748,449 $ 12,306,261
Exercise of stock options 450 2,943 3,393
Sale of common stock 538,462 5,883,415 6,421,877
Net income 1,839,655 1,839,655
------------- ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1994 1,556,434 16,426,648 2,588,104 20,571,186
Exercise of stock options 74,741 530,627 605,368
Sale of common stock 20,000 240,000 260,000
Unrealized gain on securities
available for sale, net of income taxes $ 415,572 415,572
Net income 2,818,670 2,818,670
------------- ------------ ------------ ----------- ------------
BALANCE, DECEMBER 31, 1995 1,651,175 17,197,275 5,406,774 415,572 24,670,796
Stock dividend 87,892 (87,892)
Cash paid for fractional interest
resulting from stock dividend (2,146) (2,146)
Exercise of stock options 109,862 1,017,122 1,126,984
Unrealized loss on securities
available for sale,
net of income taxes (1,393,701) (1,393,701)
Net income 3,012,643 3,012,643
------------- ------------ ------------ ----------- ------------
BALANCE, DECEMBER 31, 1996 $ 1,848,929 $ 18,124,359 $ 8,419,417 $ (978,129) $ 27,414,576
============= ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,012,643 $ 2,818,670 $ 1,839,655
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 900,000 807,660 382,671
Provision for loss on real estate owned 78,000 120,000
Depreciation and amortization 484,059 325,913 215,381
Amortization of excess cost over fair value of assets acquired 826,701 342,562 134,435
Gain on sale of loans (207,984)
Gain on sale of investment securities available for sale (206,538) (246,129)
Gain on sale of mortgage-backed securities available for sale (130,997)
Gain on sale of bank properties and equipment (29,298) (46,487) (21,164)
Deferred income taxes (147,401) (27,398) (193,836)
Changes in assets and liabilities which provided (used) cash:
Accrued interest and other assets (1,175,180) (838,246) 196,972
Accounts payable and accrued expenses 164,483 1,215,343 (1,145,147)
------------- ------------- -------------
Net cash provided by operating activities 3,829,469 4,090,907 1,528,967
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of investment securities held to maturity (30,094,922) (6,056,403)
Purchases of investment securities available for sale (194,220,677) (27,823,745)
Purchases of mortgage-backed securities held to maturity (45,544,706) (778,160)
Purchases of mortgage-backed securities available for sale (4,074,088)
Increase in investment securities resulting from branch acquisitions (97,600,000)
Proceeds from maturities of investment securities held to maturity 65,280,038 8,141,545
Proceeds from maturities of investment securities available for sale 99,213,685 10,344,666
Proceeds from maturities of mortgage-backed securities held to maturity 19,908,185 176,542
Proceeds from maturities of mortgage-backed securities available for sale 125,716
Proceeds from sale of investment securities available for sale 93,679,375 16,880,505
Proceeds from sale of mortgage-backed securities available for sale 50,782,081 7,359,934
Proceeds from sale of loans 1,870,608
Net increase in loans (112,767,037) (50,605,944) (2,845,797)
Increase in loans resulting from branch acquisitions (636,714)
Purchase of bank properties and equipment (1,359,295) (825,912) (481,895)
Increase in bank properties and equipment resulting from branch acquisitions (5,430,744)
Proceeds from sale of bank properties and equipment 42,606 250,824 21,164
Excess of cost over fair value of branch assets acquired (4,450,145)
Decrease (increase) in real estate owned 120,674 78,578 (244,249)
Purchase price of acquisitions, net of cash received (5,410,572)
------------- ------------- -------------
Net cash used in investing activities (64,382,072) (145,113,582) (7,477,825)
------------- ------------- -------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 50,739,109 16,685,101 (6,638,004)
Increase in deposits resulting from branch acquisitions 122,543,875
Borrowings and repurchase agreements 21,253,048 12,500,000 4,500,000
Repayment of borrowings and repurchase agreements (8,000,000) 4,500,000
Principal payments on borrowed funds (5,750,000)
Proceeds from exercise of stock options 1,126,984 605,368 3,393
Payments for fractional interests resulting from stock dividend (2,146)
Proceeds from issuance of common stock 260,000 6,421,877
------------- ------------- -------------
Net cash provided by (used in) financing activities 65,116,995 148,094,344 (1,462,734)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,564,392 7,071,669 (7,411,592)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,242,366 10,170,697 17,582,289
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,806,758 $ 17,242,366 $ 10,170,697
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 12,743,696 $ 6,100,954 $ 3,827,301
============= ============= =============
Income taxes paid $ 1,577,757 $ 994,516 $ 1,115,000
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS -
Transfer of loans to real estate owned $ 424,644 $ 196,181 $ 449,478
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Sun Bancorp, Inc. (the "Company") is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, Sun National Bank (the "Bank"), and the Bank's wholly owned
subsidiary, Med-Vine, Inc. All significant inter-company balances and
transactions have been eliminated.
The Company and the Bank have their administrative offices in Vineland, New
Jersey. The Bank has nineteen financial service centers located throughout
central and southern New Jersey. The Company's principal business is to serve
as a holding company for the Bank. The Bank is in the business of attracting
customer deposits and using these funds to originate loans, primarily
commercial real estate and non-real estate loans. Med-Vine, Inc. is a
Delaware holding company which holds the majority of the Bank's investment
portfolio. The principal business of Med-Vine, Inc. is investing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements - The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. The
significant estimates include: allowance for loan losses, real estate owned
and excess of cost over fair value of net assets acquired. Actual results
could differ from those estimates.
Investment Securities - The Bank accounts for debt and equity securities as
follows:
Held to Maturity - Debt securities that management has the positive intent
and ability to hold until maturity are classified as held to maturity and
carried at their remaining unpaid principal balance, net of unamortized
premiums or unaccreted discounts. Premiums are amortized and discounts are
accreted using the interest method over the estimated remaining term of
the underlying security.
Available for Sale - Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes to market interest or prepayment rates, needs for
liquidity, and changes in the availability of and the yield of alternative
investments, are classified as available for sale. These assets are
carried at fair value. Fair value is determined using published quotes as
of the close of business. Unrealized gains and losses are excluded from
earnings and are reported net of tax as a separate component of
shareholders' equity until realized. Realized gains and losses on the sale
of investment securities are reported in the consolidated statement of
income and determined using the adjusted cost of the specific security
sold.
Loans Purchased - The discounts and premiums resulting from the purchase of
loans are amortized to income using the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Interest Income on Loans - Interest on commercial, real estate and
installment loans is credited to operations based upon the principal amount
outstanding. Interest accruals are generally discontinued when a loan becomes
90 days past due or when principal or interest is considered doubtful of
collection. When interest accruals are discontinued, interest credited to
income in the current year is reversed, and interest accrued in the prior
year is charged to the allowance for loan losses.
F-6
<PAGE>
Allowance for Loan Losses - The allowance for loan losses is determined by
management based upon past experience, an evaluation of potential loss in the
loan portfolio, current economic conditions and other pertinent factors. The
allowance for loan losses is maintained at a level that management considers
adequate to provide for potential losses based upon an evaluation of known
and inherent risk in the loan portfolio. Allowances for loan losses are based
on estimated net realizable value unless it is probable that loans will be
foreclosed, in which case allowances for loan losses are based on fair value.
Management's periodic evaluation is based upon evaluation of the portfolio,
past loss experience, current economic conditions and other relevant factors.
While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluations.
The Bank adopted the requirements of Statement of Financial Accounting
Standard ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan,
and SFAS No. 118, Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures, effective January 1, 1995. SFAS 114 requires
that certain impaired loans be measured based either on the present value of
expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent. There was no effect on financial statements
as previously reported and on current earnings of initially applying the new
standards.
Bank Properties and Equipment - Bank properties and equipment are stated at
cost, less allowances for depreciation. The provision for depreciation is
computed by the straight-line method based on the estimated useful lives of
the assets.
Deferred Loan Fees - Loan fees net of certain direct loan origination costs
are deferred and the balance is recognized into income as a yield adjustment
over the life of the loan using the interest method.
Real Estate Owned - Real estate owned is comprised of property acquired
through foreclosure and is carried at the lower of the related loan balance
or fair value of the acquired property based on an annual appraisal less
estimated cost to dispose. Losses arising from foreclosure transactions are
charged against the allowance for loan losses. Losses subsequent to
foreclosure are charged against operations.
Excess of Cost Over Fair Value of Net Assets Acquired - The excess of cost
over fair value of net assets acquired is net of accumulated amortization of
$2,037,866 and $1,211,165 at December 31, 1996 and 1995, respectively, and is
amortized by the straight-line method over 15 years for bank acquisitions and
over 7 years for branch acquisitions.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include amounts due from banks and federal funds sold.
Income Taxes - The Company accounts for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. Under this method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Also, under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
Earnings Per Share - Earnings per common and common equivalent share is
computed using the weighted average common shares and common equivalent
shares outstanding during the period.
Stock dividend - On September 17, 1996, the Company's Board of Directors
declared a special 5% stock dividend which was paid on October 30, 1996 to
stockholders of record on October 15, 1996. Accordingly, earnings per share
for the years ended December 31, 1995 and 1994 have been restated to reflect
the increased number of shares outstanding.
Accounting for Stock Options - The Company accounts for stock-based
compensation in accordance with the Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees. This method
calculates compensation expense using the intrinsic value method which
recognizes as expense the difference between the market value of the stock
and the exercise price at grant date. The Company has not recognized any
compensation expense under this method. In the year ending December 31, 1996,
the Company adopted the reporting disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation which requires the Company to
disclose the pro forma effects of accounting for stock-based compensation
using the fair value method as described in the accounting requirements of
SFAS No. 123. As permitted by SFAS No. 123, the Company will continue to
account for stock-based compensation under APB Opinion No. 25.
F-7
<PAGE>
Accounting Principles Issued and Not Adopted - In June 1996, the FASB issued
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The statement which is effective for
transactions occurring after December 31, 1996, requires an entity to
recognize, prospectively, the financial and servicing assets it controls and
the liabilities it has incurred, derecognize financial assets when control
has been surrendered, and derecognize liabilities when extinguished. It
requires that servicing assets and other retained interests in transferred
assets be measured by allocating the previous carrying amount between the
asset sold, if any, and retained interest, if any, based on their relative
fair values at the date of transfer. It also provides implementation guidance
for servicing of financial assets, securitizations, loan syndications, and
participations and transfers of receivables with recourse. The Statement
supersedes SFAS No. 122, Accounting for Mortgage Servicing Rights, which was
adopted by the Company on January 1, 1996, and which management of the
Company determined had no material impact on the Company's results of
operations or financial position. In December 1996, the FASB issued SFAS No.
127, Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125. SFAS No. 127 defers for one year the effective date of Statement No.
125 as it relates to transactions involving secured borrowings and collateral
and transfers and servicing of financial assets. This Statement also provides
additional guidance on these types of transactions. Management of the Company
does not believe the Statements will have a material impact on the Company's
results of operations or financial position when adopted.
Reclassifications - Certain reclassifications have been made in the 1995 and
1994 consolidated financial statements to conform to those classifications
used in 1996.
3. ACQUISITIONS
On July 14, 1995, the Bank purchased four branches from NatWest Bank. The
Bank acquired approximately $52,317,000 of deposit liabilities plus $479,000
of accrued interest, $1,755,000 of real estate and equipment, $588,000 of
loans plus related accrued interest and $610,000 in cash. The Bank paid a
premium of approximately $2,082,000, which is being amortized over seven
years.
On November 24, 1995, the Bank purchased four branches from New Jersey
National Bank. The Bank acquired approximately $70,227,000 of deposit
liabilities plus $492,000 of accrued interest, $3,675,000 of real estate and
equipment, $48,000 of loans plus related accrued interest and $1,009,000 in
cash. The Bank paid a premium of approximately $2,368,000, which is being
amortized over seven years.
On June 29, 1994, the Company acquired 100% of the outstanding shares of The
First National Bank of Tuckahoe ("Tuckahoe") for approximately $7,070,000.
The purchase method of accounting was used to record the acquisition. Under
the purchase method of accounting, all assets and liabilities acquired were
adjusted to fair value as of the acquisition date, and the resultant premiums
and discounts are amortized to income over the expected economic lives of the
related assets and liabilities. Excess cost over fair value of assets
acquired resulting from this acquisition amounted to approximately $612,000
and is being amortized over 15 years using the straight-line method.
A summary statement of the cash used to purchase Tuckahoe is set forth below:
Fair value of assets purchased $50,782,529
Liabilities assumed 43,073,874
-----------
Cssh paid 7,708,655
Cash acquired 7,270,791
-----------
Net cash used for purchase $ 437,864
===========
F-8
<PAGE>
On July 29, 1994, the Bank acquired 100% of the outstanding capital stock of
Southern Ocean State Bank ("Ocean") from BMJ Financial Corp., the parent bank
holding company of Ocean for approximately $6,560,000. The purchase method of
accounting was used to record the acquisition. Excess cost over fair value of
assets acquired resulting from the valuations amounted to approximately
$920,000 and is being amortized over 15 years using the straight-line method.
A summary statement of the cash used to purchase Ocean is set forth below:
Fair value of assets purchased $68,357,063
Liabilities assumed 61,511,320
-----------
Cash paid 6,845,743
Cash acquired 1,873,035
-----------
Net cash used for purchase $ 4,972,708
===========
The results of operations of the acquired entities have been included in the
consolidated results of operations from the dates of acquisitions.
4. INVESTMENT SECURITIES
During 1995, in accordance with the implementation of the SFAS No. 115 Guide,
the Company reclassified its portfolio of investment securities as available
for sale. The carrying amounts of investment securities and the approximate
market values at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt Securities
U. S. Treasury Obligations $ 51,954,682 $ 12,086 $ (932,957) $51,033,811
State and Municipal Obligations 20,168,222 28,006 (356,822) 19,839,406
Other bonds 20,075,483 7,635 (239,962) 19,843,156
Mortgage-backed securities 63,061 -- -- 63,061
------------ ----------- ----------- -----------
Total debt securities 92,261,448 47,727 (1,529,741) 90,779,434
------------ ----------- ----------- -----------
Equity Securities
Federal Reserve Bank stock 617,800 617,800
Federal Home Loan Bank stock 4,100,900 4,100,900
Atlantic Central Bankers Bank
stock 83,250 83,250
------------ ----------- ----------- -----------
Total equity securities 4,801,950 - - 4,801,950
------------ ----------- ----------- -----------
Total $ 97,063,398 $ 47,727 $(1,529,741) $95,581,384
============ =========== =========== ===========
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt Securities
U. S. Treasury Obligations $ 41,674,219 $ 245,730 $ (15,461) $ 41,904,488
State and Municipal Obligations 16,666,509 103,281 (28,199) 16,741,591
Other bonds 44,901,919 70,123 (9,342) 44,962,700
Mortgage-backed securities 41,734,347 289,003 (25,483) 41,997,867
-------------- ---------- ----------- ------------
Total debt securities 144,976,994 708,137 (78,485) 145,606,646
-------------- ---------- ----------- ------------
Equity Securities
Federal Reserve Bank stock 533,800 533,800
Federal Home Loan Bank stock 818,200 818,200
Atlantic Central Bankers Bank stock 50,250 50,250
-------------- ---------- ----------- ------------
Total equity securities 1,402,250 - - 1,402,250
-------------- ---------- ----------- ------------
Total $ 146,379,244 $ 708,137 $ (78,485) $147,008,896
============== ========== =========== ============
</TABLE>
During 1996, the Bank sold $144,529,374 of securities available for sale
resulting in a gross gain of $206,538. During 1995, the Bank sold $24,240,439
of securities available for sale resulting in a gross gain of $377,126. There
were no such sales during 1994.
At December 31, 1996 the Bank was required to maintain an average reserve
balance of $3,579,000 with the Federal Reserve Bank.
The maturity schedule of the investment in debt securities available for sale
at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Due in one year or less $ 8,828,772 $ 8,786,619
Due after one year through five years 61,132,578 60,063,074
Due after five years through ten years 15,890,087 15,708,094
Due after ten years 6,346,950 6,158,586
------------- -------------
92,198,387 90,716,373
Mortgage-backed securities 63,061 63,061
------------- -------------
$ 92,261,448 $ 90,779,434
============= =============
</TABLE>
At December 31, 1996, $4,000,000 of U.S. Treasury Notes were pledged to
secure public deposits.
F-10
<PAGE>
5. LOANS
The components of loans as of December 31, 1996 and 1995 were as follows:
1996 1995
Commercial and industrial $ 223,116,474 $ 118,874,150
Real estate-residential mortgages 53,846,436 54,414,800
Installment 21,133,070 12,409,321
------------- -------------
Total gross loans 298,095,980 185,698,271
Allowance for loan losses (2,595,312) (2,064,640)
------------- -------------
Net loans $ 295,500,668 $ 183,633,631
============= =============
Nonaccrual loans $ 1,277,208 $ 2,658,118
============= =============
There were no irrevocable commitments to lend additional funds on nonaccrual
loans at December 31, 1996. The reduction in interest income resulting from
nonaccrual loans was $151,614, $276,955 and $146,308 for the years ended
December 31, 1996, 1995 and 1994, respectively. Interest income recognized on
these loans during the years ended December 31, 1996, 1995 and 1994 was
$15,414, $24,989 and $18,907, respectively.
Certain officers, directors and their associates (related parties) have loans
and conduct other transactions with the Company. Such transactions are made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for other nonrelated party transactions. The
aggregate dollar amount of these loans to related parties as of December 31,
1996, along with an analysis of the activity for 1996, is summarized as
follows:
1996 1995
Balance, beginning of year $ 8,621,460 $ 6,132,256
Additions 7,306,997 4,272,121
Repayments (4,491,323) (1,782,917)
------------ ------------
Balance, end of year $ 11,437,134 $ 8,621,460
============ ============
Under approved lending decisions, the Company has commitments to lend
additional funds totaling approximately $58,635,413 and $67,928,316 at
December 31, 1996 and 1995, respectively. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The type and amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower.
Most of the Bank's business activity is with customers located within its
local market area. Generally, loans granted are secured by commercial real
estate, residential real estate and other assets. The ultimate repayment of
loans is dependent to a certain degree on the local economy and real estate
market.
F-11
<PAGE>
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses is as follows:
1996 1995 1994
Balance, January 1 $ 2,064,640 $ 1,607,375 $ 1,067,402
Charge-offs (400,387) (426,289) (349,439)
Recoveries 31,059 75,894 34,829
----------- ----------- -----------
Net charge-offs (369,328) (350,395) (314,610)
Allowance on acquired loans 0 0 471,912
Provision for loan losses 900,000 807,660 382,671
----------- ----------- -----------
Balance, December 31 $ 2,595,312 $ 2,064,640 $ 1,607,375
=========== =========== ===========
The provision for loan losses charged to expense is based upon past loan and
loss experience and an evaluation of estimated losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect all
amounts due according to the contractual terms of the loan. An insignificant
delay or insignificant shortfall in amount of payments does not necessarily
result in the loan being identified as impaired. For this purpose, delays
less than 90 days are considered to be insignificant. Impairment losses are
included in the provision for loan losses. SFAS Nos. 114 and 118 do not apply
to large groups of smaller balance, homogeneous loans that are collectively
evaluated for impairment, except for those loans restructured under a
troubled debt restructuring. Loans collectively evaluated for impairment
include consumer loans and residential real estate loans, and are not
included in the data that follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Impaired loans with related reserve for
loan losses ($296,307) calculated
under SFAS No. 114 $ 454,489
Impaired loans with no related reserve for
loan losses calculated
under SFAS No. 114 $ 584,114 527,908
------------ ------------
Total impaired loans $ 584,114 $ 982,397
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
Average impaired loans $ 596,519 $ 411,289
================= =================
Interest income recognized on impaired loans $ 18,284 $ 18,561
================= =================
Cash basis interest income recognized on impaired loans $ 15,414 $ 0
================= =================
</TABLE>
Interest payments on impaired loans are typically applied to principal unless
the ability to collect the principal amount is fully assured, in which case
interest is recognized on the cash basis.
Commercial loans and commercial real estate loans are placed on nonaccrual at
the time the loan is 90 days delinquent unless the credit is well secured and
in the process of collection. Generally, commercial loans are charged off no
later than 120 days delinquent unless the loan is well secured and in the
process of collection, or other extenuating circumstances support collection.
Residential real estate loans are typically placed on nonaccrual at the time
the loan is 90 days delinquent. Other consumer loans are typically charged
off at 90 days delinquent. In all cases, loans must be placed on nonaccrual
or charged off at an earlier date if collection of principal or interest is
considered doubtful.
F-12
<PAGE>
7. BANK PROPERTIES AND EQUIPMENT
Bank properties and equipment at December 31 consist of the following major
classifications:
1996 1995
Land $ 3,084,395 $ 2,873,500
Buildings 6,982,449 6,861,123
Leasehold improvements and equipment 3,991,723 3,090,188
------------ ------------
14,058,567 12,824,811
Accumulated depreciation and amortization (1,836,060) (1,405,636)
------------ ------------
Total $ 12,222,507 $ 11,419,175
============ ============
8. REAL ESTATE OWNED
Real estate owned consisted of the following:
December 31,
----------------------
1996 1995
Commercial properties $ 435,765 $ 492,501
Residential properties 360,863 471,801
--------- ---------
796,628 964,302
Allowance (41,000) (88,000)
--------- ---------
Total $ 755,628 $ 876,302
========= =========
During 1996, 1995 and 1994, $0, $78,000 and $120,000, respectively, was
charged against operations to adjust real estate owned for declines in value.
9. DEPOSITS
Deposits consist of the following major classifications:
December 31,
---------------------------
1996 1995
Demand Deposits $133,624,391 $128,802,293
Savings Deposits 63,506,894 66,970,293
Time Certificates under $100,000 151,615,202 116,462,390
Time Certificates $100,000 or more 37,240,418 23,012,820
------------ ------------
Total $385,986,905 $335,247,796
============ ============
F-13
<PAGE>
Of the total demand deposits, approximately $76,500,000 and $62,700,000 are
non-interest bearing at December 31, 1996 and 1995, respectively.
A summary of certificates by year of maturity is as follows:
Year Ended December 31,
1997 $ 169,482,951
1998 12,828,611
1999 4,032,751
Thereafter 2,511,307
--------------------
Total $ 188,855,620
====================
A summary of interest expense on deposits is as follows:
Year Ended December 31,
---------------------------------------
1996 1995 1994
Savings Deposits $ 1,455,043 $ 1,394,849 $ 1,334,432
Time Certificates 9,382,920 5,274,045 1,802,296
Interest-Bearing Checking 1,115,628 971,039 708,025
----------- ----------- -----------
Total $11,953,591 $ 7,639,933 $ 3,844,753
=========== =========== ===========
10. ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWINGS
Federal Home Loan Bank advances at December 31, 1996 and 1995 were
$10,000,000 and $8,000,000, respectively. Advances are collateralized under a
blanket collateral lien agreement. The amounts outstanding at December 31,
1996 and 1995 were borrowed under overnight lines of credit at interest rates
of 7.375% and 5.875%, respectively. Interest expense on advances was $286,316
and $6,733 for the years ended December 31, 1996 and 1995, respectively.
There were no such borrowings during 1994.
At December 30, 1996, the Company obtained a $6,000,000 revolving line of
credit from a correspondant bank with a term of 36 months. The floating rate
of interest is the prime rate plus fifty basis points. At December 31, 1996,
there was $6,000,000 outstanding at an interest rate of 8.75%.
During 1996, the Bank entered into various retail transactions with
securities sold under agreements to repurchase with approved customers. At
December 31, 1996 the total of such repurchase agreements is $5,253,048 with
an average interest rate of 5.01%. Interest expense on repurchase agreements
was $122,788 during 1996.
11. STOCK OPTION PLAN
On April 18, 1995, the Company adopted a Stock Option Plan (the "1995 Plan").
Options granted under the 1995 Plan may be either qualified incentive stock
options or nonqualified options as determined by the Executive Compensation
Committee.
Options granted under the 1995 Plan are at the estimated fair value at the
date of grant and are exercisable at the time of the grant and for 10 years
thereafter. There were 100,000 shares of stock reserved for issuance under
the 1995 Plan.
On May 31, 1985, the Company adopted a Stock Option Plan (the "1985 Plan").
During 1995, options were no longer eligible to be granted under the 1985
Plan. Options granted under the 1985 Plan were either qualified incentive
stock options or nonqualified options as determined by the Executive
Compensation Committee.
F-14
<PAGE>
Options granted under the 1985 Plan were at the estimated fair value at the
date of grant and are exercisable at the time of the grant and until the year
2001. There were 313,826 shares of stock reserved for issuance under the 1985
Plan.
Options granted under the 1995 and 1985 Plans, adjusted for the 5% stock
dividend granted in 1996, are as follows:
<TABLE>
<CAPTION>
Incentive Nonqualified
<S> <C> <C>
Options granted and outstanding:
December 31, 1996 at prices ranging from $7.18 to $16.67 per share 290,722 50,674
=============== ===============
December 31, 1995 at prices ranging from $7.18 to $15.42 per share 186,153 157,087
=============== ===============
December 31, 1994 at prices ranging from $7.18 to $15.42 per share 91,581 201,577
=============== ===============
</TABLE>
Activity in the stock option plans for the three-year period ended December
31, 1996:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number Price Price
of Shares Per Share Per Share
--------- --------------- -----------
<S> <C> <C> <C>
Outstanding at January 1, 1994 295,730 $7.18 - $15.42 $ 8.49
1994:
Exercised (472) $7.18 7.18
Expired (2,100) $12.38 12.38
--------
Outstanding at December 31, 1994 293,158 8.46
1995:
Granted 131,250 $12.38 12.38
Exercised (78,478) $7.18 - $ 9.98 7.71
Expired (2,690) $7.18 - $15.42 13.81
--------
Outstanding at December 31, 1995 343,240 10.12
1996:
Granted 113,925 $16.67 16.67
Exercised (115,303) $7.18 - $ 9.07 8.82
Expired (466) $15.42 15.42
--------
Outstanding at December 31, 1996 341,396 12.73
========
</TABLE>
Under the 1995 Plan, the nonqualified options expire ten years and ten days
after the date of grant, unless terminated earlier under the option terms.
The incentive options expire ten years after the date of grant, unless
terminated earlier under the option terms. Under the 1985 Plan, all options
expire in the year 2001.
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees. This method
calculates compensation expense using the intrinsic value method which
recognizes as expense the difference between the market value of the stock
and the exercise price at grant date. The Company has not recognized any
compensation expense under this method. In the year ending December 31, 1996,
the Company adopted the reporting disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation which requires the Company to
disclose the pro forma effects of accounting for stock-based compensation
using the fair value method as described in the accounting requirements of
SFAS No. 123. As permitted by SFAS No. 123, the Company will continue to
account for stock-based compensation under APB Opinion No. 25.
F-15
<PAGE>
Had compensation cost for the Company's two stock option plans been
determined based on the fair value at the dates of awards under those plans
consistent with the method of SFAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income: As reported $ 3,012,643 $ 2,818,670
Pro forma $ 2,461,089 $ 2,370,020
Net income per common and common equivalent share:
Primary As reported $ 1.58 $ 1.52
Pro forma $ 1.29 $ 1.28
Fully diluted As reported $ 1.56 $ 1.52
Pro forma $ 1.27 $ 1.28
</TABLE>
12. BENEFITS
During 1996, the Company established a 401(k) Savings Plan (the "401(k)
Plan") for all qualified employees. Substantially all employees are eligible
to participate in the 401(k) Plan following completion of one year of service
and attaining age 21. Vesting in the Company's contribution accrues over four
years at 25% each year. Pursuant to the 401(k) Plan, employees can contribute
up to 15% of their compensation to a maximum of $9,500 in 1996. The Company
contributes 50% of the employee contribution, up to 6% of compensation. The
Company's contribution to the 401(k) Plan was $85,722 for the year ended
December 31, 1996. The Company paid $4,861 during 1996 to administer the
401(k) Plan.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, from time to time, may be a defendant in legal proceedings
related to the conduct of its business. Management, after consultation with
legal counsel, believes that the liabilities, if any, arising from such
litigation and claims will not be material to the consolidated financial
statements.
In the normal course of business, the Bank has various commitments and
contingent liabilities, such as customers' letters of credit (including
standby letters of credit of $9,663,853 and $6,196,871 at December 31, 1996
and 1995, respectively), which are not reflected in the accompanying
financial statements. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. In the
judgment of management, the financial position of the Company will not be
affected materially by the final outcome of any contingent liabilities and
commitments.
Office space and branch facilities are leased from a company affiliated with
the chairman under separate agreements with the Company. The leases, which
expire in the year 2012, provide for a combined annual rental of $286,641
with annual increases based on increases in the Consumer Price Index.
In February 1985, the Bank entered into an agreement with a partnership
comprised of directors and shareholders of the Bank to lease an office
building for an initial term of 10 years with three renewal options of five
years each, requiring annual rentals of $96,000 in addition to real estate
taxes during the extension periods. The Bank has exercised its first
five-year renewal option. The Bank subleases a portion of the office
building.
F-16
<PAGE>
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 1996:
1997 $ 455,966
1998 421,371
1999 415,041
2000 327,041
2001 319,041
Thereafter 3,214,623
--------------------
$ 5,153,083
====================
Rental expense included in occupancy expense for all operating leases was
$516,526, $510,285 and $390,157 for 1996, 1995 and 1994, respectively.
14. INCOME TAXES
The income tax provision consists of the following:
1996 1995 1994
Current $ 1,509,401 $ 1,167,398 $ 968,970
Deferred (147,401) (27,398) (193,836)
----------- ----------- -----------
Total $ 1,362,000 $ 1,140,000 $ 775,134
=========== =========== ===========
Items that gave rise to significant portions of the deferred tax accounts at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses $ 590,257 $ 427,997
Deferred loan fees 63,900 89,012
Other real estate 73,344 89,324
Goodwill amortization 72,150 20,358
Unrealized loss on investment securities 503,885
Other 51,274 62,229
----------- -----------
Total deferred tax asset 1,354,810 688,920
Deferred tax liability:
Property (284,275) (269,671)
Unrealized gain on investment securities (214,080)
----------- -----------
Total deferred tax liability (284,275) (483,751)
----------- -----------
Net deferred tax asset $ 1,070,535 $ 205,169
=========== ===========
</TABLE>
The provision for federal income taxes in 1996, 1995 and 1994, differs from
that completed at the statutory rate as follows:
Year Ended December 31,
------------------------------------------
1996 1995 1994
Tax computed at the statutory rate $ 1,487,379 $ 1,345,948 $ 889,028
Increase in charge resulting from:
State tax, net of federal benefit 33,785
Goodwill amortization 57,327 57,160 43,464
Tax exempt interest (net) (340,896) (157,940) (72,009)
Other, net 158,190 (105,168) (119,134)
----------- ----------- -----------
$ 1,362,000 $ 1,140,000 $ 775,134
=========== =========== ===========
F-17
<PAGE>
15. EARNINGS PER SHARE
Earnings per common share and common equivalent share is computed by dividing
the net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. Stock options granted
and outstanding have been considered to be the equivalent of common stock
from the time of issuance. The number of common shares was increased by the
number of common shares that are assumed to have been purchased with the
proceeds from the exercise of the options (treasury stock method); those
purchases were assumed to have been made at the estimated market price of the
common stock, but not to exceed twenty percent of the outstanding shares. The
market price of common shares is based either on an independent valuation of
the Company's shares or on the price received on shares sold on or near the
reporting dates. Retroactive recognition has been given to market values,
common stock and common stock equivalents outstanding for periods prior to
the date of the Company's stock dividend.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Assumptions:
Net income for the period $3,012,643 $2,818,670 $1,839,655
Average common shares outstanding 1,797,900 1,720,295 1,200,503
Dilutive options outstanding to purchase equivalent shares 341,396 343,241 271,779
Average exercise price per share $ 12.73 $ 10.12 $ 8.08
Estimated average market value per common share - for primary computation $ 18.84 $ 16.19 $ 12.38
Estimated period-end market value per common share - for fully diluted computation $ 21.00 $ 16.19 $ 12.38
Computation:
Application of assumed proceeds:
Towards repurchase of outstanding common shares of applicable market value $4,346,654 $3,471,962 $2,196,232
Adjustment of shares outstanding - primary:
Actual average shares 1,797,900 1,720,295 1,200,503
Net additional shares issuable 110,656 128,796 94,391
--------- --------- ---------
Adjusted shares outstanding 1,908,556 1,849,091 1,294,894
========= ========= =========
Adjustment of shares outstanding - fully diluted:
Actual average shares 1,797,900 1,720,295 1,200,503
Net additional shares issuable 134,412 128,796 94,391
--------- --------- ---------
Adjusted shares outstanding 1,932,312 1,849,091 1,294,894
========= ========= =========
Earnings per common and common equivalent share
Primary $ 1.58 $ 1.52 $ 1.42
Fully diluted $ 1.56 $ 1.52 $ 1.42
</TABLE>
16. REGULATORY MATTERS
The ability of the Bank to pay dividends to the Company is controlled by
certain regulatory restrictions. Permission from the Office of the
Comptroller of the Currency ("OCC") is required if the total of dividends
declared in a calendar year exceeds the total of the Bank's net profits, as
defined by the Comptroller, for that year, combined with its retained net
profits of the two preceding years. At December 31, 1996 such amounts are
$7,670,968.
F-18
<PAGE>
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory --and possibly additional discretionary -- actions
by regulators, that, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of capital (as defined in the regulations) to total adjusted
assets (as defined), and of risk-based capital (as defined) to risk-weighted
assets (as defined). Management believes, as of December 31, 1996, that the
Bank meets all applicable capital adequacy requirements.
The most recent notification from the OCC (as of March 31, 1996) categorized
the Bank as adequately capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized, the Bank must
maintain minimum Tier 1 Capital, Total Risk-Based Capital and Leverage Ratios
as set forth in the table. Since the most recent notification from the OCC,
the Bank received additional capital from the Company. As a result,
management believes that the Bank would be considered well-capitalized by the
OCC at December 31, 1996. The Company's tier 1 risk-based capital, total
risk-based capital, and leverage capital are 7.44%, 8.28%, and 5.43% at
December 31, 1996 and 8.67%, 9.64%, and 5.74% at December 31, 1995. The
Bank's actual capital amounts and ratios are also in the table below:
<TABLE>
<CAPTION>
To Be
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996
Tier 1 Risk-Based Capital $ 28,907,862 9.34% $ 12,380,480 8.00% $ 18,570,720 6.00%
Total Risk-Based Capital 31,503,174 10.18% 24,760,960 8.00% 30,951,200 10.00%
Leverage 28,907,862 6.81% 16,974,791 4.00% 21,218,489 5.00%
At December 31, 1995
Tier 1 Risk-Based Capital $ 18,063,305 8.26% $ 8,750,160 4.00% $ 13,125,240 6.00%
Total Risk-Based Capital 20,127,945 9.20% 17,500,320 8.00% 21,875,400 10.00%
Leverage 18,063,305 5.61% 12,869,123 4.00% 16,086,404 5.00%
</TABLE>
Under the framework, an adequately capitalized bank's capital levels will not
allow the Bank to accept brokered deposits without prior approval from
regulators.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, Disclosures
about Fair Value of Financial Instruments. The estimated fair value amounts
have been determined by the Bank using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
F-19
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31,1995
-----------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 21,806,758 $ 21,806,758 $ 17,242,366 $ 17,242,366
Investment securities 95,581,384 95,581,384 147,008,896 147,008,896
Loans receivable 295,500,668 293,777,592 183,633,631 187,037,088
Liabilities:
Demand deposits 133,624,391 133,624,391 128,802,293 128,802,293
Savings deposits 63,506,894 63,506,894 66,970,293 66,970,293
Certificates of deposit 188,855,620 191,448,487 139,475,210 140,877,573
Federal Home Loan Bank 10,000,000 10,000,000 8,000,000 8,000,000
Advances
Loan payable 6,000,000 6,000,000 0 0
Repurchase agreements 5,253,048 5,253,048 0 0
</TABLE>
Cash and cash equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment securities - For investment securities, fair values are based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services.
Loans receivable - The fair value was estimated by discounting approximate
cash flows of the portfolio to achieve a current market yield.
Demand deposits, savings deposits, certificates of deposit and advances from
the Federal Home Loan Bank - The fair value of demand deposits, savings
deposits and advances from the Federal Home Loan Bank is the amount payable
on demand at the reporting date. The fair value of certificates of deposit is
estimated using rates currently offered for deposits and advances of similar
remaining maturities.
Loan payable - The fair value of the loan payable is estimated to be the
amount outstanding at the reporting date. The interest rate on the loan
adjusts with changes in the prime lending rate.
Repurchase agreements - Securities sold under agreements to repurchase are
overnight transactions, therefore the carrying amount is a reasonable
estimate of fair value.
Commitments to extend credit and letters of credit - The majority of the
Bank's commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend
credit and letters of credit are generally unassignable by either the Bank or
the borrower, they only have value to the Bank and the borrower. The
estimated fair value approximates the recorded deferred fee amounts, which
are not significant.
No adjustment was made to the entry-value interest rates for changes in
credit performing commercial loans and real estate loans for which there are
no known credit concerns. Management segregates loans in appropriate risk
categories. Management believes that the risk factor embedded in the entry-
value interest rates along with the general reserves applicable to the
performing commercial and real estate loan portfolios for which there are no
known credit concerns result in a fair valuation of such loans on an
entry-value basis.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated
fair value amounts, such amounts have not been comprehensively revalued for
purposes of these consolidated financial statements since December 31, 1996
and 1995, and therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-20
<PAGE>
18. INTEREST RATE RISK
The Company's exposure to interest rate risk results from the difference in
maturities on interest-bearing liabilities and interest-earning assets and
the volatility of interest rates. Because the Company's assets have a shorter
maturity than its liabilities, the Company's earnings will tend to be
negatively affected during periods of declining interest rates. Conversely,
this mismatch should benefit the Company during periods of rising interest
rates. Management monitors the relationship between the interest rate
sensitivity of the Company's assets and liabilities.
19. PENDING ACQUISITION (UNAUDITED)
On December 19, 1996, the Bank entered into a purchase and assumption
agreement with First Union National Bank ("First Union"), whereby the Bank
will assume certain deposits liabilities of four branch offices from First
Union. At December 31, 1996, the branches had deposits of approximately $73
million. In addition, the Bank will acquire approximately $2.5 million of
loans as well as property and equipment pertaining to the branches. The Bank
has agreed to pay First Union a premium of approximately $5.9 million. The
transaction is expected to be completed in the second quarter of 1997. The
agreement is subject to regulatory approval.
20. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Condensed Statements of Financial Condition December 31,
------------------------------
1996 1995
Assets
Cash $ 27,187 $ 159,205
Investments in subsidiaries 33,294,851 24,463,659
Office property and equipment 9,756
Accrued interest and other assets 95,417 38,176
------------ ------------
Total $ 33,417,455 $ 24,670,796
============ ============
Liabilities and Shareholders' Equity
Loans Payable $ 6,000,000
Accrued interest payable 2,879
Shareholders' Equity 27,414,576 $ 24,670,796
------------ ------------
Total $ 33,417,455 $ 24,670,796
============ ============
<TABLE>
<CAPTION>
Condensed Statements of Income Years Ended December 31,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net interest (expense) $ (1,888) $ (27,045)
Other income 15,909 $ 12,278 7,200
Expenses (16,271) (27,025) (8,090
------------ ------------ ------------
(Loss) before equity in undistributed
income of subsidiaries and income tax expense (2,250) (14,747) (27,935)
Equity in undistributed income of subsidiaries 3,014,893 2,833,417 1,877,590
Income tax expense (10,000)
------------ ------------ ------------
Net income $ 3,012,643 $ 2,818,670 $ 1,839,655
============ ============ ============
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Year Ended December 31,
---------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $ 3,012,643 $ 2,818,670 $ 1,839,655
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 9,756 8,360 4,486
Undistributed income of subsidiaries (3,014,893) (2,833,417) (1,877,590)
Tax benefit from exercise of non-qualified stock options (net) (110,000)
Changes in assets and liabilities which provided (used) cash:
Accrued interest and other assets (57,241) 9,665 (9,701)
Accounts payable and accrued expenses 2,879
------------- ------------- -------------
Net cash provided by (used in) operating activities (156,856) 3,278 (43,150)
------------- ------------- -------------
Investing activities:
Proceeds from maturities of investment securities 2,000,000
Purchase price of acquisitions, net of cash received (7,801,950)
Exercise of stock options 1,126,984 605,358 3,393
Payment for fractional interest resulting from stock dividend (2,146)
Purchase of bank properties and equipment (20,904)
Dividend from subsidiary 1,400,000
Advances to subsidiary (7,100,000) (1,700,000) (1,200,000)
------------- ------------- -------------
Net cash used in investing activities (5,975,162) (1,094,642) (5,619,461)
------------- ------------- -------------
Financing activities:
Net borrowings under line of credit agreement 6,000,000 4,500,000
Repayments of short-term borrowings (4,500,000)
Proceeds from issuance of common stock 260,000 6,421,877
------------- ------------- -------------
Net cash provided by financing activities 6,000,000 260,000 6,421,877
------------- ------------- -------------
(Decrease) increase in cash (132,018) (831,364) 759,266
Cash, beginning of year 159,205 990,569 231,303
------------- ------------- -------------
Cash, end of year $ 27,187 $ 159,205 $ 990,569
============== ============= =============
</TABLE>
21. SUBSEQUENT EVENT
In February 1997, the Company intends to create a special purpose subsidiary
to issue approximately $25 million of trust preferred securities. The
proceeds from the sale of these securities are intended to purchase junior
subordinated notes issued by the Company. The proceeds received by the
Company from the sale of the junior subordinated notes are expected to be
used to increase its capital to support recent and pending acquisitions and
for other general corporate purposes.
F-22
<PAGE>
- -------------------------------------------------------------------------------
No Person has been authorized in
connection with the offering made
hereby to give any information or to
make any representation not contained
in this prospectus and, if given or made,
such information or representation must
not be relied upon as having been authorized
by the company or any underwriter. This
prospectus does not constitute an offer to [Logo]
sell or a solicitation of any offer to buy
any of the securities offered hereby to $25,000,000
any person or by anyone in any jurisdiction
in which it is unlawful to make such offer or
solicitation. Neither the delivery of this SUN CAPITAL TRUST
prospectus nor any sale made hereunder shall,
under any circumstances, create any implication
that the information contained herein is correct ___% Preferred Securities
as of any date subsequent to the date hereof. (Liquidation Amount $25 per
Preferred Security)
guaranteed, as described
herein, by
TABLE OF CONTENTS
PAGE SUN BANCORP, INC.
Summary..................................
Selected Consolidated Financial Data......
and Other Information................ -------------------
Risk Factors.............................. PROSPECTUS
Sun Capital Trust..................... -------------------
Use of Proceeds.......................
First Union Branch Purchase..............
Capitalization........................
Accounting Treatment.................. Advest, Inc.
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business of the Company............... __________ ____, 1997
Management............................
Supervision and Regulation............
Description of Preferred Securities...
Description of Junior Subordinated
Debentures..........................
Description of Guarantee..............
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee........
Certain Federal Income Tax
Consequences........................
Certain ERISA Considerations..........
Underwriting..........................
Validity of Securities................
Experts...............................
Available Information.................
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
* Registration Fees........................................... $ 8,700
* Legal Services.............................................. 175,000
* Printing and Engraving...................................... 90,000
* Nasdaq Listing Fees......................................... 10,600
* Accounting Fees............................................. 75,000
* Trustee Fees and Expenses................................... 20,000
* Blue Sky Fees and Expenses.................................. 5,000
* Miscellaneous............................................... 15,700
----------
* TOTAL....................................................... $ 400,000
==========
Item 14. Indemnification of Directors and Officers.
Section 14A:3-5 of the New Jersey Business Corporation Law ("BCL")
provides that an officer, director, employee or agent may be indemnified by the
Company from and against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with threatened, pending
or contemplated "proceedings" (including civil, criminal, administrative,
arbitrative action or investigative proceedings) in which such person is
involved by reason of such person's position with the Company, provided that a
determination has been made (by a majority vote of a quorum consisting of
directors who were not parties to such proceeding, or if such a quorum is not
obtainable, by independent legal counsel in a written opinion, or by the
stockholders) that such person acted in good faith and in a manner that such
person reasonably believes to be in, or not opposed to, the best interests of
the Company. Such person may not be indemnified if the person has been adjudged
liable for negligence or misconduct in the performance of such person's duty to
the Company unless the court otherwise determines.
Provisions regarding indemnification of directors, officers, employees or
agents of the Company are contained in Article Eighth of the Company's
Certificate of Incorporation.
Under a directors' and officers' liability insurance policy, directors and
officers of the Company are insured against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Set forth below is certain information concerning all sales of securities
by the Company during the past three years that were not registered under the
Securities Act of 1933.
On September 30, 1994, the Company issued 538,462 shares of common stock
to private and institutional investors for consideration of $13.00 per share and
an aggregate consideration of $7 million less $245,000 of commissions paid to
M.A. Schapiro & Co., Inc., the principal underwriter.
On March 24, 1995 the Company issued 20,000 shares of common stock to
Philip W. Koebig, III, for consideration of $13.00 per share and an aggregate
consideration of $260,000.
The above-described issuances of common stock were exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
as each such issuance did not involve a public offering.
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits:
1.1 Form of Underwriting Agreement. **
3.1 Articles of Incorporation of Sun Bancorp, Inc. *
3.2 Bylaws of Sun Bancorp, Inc. *
4.1 Form of Junior Subordinated Indenture.
4.2 Form of Junior Subordinated Debenture Certificate (included in
Exhibit 4.1).
4.3 Form of Trust Agreement.
4.4 Form of Amended and Restated Trust Agreement.
4.5 Form of Preferred Security (included in Exhibit 4.4).
4.6 Form of Guarantee.
5.1 Opinion of Richards, Layton & Finger.**
5.2 Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.**
8.1 Tax opinion of Malizia, Spidi, Sloane, & Fisch, P.C.**
10.1 Employment Agreement with Adolph F. Calovi. **
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.1).
23.3 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included in
Exhibit 5.2).
25.1 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bankers Trust Company, as trustee under the
Junior Subordinated Indenture, the Amended and Restated Trust
Agreement and the Guarantee Agreement relating to Sun Capital
Trust. **
27.1 Financial Data Schedule. ****
<PAGE>
(b) Financial Statements Schedules***
* Incorporated by reference to the registrant's Registration Statement on
Form 10, file no. 0-20957.
** To be filed by amendment
*** All schedules are omitted because they are not required or applicable or
the required information is shown in the financial statements or the notes
thereto.
**** Electronic filing only.
Item 17. Undertakings
Each of the undersigned Registrants hereby undertake:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrants
of expenses incurred or paid by a director, officer or controlling person of the
registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants have duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Vineland, New Jersey,
as of February 13, 1997.
SUN BANCORP, INC.
By: /s/Adolph F. Calovi
---------------------------------------
Adolph F. Calovi
President
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of February 13, 1997.
/s/Adolph F. Calovi /s/Bernard A. Brown
- ---------------------------------- --------------------------------------
Adolph F. Calovi Bernard A. Brown
President Chairman of the Board
(Principal Executive Officer)
/s/Sidney R. Brown /s/Philip W. Koebig, III
- ---------------------------------- --------------------------------------
Sidney R. Brown Philip W. Koebig, III
Treasurer and Director Executive Vice President and Director
/s/Peter Galetto, Jr. /s/Anne E. Koons
- ---------------------------------- --------------------------------------
Peter Galetto, Jr. Anne E. Koons
Secretary and Director Director
/s/Robert F. Mack
- ----------------------------------
Robert F.Mack
Vice President and Controller
(Principal Financial
and Accounting Officer)
<PAGE>
As filed with the Securities and Exchange Commission on February 14, 1997
Registration Nos. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
EXHIBITS TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
SUN CAPITAL TRUST
SUN BANCORP, INC.
------------------------
(Exact Name of Registrants as Specified in their Charters)
Delaware Requested
New Jersey 6035 52-1382541
- ------------------------------ ---------------------------- --------------------
(States or Other Jurisdictions (Primary Standard Industry (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Nos.)
Organization)
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
Mr. Adolph F. Calovi
President
Sun Bancorp, Inc.
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq. Steven L. Kaplan Esq.
Lloyd H. Spencer III, Esq. ARNOLD & PORTER
Felicia C. Battista, Esq. 555 Twelfth Street, N.W.
MALIZIA, SPIDI, SLOANE & FISCH, P.C. Washington, D.C. 20004
1301 K Street, N.W., Suite 700 East,
Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM S-1
1.1 Form of Underwriting Agreement. **
3.1 Articles of Incorporation of Sun Bancorp, Inc. *
3.2 Bylaws of Sun Bancorp, Inc. *
4.1 Form of Junior Subordinated Indenture.
4.2 Form of Junior Subordinated Debenture Certificate (included in
Exhibit 4.1).
4.3 Form of Trust Agreement.
4.4 Form of Amended and Restated Trust Agreement.
4.5 Form of Preferred Security (included in Exhibit 4.4).
4.6 Form of Guarantee.
5.1 Opinion of Richards, Layton & Finger.**
5.2 Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.**
8.1 Tax of opinion Malizia, Spidi, Sloane, & Fisch, P.C.**
10.1 Employment Agreement with Adolph F. Calovi. **
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.1).
23.3 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included in
Exhibit 5.2).
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of Bankers Trust Company, as trustee under the Junior
Subordinated Indenture, the Amended and Restated Trust Agreement
and the Guarantee Agreement relating to Sun Capital Trust. **
Financial Data Schedule. ***
- ---------------------
* Incorporated by reference to the registrant's Registration Statement
on Form 10, file no. 0-20957.
** To be filed by amendment.
*** Electronic filing only.
EXHIBIT 4.1
<PAGE>
================================================================================
JUNIOR SUBORDINATED INDENTURE
Between
SUN BANCORP, INC.
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
____________, 1997
================================================================================
<PAGE>
SUN CAPITAL TRUST
Certain Sections of this Junior Subordinated Indenture relating
to Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Junior Subordinated
Act Section Indenture Section
Section 310(a)(1).................................. 6.9
(a)(2)............................... 6.9
(a)(3)............................... Not Applicable
(a)(4)............................... Not Applicable
(a)(5)............................... 6.9
(b).................................. 6.8, 6.10
Section 311(a)..................................... 6.13
(b).................................. 6.13
(b)(2)............................... 7.3(a)
Section 312(a)..................................... 7.1, 7.2(a)
(b).................................. 7.2(b)
(c).................................. 7.2(c)
Section 313(a)..................................... 7.3(a)
(a)(4)............................... 7.3(a)
(b).................................. 7.3(b)
(c).................................. 7.3(a)
(d).................................. 7.3(c)
Section 314(a)..................................... 7.4
(b).................................. 7.4
(c)(1)............................... 1.2
(c)(2)............................... 1.2
(c)(3)............................... Not Applicable
(e).................................. 1.2
Section 315(a)..................................... 6.1(a)
(b).................................. 6.2, 7.3
(c).................................. 6.1(b)
(d).................................. 6.1(c)
(e).................................. 5.14
Section 316(a)..................................... 5.12
(a)(1)(A)............................ 5.12
(a)(1)(B)............................ 5.13
(a)(2)............................... Not Applicable
(b).................................. 5.8
(c).................................. 1.4(f)
Section 317(a)(1).................................. 5.3
(a)(2)............................... 5.4
(b).................................. 10.3
Section 318(a)..................................... 1.7
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION............................... 1
SECTION 1.1. Definitions....................................... 1
SECTION 1.2. Compliance Certificate and Opinions............... 10
SECTION 1.3. Forms of Documents Delivered to Trustee........... 10
SECTION 1.4. Acts of Holders................................... 11
SECTION 1.5. Notices, Etc. to Trustee and Company.............. 13
SECTION 1.6. Notice to Holders; Waiver......................... 13
SECTION 1.7. Conflict with Trust Indenture Act................. 13
SECTION 1.8. Effect of Headings and Table of Contents.......... 14
SECTION 1.9. Successors and Assigns............................ 14
SECTION 1.10. Separability Clause............................... 14
SECTION 1.11. Benefits of Indenture............................. 14
SECTION 1.12. Governing Law..................................... 14
SECTION 1.13. Non-Business Days................................. 14
ARTICLE II. SECURITY FORMS.................................... 15
SECTION 2.1. Forms Generally................................... 15
SECTION 2.2. Form of Face of Security.......................... 16
SECTION 2.3. Form of Reverse of Security....................... 19
SECTION 2.4. Additional Provisions Required in Global
Security.......................................... 22
SECTION 2.5. Form of Trustee's Certificate of Authentication... 22
ARTICLE III. THE SECURITIES.................................... 23
SECTION 3.1. Title and Terms................................... 23
SECTION 3.2. Denominations..................................... 23
SECTION 3.3. Execution, Authentication, Delivery
and Dating........................................ 23
SECTION 3.4. Temporary Securities.............................. 25
SECTION 3.5. Global Securities................................. 25
SECTION 3.6. Registration, Transfer and Exchange
Generally; Certain Transfers and
Exchanges; Securities Act Legends................. 26
SECTION 3.7. Mutilated, Lost and Stolen Securities............. 28
SECTION 3.8. Payment of Interest and Additional
Interest; Interest Rights Preserved............... 28
SECTION 3.9. Persons Deemed Owners............................. 30
SECTION 3.10. Cancellation...................................... 30
SECTION 3.11. Computation of Interest........................... 30
SECTION 3.12. Deferrals of Interest Payment Dates............... 30
SECTION 3.13. Right of Set-Off.................................. 32
SECTION 3.14. Agreed Tax Treatment.............................. 32
SECTION 3.15. CUSIP Numbers..................................... 32
- i -
<PAGE>
ARTICLE IV. SATISFACTION AND DISCHARGE........................ 32
SECTION 4.1. Satisfaction and Discharge of Indenture........... 32
SECTION 4.2. Application of Trust Money........................ 33
ARTICLE V. REMEDIES.......................................... 34
SECTION 5.1. Events of Default................................. 34
SECTION 5.2. Acceleration of Maturity; Rescission
and Annulment..................................... 34
SECTION 5.3. Collection of Indebtedness and Suits
for Enforcement by Trustee........................ 36
SECTION 5.4. Trustee May File Proofs of Claim.................. 36
SECTION 5.5. Trustee May Enforce Claim Without
Possession of Securities.......................... 37
SECTION 5.6. Application of Money Collected.................... 37
SECTION 5.7. Limitation on Suits............................... 38
SECTION 5.8. Unconditional Right of Holders to
Receive Principal, Premium and
Interest; Direct Action by Holders
of Preferred Securities........................... 38
SECTION 5.9. Restoration of Rights and Remedies................ 39
SECTION 5.10. Rights and Remedies Cumulative.................... 39
SECTION 5.11. Delay or Omission Not Waiver...................... 39
SECTION 5.12. Control by Holders................................ 39
SECTION 5.13. Waiver of Past Defaults........................... 40
SECTION 5.14. Undertaking for Costs............................. 40
SECTION 5.15. Waiver of Usury, Stay or Extension Laws........... 41
ARTICLE VI. THE TRUSTEE....................................... 41
SECTION 6.1. Certain Duties and Responsibilities............... 41
SECTION 6.2. Notice of Defaults................................ 42
SECTION 6.3. Certain Rights of Trustee......................... 42
SECTION 6.4. Not Responsible for Recitals or
Issuance of Securities............................ 43
SECTION 6.5. May Hold Securities............................... 43
SECTION 6.6. Money Held in Trust............................... 44
SECTION 6.7. Compensation and Reimbursements................... 44
SECTION 6.8. Disqualification; Conflicting
Interests......................................... 45
SECTION 6.9. Corporate Trustee Required;
Eligibility....................................... 45
- ii -
<PAGE>
SECTION 6.10. Resignation and Removal; Appointment
of Successor...................................... 45
SECTION 6.11. Acceptance of Appointment by
Successor......................................... 47
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business............................ 47
SECTION 6.13. Preferential Collection of Claims Against
Company........................................... 47
SECTION 6.14. Appointment of Authenticating Agent............... 47
ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY.......................... 49
SECTION 7.1. Company to Furnish Trustee Names and
Addresses of Holders.............................. 49
SECTION 7.2. Preservation of Information,
Communications to Holders ........................ 49
SECTION 7.3. Reports by Trustee and Paying Agent............... 50
SECTION 7.4. Reports by Company................................ 50
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE................................. 51
SECTION 8.1. Company May Consolidate, Etc., Only
on Certain Terms.................................. 51
SECTION 8.2. Successor Company Substituted..................... 51
ARTICLE IX. SUPPLEMENTAL INDENTURES........................... 52
SECTION 9.1. Supplemental Indentures Without Consent
of Holders........................................ 52
SECTION 9.2. Supplemental Indentures With Consent of
Holders........................................... 53
SECTION 9.3. Execution of Supplemental Indentures.............. 54
SECTION 9.4. Effect of Supplemental Indentures................. 54
SECTION 9.5. Conformity with Trust Indenture Act............... 54
SECTION 9.6. Reference in Securities to Supplemental
Indentures........................................ 54
ARTICLE X. COVENANTS......................................... 55
SECTION 10.1. Payment of Principal, Premium and Interest........ 55
SECTION 10.2. Maintenance of Office or Agency................... 55
SECTION 10.3. Money for Security Payments to be Held in
Trust............................................. 55
SECTION 10.4. Statement as to Compliance........................ 57
SECTION 10.5. Waiver of Certain Covenants....................... 57
- iii -
<PAGE>
SECTION 10.6. Additional Sums................................... 57
SECTION 10.7. Additional Covenants.............................. 58
SECTION 10.8. Original Issue Discount........................... 59
ARTICLE XI. REDEMPTION OF SECURITIES.......................... 59
SECTION 11.1. Applicability of This Article..................... 59
SECTION 11.2. Election to Redeem; Notice to Trustee............. 59
SECTION 11.3. Selection of Securities to be Redeemed............ 59
SECTION 11.4. Notice of Redemption.............................. 60
SECTION 11.5. Deposit of Redemption Price....................... 61
SECTION 11.6. Payment of Securities Called for
Redemption........................................ 61
SECTION 11.7. Right of Redemption of Securities
Initially Issued to the Issuer Trust.............. 61
ARTICLE XII. SINKING FUNDS..................................... 62
ARTICLE XIII. SUBORDINATION OF SECURITIES....................... 62
SECTION 13.1. Securities Subordinate to Senior
Indebtedness...................................... 62
SECTION 13.2. No Payment When Senior Indebtedness
in Default; Payment Over of Proceeds
Upon Dissolution, Etc............................. 62
SECTION 13.3 Payment Permitted If No Default................... 63
SECTION 13.4. Subrogation to Rights of Holders of
Senior Indebtedness............................... 64
SECTION 13.5. Provisions Solely to Define Relative
Rights............................................ 64
SECTION 13.6. Trustee to Effectuate Subordination............... 64
SECTION 13.7. No Waiver of Subordination Provisions............. 65
SECTION 13.8. Notice to Trustee................................. 65
SECTION 13.9. Reliance on Judicial Order or
Certificate of Liquidating Agent.................. 66
SECTION 13.10. Trustee Not Fiduciary for Holders of
Senior Indebtedness............................... 66
SECTION 13.11. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's
Rights............................................ 66
SECTION 13.12. Article Applicable to Paying Agents............... 66
SECTION 13.13. Certain Conversions or Exchanges
Deemed Payment.................................... 67
<PAGE>
JUNIOR SUBORDINATED INDENTURE
THIS JUNIOR SUBORDINATED INDENTURE, dated as of ____________, 1997, between
SUN BANCORP, INC., a New Jersey Corporation (the "Company"), having its
principal office at 226 Landis Avenue, Vineland, New Jersey 08360, and BANKERS
TRUST COMPANY, as Trustee, having its principal office at Four Albany Street,
4th Floor, New York, New York 10006 (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its unsecured junior subordinated
debentures due ____________, 2027 (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including Securities issued to
evidence loans made to the Company from the proceeds from the issuance from time
to time by Sun Capital Trust, a Delaware business trust (the "Issuer Trust") of
undivided preferred beneficial interests in the assets of such Issuer Trust (the
"Preferred Securities") and common undivided interests in the assets of such
Issuer Trust (the "Common Securities" and, collectively with the Preferred
Securities, the "Trust Securities"), and to provide the terms and conditions
upon which the Securities are to be authenticated, issued and delivered; and
WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders (as such term is defined in Section 1.1 hereof) thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, and intending to be legally
bound hereby, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation";
<PAGE>
- 2 -
(4) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect at the time of computation;
(5) Whenever the context may require, any gender shall be deemed to include
the other;
(6) Unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this
Indenture; and
(7) The words "hereby", "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.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities like the Trust
Securities will qualify as Tier 1 capital of the issuer up to an amount not to
exceed 25% of the Issuer's Tier 1 capital, or any subsequent limitation adopted
by the Federal Reserve.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities of any series the payment of which has not been made
on the applicable Interest Payment Date and which shall accrue at the rate per
annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject from time to
time as a result of a Tax Event.
"Administrator" means, in respect of the Issuer Trust, each Person
appointed in accordance with the Trust Agreement, solely in such Person's
capacity as Administrator of the Issuer Trust and not in such Person's
individual capacity, or any successor Administrator appointed as therein
provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
<PAGE>
- 3 -
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depositary for such Global Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means the board of directors of the Company or the
Executive Committee of the board of directors of the Company (or any other
committee of the board of directors of the Company performing similar functions)
or, for purposes of this Indenture, a committee designated by the board of
directors of the Company (or such committee), comprised of two or more members
of the board of directors of the Company or officers of the Company, or both.
"Board Resolution" means a copy of a resolution certified by the Secretary
or any Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, or such committee of the Board of Directors or officers of the
Company to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the State of New Jersey or the City of New
York are authorized or required by law or executive order to remain closed, or
(iii) day on which the Corporate Trust Office of the Trustee, or, with respect
to the Securities initially issued to the Issuer Trust, the "Corporate Trust
Office" (as defined in the Trust Agreement) of the Property Trustee or the
Delaware Trustee under the Trust Agreement, is closed for business.
"Capital Treatment Event" means, in respect of the Issuer Trust, the
reasonable determination by the Company that, as a result of the occurrence of
any amendment to, or change (including any announced prospective change) in, the
laws (or any rules or regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of the
issuance of the Preferred Securities of the Issuer Trust, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount (as such term is defined in the Trust Agreement)
of such Preferred Securities as "Tier 1 Capital" (or the then equivalent
thereof), except as otherwise restricted under the 25% Capital Limitation, for
purposes of the risk-based capital adequacy guidelines of the Board of Governors
of the Federal Reserve System, as then in effect and applicable to the Company.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this
Indenture.
<PAGE>
- 4 -
"Common Stock" means the common stock, par value $1.00 per share, of the
Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor entity shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor entity.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by any Chairman of the Board
of Directors, any Vice Chairman of the Board of Directors, its President or a
Vice President, and by its Chief Financial Officer, its Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered.
"Creditor" has the meaning specified in Section 6.7.
"Defaulted Interest" has the meaning specified in Section 3.8.
"Delaware Trustee" means, with respect to the Issuer Trust, the Person
identified as the "Delaware Trustee" in the Trust Agreement, solely in its
capacity as Delaware Trustee of the Issuer Trust under the Trust Agreement and
not in its individual capacity, or its successor in interest in such capacity,
or any successor Delaware trustee appointed as therein provided.
"Depositary" means, with respect to the Securities issuable or issued in
whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to Section 3.1 (or any
successor thereto).
"Discount Security" means any security that provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Dollar" or "$" means the currency of the United States of America that, as
at the time of payment, is legal tender for the payment of public and private
debts.
The term "entity" includes a bank, corporation, association, company,
limited liability company, joint-stock company or business trust.
"Event of Default," has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4.
"Extension Period" has the meaning specified in Section 3.12.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of the Securities, issued to the Depositary or its
nominee, and registered in the name of such Depositary or its nominee.
<PAGE>
- 5 -
"Guarantee" means, with respect to the Issuer Trust, the Guarantee
Agreement, dated __________, 1997, executed by the Company for the benefit of
the Holders of the Preferred Securities issued by the Issuer Trust as modified,
amended or supplemented from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on such Securities.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel (as defined in the Trust Agreement) experienced in such
matters to the effect that, as a result of the occurrence of a change in law or
regulation or a written change (including any announced prospective change) in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act,
which change or prospective change becomes effective or would become effective,
as the case may be, on or after the date of the issuance of the Preferred
Securities of the Issuer Trust.
"Issuer Trust" has the meaning specified in the first recital of this
Indenture.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in Section
5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or any Vice President, and by
the Chief Financial Officer, the Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee; provided, however, that
the Officers' Certificate delivered pursuant to the provisions of Section 10.4
hereof shall comply with the provisions of Section 314 of the Trust Indenture
Act.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for or an employee of the Company or any Affiliate of the Company.
"Original Issue Date" means the date of issuance specified as such in each
Security.
"Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
<PAGE>
- 6 -
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
in trust for the Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which
other Securities have been authenticated and delivered or that have been
paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is
presented that any such Securities are held by Holders in whose hands such
Securities are valid, binding and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities
owned by the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor (other than, for the
avoidance of doubt, the Issuer Trust to which Securities of the applicable
series were initially issued) shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities that the Trustee
knows to be so owned shall be so disregarded. Securities so owned that have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Securities and that the pledgee is not the Company
or any other obligor upon the Securities or any Affiliate of the Company or
such other obligor (other than, for the avoidance of doubt, the Issuer
Trust). Upon the written request of the Trustee, the Company shall furnish
to the Trustee promptly an Officers' Certificate listing and identifying
all Securities, if any, known by the Company to be owned or held by or for
the account of the Company, or any other obligor on the Securities or any
Affiliate of the Company or such obligor (other than, for the avoidance of
doubt, the Issuer Trust), and, subject to the provisions of Section 6.1,
the Trustee shall be entitled to accept such Officers' Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Securities not listed therein are Outstanding for the purpose of any such
determination.
"Paying Agent" means the Trustee or any Person authorized by the Company to
pay the principal of (or premium, if any) or interest on, or other amounts in
respect of any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means, with respect to the Securities, the place or
places where the principal of (and premium, if any) and interest on the
Securities are payable pursuant to Section 3.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security. For the purposes of this definition, any security
authenticated and delivered under Section 3.7 in lieu of a mutilated, destroyed,
lost or stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the first recital of
this Indenture.
<PAGE>
- 7 -
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, with respect to the Issuer Trust, the Person
identified as the "Property Trustee" in the Trust Agreement, solely in its
capacity as Property Trustee of the Issuer Trust under the Trust Agreement and
not in its individual capacity, or its successor in interest in such capacity,
or any successor property trustee appointed as therein provided.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture or the
terms of such Security.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities means, unless otherwise provided pursuant to
Section 3.1 with respect to the Securities, the close of business on March 15,
June 15, September 15 or December 15 next preceding such Interest Payment Date
(whether or not a Business Day).
"Responsible Officer", when used with respect to the Property Trustee means
any officer assigned to the Corporate Trust Office, including any managing
director, vice president, assistant vice president, assistant treasurer,
assistant secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
having direct responsibility for the administration of this Indenture, and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Security" means each Security required pursuant to Section
3.6(c) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex A.
"Restricted Securities Legend" means a legend substantially in the form of
the legend required in the form of Security set forth in Section 2.2 to be
placed upon a Restricted Security.
"Rights Plan" means any plan of the Company providing for the issuance by
the Company to all holders of its Common Stock, par value $1.00 per share, of
rights entitling the holders thereof to subscribe for or purchase shares of any
class or series of capital stock of the Company which rights (i) are deemed to
be transferred with such shares of such Common Stock, (ii) are not exercisable,
and (iii) are also issued in respect of future issuances of such Common Stock,
in each case until the occurrence of a specified event or events.
"Securities" or "Security" means any debt securities or debt security, as
the case may be, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as modified, amended or
supplemented from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.6.
<PAGE>
- 8 -
"Senior Indebtedness" means, whether recourse is to all or a portion of the
assets of the Company and whether or not contingent, (i) every obligation of the
Company for money borrowed; (ii) every obligation of the Company evidenced by
bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property of services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) every obligation of the Company
for claims (as defined in Section 101(4) of the United States Bankruptcy Code of
1978, as amended) in respect of derivative products such as interest and foreign
exchange rate contracts, commodity contracts and similar arrangements; and (vii)
every obligation of the type referred to in clauses (i) through (vi) of another
person and all dividends of another person the payment of which, in either case,
the Company has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise; provided that "Senior Indebtedness" shall not include
(i) any obligations which, by their terms, are expressly stated to rank pari
passu in right of payment with, or to not be superior in right of payment to,
the Junior Subordinated Debentures, (ii) any Senior Indebtedness of the Company
which when incurred and without respect to any election under Section 1111(b) of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Company, (iii) any Senior Indebtedness of the Company to any of its
subsidiaries, (iv) Senior Indebtedness to any executive officer or director of
the Company, or (v) any indebtedness in respect of debt securities issued to any
trust, or a trustee of such trust, partnership or other entity affiliated with
the Company that is a financing entity of the Company in connection with the
issuance of such financing entity of securities that are similar to the
Preferred Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
pursuant to the terms of such Security as the fixed date on which the principal
of such Security or such installment of principal or interest is due and
payable, as such date may, in the case of such principal, be shortened or
extended as provided pursuant to the terms of such Security and this Indenture.
"Subsidiary" means an entity more than 50% of the outstanding voting stock
of which is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries, or by the Company and one or more other Subsidiaries. For
purposes of this definition, "voting stock" means stock that ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.7 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of Counsel
(as defined in the Trust Agreement) experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official or administrative pronouncement or action or
judicial decision interpreting or applying
<PAGE>
- 9 -
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities of the Issuer Trust, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such Opinion of Counsel, subject to United States federal income tax with
respect to income received or accrued on the corresponding series of Securities
issued by the Company to the Issuer Trust, (ii) interest payable by the Company
on the Securities is not, or within 90 days of the delivery of such Opinion of
Counsel will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Issuer Trust is, or will be
within 90 days of the delivery of such Opinion of Counsel, subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
"Trust Agreement" means, the Amended and Restated Trust Agreement, dated as
of __________, 1997, as amended, modified or supplemented from time to time,
among the trustees of the Issuer Trust named therein, the Company, as depositor,
and the holders from time to time of undivided beneficial ownership interests in
the assets of the Issuer Trust.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture, solely in its capacity as such and not in its individual
capacity, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities
shall mean the Trustee with respect to Securities.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as modified,
amended or supplemented from time to time, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Vice President," when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent (including covenants compliance with
which constitutes a condition precedent), if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
(1) a statement by each individual signing such certificate
or opinion that such individual has read such covenant or condition and
the definitions herein relating thereto;
<PAGE>
- 10 -
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions of
such individual contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of such
individual, such condition or covenant has been complied with.
<PAGE>
- 11 -
SECTION 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his or her certificate or opinion is based
are erroneous. Any such certificate or Opinion of Counsel may be based, insofar
as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments is or are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him or her the execution thereof. Where such
execution is by a Person acting in other than his or her individual capacity,
such certificate or affidavit shall also constitute sufficient proof of his or
her authority.
(c) The fact and date of the execution by any Person of any such instrument
or writing, or the authority of the Person executing the same, may also be
provided in any other manner that the Trustee deems sufficient and in accordance
with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities Register.
<PAGE>
- 12 -
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next succeeding paragraph. If any record date is set pursuant to this paragraph,
the Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
(as defined below) by Holders of the requisite principal amount of Outstanding
Securities on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities in the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 5.2, (iii) any request to institute proceedings referred to in
Section 5.7(2), or (iv) any direction referred to in Section 5.12, in each case
with respect to Securities. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date,
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Expiration Date by Holders of the requisite principal
amount of Outstanding Securities on such record date. Nothing in this paragraph
shall be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect) and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities on the date such
action is taken. Promptly after any record date is set pursuant to this
paragraph, the Trustee, at the Company's expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the Company in writing and to each Holder of Securities in the
manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto that sets such record date may designate any day as the "Expiration Date"
and from time to time may change the Expiration Date to any earlier or later
day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 1.6 on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section, the
<PAGE>
- 13 -
party hereto that set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Preferred
Securities or the Company shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the
Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee, any Holder or any holder of
Preferred Securities shall be sufficient for every purpose (except as
otherwise provided in Section 5.1) hereunder if in writing and mailed,
first class, postage prepaid, to the Company addressed to it at the
address of its principal office specified in the first paragraph of this
instrument or at any other address previously furnished in writing to the
Trustee by the Company.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. If, by reason of the suspension
of or irregularities in regular mail services or for any other reason, it shall
be impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or of
the Securities, then any manner of giving such notice as shall be satisfactory
to the Trustee shall be deemed to be a sufficient giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
SECTION 1.7. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required thereunder to be a part of and govern
this Indenture, the provision of the Trust Indenture Act shall control. If any
provision of this Indenture modifies or excludes any provision of
<PAGE>
- 14 -
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
If any provision in this Indenture or in the Securities shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2, the holders of Preferred Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
- 15 -
SECTION 1.13. Non-Business Days.
If any Interest Payment Date, Redemption Date or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or the Securities) payment of interest or principal (and
premium, if any) or other amounts in respect of such Security need not be made
on such date, but may be made on the next succeeding Business Day (and no
interest shall accrue in respect of the amounts whose payment is so delayed for
the period from and after such Interest Payment Date, Redemption Date or Stated
Maturity, as the case may be, until such next succeeding Business Day) except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day (in each case with the
same force and effect as if made on the Interest Payment Date or Redemption Date
or at the Stated Maturity).
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
The Securities and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, or in such other form or
forms as shall be established by or pursuant to a Board Resolution or in one or
more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with applicable tax laws or the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such securities, as evidenced by their execution of the Securities. If
the form of Securities is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by Section
3.3 with respect to the authentication and delivery of such Securities.
The Trustee's certificates of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
Securities distributed to holders of Global Preferred Securities (as
defined in the Trust Agreement) upon the dissolution of the Issuer Trust shall
be distributed in the form of one or more Global Securities registered in the
name of a Depositary or its nominee, and deposited with the Securities
Registrar, as custodian for such Depositary, or with such Depositary, for credit
by the Depositary to the respective accounts of the beneficial owners of the
Securities represented thereby (or such other accounts as they may direct).
Securities distributed to holders of Preferred Securities other than Global
Preferred Securities upon the dissolution of the Issuer Trust shall not be
issued in the form of a Global Security or any other form intended to facilitate
book-entry trading in beneficial interests in such Securities.
<PAGE>
- 16 -
SECTION 2.2. Form of Face of Security.
SUN BANCORP, INC.
____ % Junior Subordinated Debentures due __________, 2027
[If the Security is a Restricted Security, insert -- THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) BY ANY INITIAL INVESTOR THAT IS NOT A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT,
(I) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), OR (B) BY AN INITIAL INVESTOR THAT IS A QUALIFIED
INSTITUTIONAL BUYER OR BY ANY SUBSEQUENT INVESTOR, AS SET FORTH IN (A) ABOVE
AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES THAT IT
WILL COMPLY WITH THE FOREGOING RESTRICTIONS. SECURITIES OWNED BY AN INITIAL
INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN GLOBAL
FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE INDENTURE REFERRED TO BELOW.
NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED
BY RULE 144 FOR RESALES OF THE SECURITIES.]
No. $
SUN BANCORP, INC., a New Jersey corporation (hereinafter called 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 _________
Dollars on ________, [if the Security is a Global Security, then insert, if
applicable--, or such other principal amount represented hereby as may be set
forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture,] [; provided that the Company may (i) shorten the
Stated Maturity of the principal of this Security to a date not earlier than
___________, and (ii) extend the Stated Maturity of the principal of this
Security at any time on one or more occasions, subject to certain conditions
specified in Section 3.15 of the Indenture, but in no event to a date later than
_________]. The Company further promises to pay interest on said principal from
______________, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, quarterly (subject to deferral as set forth
herein) in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing June 30, 1997 at the rate of __% per annum, together with
Additional Sums, if any, as provided in Section 10.6 of the Indenture, until the
principal hereof is paid or duly provided for or made available for payment;
provided that any overdue principal, premium or Additional Sums and any overdue
installment of interest shall bear
<PAGE>
- 17 -
Additional Interest at the rate of __% per annum (to the extent that the payment
of such interest shall be legally enforceable), compounded quarterly from the
dates such amounts are due until they are paid or made available for payment,
and such interest shall be payable on demand. The amount of interest payable for
any period less than a full interest period shall be computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of interest payable for any full interest
period shall be computed by dividing the applicable rate per annum by four. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in the Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest installment,
which shall be the 15th day of March, June, September and December (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time during the term of this Security, from time to
time to defer the payment of interest on this Security for up to 20 consecutive
quarterly interest payment periods with respect to each deferral period (each an
"Extension Period"), during which Extension Periods the Company shall have the
right to make partial payments of interest on any Interest Payment Date, and at
the end of which the Company shall pay all interest then accrued and unpaid
including Additional Interest, as provided below; provided, however, that no
Extension Period shall extend beyond the Stated Maturity of the principal of
this Security, as then in effect, and no such Extension Period may end on a date
other than an Interest Payment Date; and provided, further, however, that during
any such Extension Period, the Company 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 Company's capital stock, or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to this Security (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
Subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) 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,
(d) any declaration of a dividend in connection with any Rights Plan, or the
issuance of rights, stock or other property under any Rights Plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period shall
<PAGE>
- 18 -
exceed 20 consecutive quarterly interest payment periods, extend beyond the
Stated Maturity of the principal of this Security or end on a date other than an
Interest Payment Date. Upon the termination of any such Extension Period and
upon the payment of all accrued and unpaid interest and any Additional Interest
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period, subject to the above conditions. No interest shall be due and
payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension Period shall bear Additional Interest (to the extent that the
payment of such interest shall be legally enforceable) at the rate of __% per
annum, compounded quarterly and calculated as set forth in the first paragraph
of this Security, from the date on which such amounts would otherwise have been
due and payable until paid or made available for payment. The Company shall give
the Holder of this Security and the Trustee notice of its election to begin any
Extension Period at least one Business Day prior to the next succeeding Interest
Payment Date on which interest on this Security would be payable but for such
deferral or so long as such securities are held by Sun Capital Trust, at least
one Business Day prior to the earlier of (i) the next succeeding date on which
Distributions on the Preferred Securities of the Issuer Trust would be payable
but for such deferral, and (ii) the date on which the Property Trustee of the
Issuer Trust is required to give notice to holders of such Preferred Securities
of the record date or the date such Distributions are payable, but in any event
not less than one Business Day prior to such record date.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however that at the option of the Company payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register, or (ii) if to a
Holder of $1,000,000 or more in aggregate principal amount of this Security, by
wire transfer in immediately available funds upon written request to the Trustee
not later than 15 calendar days prior to the date on which the interest is
payable.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payments to the prior payment
in full of all Senior 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 actions as
may be necessary or appropriate to 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, 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.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
SUN BANCORP, INC.
<PAGE>
- 19 -
By:
----------------------------
Name:
Title:
Attest:
- --------------------------------
Secretary or Assistant Secretary
SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued under the
Junior Subordinated Indenture, dated as of ____________, 1997 (herein called the
"Indenture"), between the Company and Bankers Trust Company, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the holders of
Senior Indebtedness and the Holders of the Securities, and of the terms upon
which the Securities are, and are to be, authenticated and delivered.
All terms used in this Security that are defined in the Indenture dated as
of _________ (as modified, amended or supplemented from time to time the "Trust
Agreement"), relating to Sun Capital Trust the ("Issuer Trust") among the
Company, as Depositor, the Trustees named therein and the Holders from time to
time of the Trust Securities issued pursuant thereto shall have the meanings
assigned to them in the Indenture or the Trust Agreement, as the case may be.
The Company has the right to redeem this Security (i) on or after
_________, 2002 in whole at any time or in part from time to time, or (ii) in
whole (but not in part), at any time within 90 days following the occurrence and
during the continuation of a Tax Event, Investment Company Event, or Capital
Treatment Event, in each case at the Redemption Price described below, and
subject to possible regulatory approval. The Redemption Price shall equal 100%
of the principal amount hereof being redeemed, together with accrued interest to
but excluding the date fixed for redemption.
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.
[If applicable, insert--The Indenture contains provisions for defeasance at
any time [of the entire indebtedness of this Security] [or] [certain restrictive
covenants and Events of Default with respect to this Security] [, in each case]
upon compliance by the Company with certain conditions set forth in the
Indenture.]
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with
<PAGE>
- 20 -
the consent of the Holders of not less than a majority in principal amount of
the Outstanding Securities to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
[If the Security is not a Discount Security, insert--As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities at the time Outstanding occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare the principal amount
of all the Securities to be due and payable immediately, by a notice in writing
to the Company (and to the Trustee if given by Holders), provided that, if upon
an Event of Default, the Trustee or such Holders fail to declare the principal
of all the Outstanding Securities to be immediately due and payable, the holders
of at least 25% in aggregate Liquidation Amount of the Preferred Securities then
outstanding shall have the right to make such declaration by a notice in writing
to the Company and the Trustee; and upon any such declaration the principal
amount of and the accrued interest (including any Additional Interest) on all
the Securities shall become immediately due and payable, provided that the
payment of principal and interest (including any Additional Interest) on such
Securities shall remain subordinated to the extent provided in Article XIII of
the Indenture.]
[If the Security is a Discount Security, insert--As provided in and subject
to the provisions of the Indenture, if an Event of Default with respect to the
Securities at the time Outstanding occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities may declare an amount of principal of the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided that, if upon an
Event of Default, the Trustee or such Holders fail to declare such principal
amount of the Outstanding Securities to be immediately due and payable, the
Holders of at least 25% in aggregate Liquidation Amount of the Preferred
Securities then outstanding shall have the right to make such declaration by a
notice in writing to the Company and the Trustee. The principal amount payable
upon such acceleration shall be equal to [insert formula for determining the
amount]. Upon any such declaration, such amount of the principal of and the
accrued interest (including any Additional Interest) on all the Securities shall
become immediately due and payable, provided that the payment of such principal
and interest (including any Additional Interest) on all the Securities shall
remain subordinated to the extent provided in Article XIII of the Indenture.
Upon payment (i) of the amount of principal so declared due and payable and (ii)
of interest on any overdue principal, premium and interest (in each case to the
extent that the payment of such interest shall be legally enforceable), all of
the Company's obligations in respect of the payment of the principal of and
premium and interest, if any, on this Security shall terminate.]
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest (including Additional Interest) on this Security at the times, place
and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture for
<PAGE>
- 21 -
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Securities Registrar duly
executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Securities, of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000 in excess thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities are exchangeable for a like aggregate principal amount of
Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agrees that for United States federal, state and
local tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
THIS SECURITY IS A DIRECT AND UNSECURED OBLIGATION OF THE COMPANY, DOES NOT
EVIDENCE DEPOSITS AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
SECTION 2.4. Additional Provisions Required in Global Security.
Unless otherwise specified as contemplated by Section 3.1, any Global
Security issued hereunder shall, in addition to the provisions contained in
Sections 2.2 and 2.3, bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR
ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE
AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
SECTION 2.5. Form of Trustee's Certificate of
<PAGE>
- 22 -
Authentication.
The Trustee's certificates of authentication shall be in substantially the
following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: BANKERS TRUST COMPANY,
-------------------- as Trustee
By:
---------------------------------
Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of Securities that may be authenticated and
delivered under this Indenture is unlimited.
The Securities' Stated Maturity shall be ____________, 2027.
The Securities, established pursuant to a Board Resolution, shall bear
interest at a per annum rate equal to ____% from ____________, 1997 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable quarterly (subject to deferral as set
forth in Section 3.12), in arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing June 30, 1997, until the principal thereof
is paid or made available for payment. Interest will compound quarterly and will
accrue at a per annum rate equal to ____% to the extent permitted by applicable
law, on any interest installment in arrears for more than one quarterly period
or during an extension of an interest payment period as set forth below in
Section 3.12.
The principal of and interest on the Securities shall be payable at the
office or agency of the Paying Agent in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made (i)
by check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register or (ii) by wire transfer in immediately
available funds at such place and to such account as may be designated by the
Person entitled thereto as specified in the Security Register.
Securities shall be issuable in whole or in part in the form of one or more
Global Securities and, in such case, the Depositary for such Global Securities
shall be __________.
The securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
<PAGE>
- 23 -
SECTION 3.2. Denominations.
The Securities shall be in registered form without coupons and shall be
issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced or impressed thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver
Securities executed by the Company to the Trustee for authentication, together
with a Company Order for the authentication and delivery of such Securities, and
the Trustee in accordance with the Company Order shall authenticate and deliver
such Securities. If the form or terms of the Securities have been established by
or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and
3.1, in authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 6.1) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established
by or pursuant to Board Resolution as permitted by Section 2.1, that such
form has been established in conformity with the provisions of this
Indenture;
(2) if the terms of such Securities have been
established by or pursuant to Board Resolution as permitted by Section 3.1,
that such terms have been established in conformity with the provisions of
this Indenture; and
(3) that such Securities, when authenticated and
delivered by the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner that
is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and the preceding paragraph,
if all Securities are not to be originally issued at one time, it shall not be
necessary to deliver the Officers' Certificate otherwise required pursuant to
Section 3.1 or the Company Order and Opinion of Counsel otherwise required
pursuant to such preceding paragraph at or prior to the authentication of each
Security if such documents are delivered at or prior to the authentication upon
original issuance of the first Security to be issued.
<PAGE>
- 24 -
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon receipt of a Company Order the Trustee shall authenticate and deliver,
temporary Securities that are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any 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 evidenced by their execution of such
Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for that purpose without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Securities,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor one or more definitive securities, of any authorized
denominations having the same Original Issue Date and Stated Maturity and having
the same terms as such temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION 3.5. Global Securities.
(a) Each Global Security issued under this Indenture shall be registered in
the name of the Depositary designated by the Company for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in writing that such
Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor, (ii) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depositary, or (iii) there shall
have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the
<PAGE>
- 25 -
Securities Registrar for exchange or cancellation as provided in this Article
III. If any Global Security is to be exchanged for other Securities or cancelled
in part, or if another Security is to be exchanged in whole or in part for a
beneficial interest in any Global Security, then either (i) such Global Security
shall be so surrendered for exchange or cancellation as provided in this Article
III or (ii) the principal amount thereof shall be reduced, subject to Section
3.6(b)(v), or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or equal to the principal amount of such other Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Securities
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depositary, accompanied by registration
instructions, the Trustee shall, subject to Section 3.6(b) and as otherwise
provided in this Article III, authenticate and deliver any Securities issuable
in exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depositary. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or agent. Neither the
Trustee nor the Securities Registrar shall have any liability in respect of any
transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Security shall
be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
SECTION 3.6. Registration, Transfer and Exchange Generally; Certain
Transfers and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the offices
or agencies of the Company designated for that purpose, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denominations of like tenor and aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of like tenor and aggregate
principal amount upon surrender of the Securities to be
<PAGE>
- 26 -
exchanged at such office or agency. Whenever any securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities that the Holder making the exchange is entitled to
receive.
All Securities issued upon any transfer or exchange of Securities shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if
so required by the Company or the Trustee) be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Securities Registrar, duly executed by the Holder thereof or such Holder's
attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (i) to issue, register the transfer of or exchange
any Security during a period beginning at the opening of business 15 days before
the day of selection for redemption of Securities pursuant to Article XI and
ending at the close of business on the day of mailing of the notice of
redemption, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except, in the case of any such
Security to be redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any
other provision of this Indenture, transfers and exchanges of Securities and
beneficial interests in a Global Security shall be made only in accordance with
this Section 3.6(b).
(i) Non-Global Security to Non-Global Security. A
Security that is not a Global Security may be transferred, in whole or in
part, to a Person who takes delivery in the form of another Security that
is not a Global Security as provided in Section 3.6(a), provided that if
the Security to be transferred in whole or in part is a Restricted
Security, the Securities Registrar shall have received a Restricted
Securities Certificate duly executed by the transferor Holder or such
Holder's attorney duly authorized in writing.
(ii) Exchanges Between Global Security and Non-Global
Security. A beneficial interest in a Global Security may be exchanged for
a Security that is not a Global Security as provided in Section 3.5.
(iii) Certain Initial Transfers of Non-Global
Securities. In the case of Securities initially issued other than in global
form, an initial transfer or exchange of such Securities that does not
involve any change in beneficial ownership may be made to an Institutional
Accredited Investor or Investors as if such transfer or exchange were not
an initial transfer or exchange; provided that written certification shall
be provided by the transferee and transferor of such Securities to the
Securities Registrar that such transfer or exchange does not involve a
change in beneficial ownership.
SECTION 3.7. Mutilated, Lost and Stolen Securities.
<PAGE>
- 27 -
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security, of like tenor and
aggregate principal amount, bearing the same legends, and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security, and
(ii) such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon its request the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security, a new Security, of like tenor and
aggregate principal amount and bearing the same legends as such destroyed, lost
or stolen Security, and bearing a number not contemporaneously outstanding.
If any such mutilated, destroyed, lost or stolen Security has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section 3.7, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.8. Payment of Interest and Additional Interest; Interest Rights
Preserved.
Interest and Additional Interest on any Security that is payable, and is
punctually paid or duly provided for, on any Interest Payment Date, shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in respect of Securities, except that, unless otherwise
provided in the Securities, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security that is issued between a Regular
Record Date and the related Interest Payment Date shall be payable as provided
in such Security or in the Board Resolution pursuant to Section 3.1 with respect
to the Securities.
Any interest on any Security that is due and payable, but is not timely
paid or duly provided for, on any Interest Payment Date for Securities (herein
called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities in respect
of which interest is in default
<PAGE>
- 28 -
(or their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Security and the date of the proposed payment, and which
shall be fixed 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 be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first class, postage prepaid, to each
Holder of a Security at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record
Date. The Trustee may, in its discretion, in the name and at the expense of
the Company, cause a similar notice to be published at least once in a
newspaper, customarily published in the English language on each Business
Day and of general circulation in the Borough of Manhattan, The City of New
York, but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Interest shall be paid to the Persons
in whose names the Securities (or their respective Predecessor Securities)
are registered on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities in respect of which
interest is in default may be listed and, upon such notice as may be
required by such exchange (or by the Trustee if the Securities are not
listed), if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause 2, such payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in
lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue interest, that were carried by such other Security.
<PAGE>
- 29 -
SECTION 3.9. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee shall
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.8) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
No holder of any beneficial interest in any Global Security held on its
behalf by a Depositary shall have any rights under this Indenture with respect
to such Global Security, and such Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depositary or impair, as between a Depositary and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
Holder of any Security.
SECTION 3.10. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder that the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities shall be destroyed by the
Trustee and the Trustee shall deliver to the Company a certificate of such
destruction.
SECTION 3.11. Computation of Interest.
Interest on the Securities for any period shall be computed on the basis of
a 360-day year of twelve 30-day months and the actual number of days elapsed in
any partial month in such period, and interest on the Securities for a full
period shall be computed by dividing the rate per annum by the number of
interest periods that together constitute a full twelve months.
SECTION 3.12. Deferrals of Interest Payment Dates.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time during the term of the Securities, from time
to time to defer the payment of interest on such Securities for such period or
periods (each an "Extension Period") not to exceed the number of consecutive
quarterly periods that equal five years with respect to each Extension Period,
during which Extension Periods the Company shall have the right to make partial
payments of interest on any Interest Payment Date. No Extension Period shall end
on a date other than an Interest Payment Date. At the end of any such Extension
Period, the Company shall pay all interest then accrued and unpaid on the
Securities (together with Additional Interest thereon, if any, at the rate
specified for the Securities to the extent permitted by applicable law);
provided, however, that no Extension Period shall extend beyond the Stated
Maturity of the principal of the Securities; and provided further, however,
that, during any such Extension Period, the Company shall not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with
<PAGE>
- 30 -
respect to, any of the Company's capital stock, or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu in all respects with or
junior in interest to the Securities (other than (a) repurchases, redemptions or
other acquisitions of shares of capital stock of the Company in connection with
any employment contract, benefit plan or other similar arrangement with or for
the benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a Subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) 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, (d) any declaration of a
dividend in connection with any Rights Plan, or the issuance of rights, stock or
other property under any Rights Plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock). Prior
to the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Event of Default has occurred and is
continuing and provided further, that no Extension Period shall exceed the
period or periods specified in such Securities, extend beyond the Stated
Maturity of the principal of such Securities or end on a date other than an
Interest Payment Date. Upon the termination of any such Extension Period and
upon the payment of all accrued and unpaid interest and any Additional Interest
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period, subject to the above conditions. No interest or Additional
Interest shall be due and payable during an Extension Period, except at the end
thereof, but each installment of interest that would otherwise have been due and
payable during such Extension Period shall bear Additional Interest. The Company
shall give the Holders of the Securities and the Trustee notice of its election
to begin any such Extension Period at least one Business Day prior to the next
succeeding Interest Payment Date on which interest on Securities would be
payable but for such deferral or, with respect to any Securities issued to the
Issuer Trust, so long as any such Securities are held by the Issuer Trust, at
least one Business Day prior to the earlier of (i) the next succeeding date on
which Distributions on the Preferred Securities of the Issuer Trust would be
payable but for such deferral, and (ii) the date on which the Property Trustee
of the Issuer Trust is required to give notice to holders of such Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date.
The Trustee shall promptly give notice of the Company's election to begin
any such Extension Period to the Holders of the Outstanding Securities.
<PAGE>
- 31 -
SECTION 3.13. Right of Set-Off.
With respect to the Securities initially issued to the Issuer Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set off any payment it is otherwise required to make in respect of any
such Security to the extent the Company has theretofore made, or is concurrently
on the date of such payment making, a payment under the Guarantee relating to
such Security or to a holder of Preferred Securities pursuant to an action
undertaken under Section 5.8 of this Indenture.
SECTION 3.14. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
SECTION 3.15. CUSIP Numbers.
The Company, in issuing the Securities, may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notice
of redemption and other similar or related materials as a convenience to
Holders; provided that any such notice or other materials may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or other materials
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 4.1) and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities that have been destroyed,
lost or stolen and that have been replaced or paid as
provided in Section 3.7 and (ii) Securities for whose
payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such
trust, as provided in Section 10.3) have been delivered
to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
<PAGE>
- 32 -
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year of the date of deposit, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of subclause (B)(i), (ii) or (iii) above,
has deposited or caused to be deposited with the Trustee as trust funds
in trust for such purpose an amount in the currency or currencies in
which the Securities are payable sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for the principal (and premium, if any) and
interest (including any Additional Interest) to the date of such
deposit (in the case of Securities that have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the
obligations of the Company to any Authenticating Agent under Section
6.14 and, if money shall have been deposited with the Trustee pursuant
to subclause (B) of clause (1) of this Section, the obligations of the
Trustee under Section 4.2 and the last paragraph of Section 10.3 shall
survive.
SECTION 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by the Trustee, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest and Additional Interest for the payment of which such money or
obligations have been deposited with or received by the Trustee.
<PAGE>
- 33 -
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default", wherever used herein with respect to the
Securities, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security,
including any Additional Interest in respect thereof, when it becomes
due and payable, and continuance of such default for a period of 30
days (subject to the deferral of any due date in the case of an
Extension Period); or
(2) default in the payment of the principal of (or premium, if
any, on) any Security at its Stated Maturity; or
(3) failure on the part of the Company duly to observe or perform
any other of the covenants or agreements on the part of the Company in
the Securities or in this Indenture for a period of 90 days after the
date on which written notice of such failure, requiring the Company to
remedy the same, shall have been given to the Company by the Trustee by
registered or certified mail or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the
Outstanding Securities; or
(4) the occurrence of the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding
with respect to the Company or all or substantially all of its
property; or a court or other governmental agency shall enter a decree
or order appointing a receiver or similar official and such decree or
order shall remain unstayed and undischarged for a period of 60 days;
or
(5) any other Event of Default provided with respect to the
Securities.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(4)) with respect to Securities at the time Outstanding occurs and is
continuing, then, and in every such case, the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities may declare
the principal amount (or, if the Securities are Discount Securities, such
portion of the principal amount as may be specified in the terms) of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided that, if, upon an
Event of Default, the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities fail to declare the principal of all the
Outstanding Securities to be immediately due and payable, the holders of at
least 25% in aggregate Liquidation Amount (as defined in the Trust Agreement) of
the Preferred Securities issued by the Issuer Trust then outstanding shall have
the right to make such declaration by a notice in writing to the Company and the
Trustee; and upon any such declaration such principal amount (or specified
portion thereof) of and the accrued interest (including any Additional Interest)
on all the Securities shall become immediately due and payable. If an Event of
Default specified in Section 5.1(4) with respect to Securities at the time
Outstanding occurs, the principal amount of all the Securities (or, if the
Securities are Discount Securities, such portion of the principal amount of such
Securities as may be
<PAGE>
- 34 -
specified by the terms) shall automatically, and without any declaration or
other action on the part of the Trustee or any Holder, become immediately due
and payable. Payment of principal and interest (including any Additional
Interest) on such Securities shall remain subordinated to the extent provided in
Article XIII notwithstanding that such amount shall become immediately due and
payable as herein provided.
At any time after such a declaration of acceleration with respect to
the Securities has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter in this Article
provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all Securities;
(B) any accrued Additional Interest on all Securities;
(C) the principal of (and premium, if any, on) any
Securities that have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate
borne by the Securities; and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities, other than
the non-payment of the principal of Securities that has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13.
If the Holders of Securities fail to annul such declaration and waive
such default, the holders of a majority in aggregate Liquidation Amount (as
defined in the Trust Agreement) of Preferred Securities issued by the Issuer
Trust then outstanding shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Company and the
Trustee, subject to the satisfaction of the conditions set forth in clauses (1)
and (2) above of this section 5.2.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
<PAGE>
- 35 -
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest
becomes due and payable and such default continues for a period of 30
days, or
(2) default is made in the payment of the principal of (and
premium, if any, on) any Security at the Stated Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of the Securities, the whole amount then due
and payable on the Securities for principal (and premium, if any) and
interest (including any Additional Interest), and, in addition thereto,
all amounts owing the Trustee under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
monies adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Securities by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial or
administrative proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest (including any Additional Interest)
owing and unpaid in respect to the Securities and to file such other
papers or documents as may be necessary or advisable and to take any
and all actions as are authorized under the Trust Indenture Act in
order to have the claims of the Holders and any predecessor to the
Trustee under Section 6.7 allowed in any such judicial or
administrative proceedings; and
<PAGE>
- 36 -
(ii) in particular, the Trustee shall be authorized to collect
and receive any monies or other property payable or deliverable on any
such claims and to distribute the same in accordance with Section 5.6;
and
(b) any custodian, receiver, assignee, trustee, liquidator,
sequestrator, conservator (or other similar official) in any such judicial or
administrative proceeding is hereby authorized by each Holder to make such
payments to the Trustee for distribution in accordance with Section 5.6, and in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it and any predecessor
Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 5.5.Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, subject to
Article XIII and after provision for the payment of all the amounts owing the
Trustee and any predecessor Trustee under Section 6.7, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 5.6 Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money or property on account of principal (or premium, if
any) or interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due
and unpaid upon Securities for principal (and premium, if any) and interest
(including any Additional Interest) in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 5.7 Limitation on Suits.
Subject to Section 5.8, no Holder of any Securities shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver,
<PAGE>
- 37 -
assignee, trustee, liquidator, sequestrator (or other similar official) or for
any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the
Securities;
(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to
the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders
shall have any right in any manner whatever by virtue of, or by
availing itself of, any provision of this Indenture to affect, disturb
or prejudice the rights of any other Holders of Securities, or to
obtain or to seek to obtain priority or preference over any other of
such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all
such Holders.
SECTION 5.8.Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders of Preferred
Securities.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Sections 3.8 and 3.12) interest (including any Additional Interest) on such
Security on the Stated Maturity (or in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder. Any registered
holder of the Preferred Securities issued by the Issuer Trust shall have the
right, upon the occurrence of an Event of Default described in Section 5.1(1) or
5.1(2), to institute a suit directly against the Company for enforcement of
payment to such holder of principal of (premium, if any) and (subject to
Sections 3.8 and 3.12) interest (including any Additional Interest) on the
Securities having a principal amount equal to the aggregate Liquidation Amount
(as defined in the Trust Agreement) of such Preferred Securities held by such
holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities issued
by the Issuer Trust has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee, such Holder or such
holder of Preferred Securities, then, and in every such case, the Company, the
Trustee, such Holders and such holder of Preferred Securities shall, subject to
any determination in
<PAGE>
- 38 -
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee, such
Holder and such holder of Preferred Securities shall continue as though no such
proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.7, no
right or remedy herein conferred upon or reserved to the Trustee or the Holders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security with
respect to the Securities or any holder of any Preferred Security to exercise
any right or remedy accruing upon any Event of Default with respect to the
Securities shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee
or to the Holders and the right and remedy given to the holders of Preferred
Securities by Section 5.8 may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee, the Holders or the holders of Preferred
Securities, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee, with respect to the
Securities, provided that:
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall
have the right to decline to follow such direction if a Responsible
Officer or Officers of the Trustee shall, in good faith, determine that
the proceeding so directed would be unjustly prejudicial to the Holders
not joining in any such direction or would involve the Trustee in
personal liability.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities affected thereby and, the holders of a majority in
aggregate Liquidation Amount (as defined in the Trust Agreement) of the
Preferred Securities issued by the Issuer Trust may waive any past default
hereunder and its consequences except a default:
<PAGE>
- 39 -
(1) in the payment of the principal of (or premium, if any) or
interest (including any Additional Interest) on any Security (unless
such default has been cured and the Company has paid to or deposited
with the Trustee a sum sufficient to pay all matured installments of
interest (including Additional Interest) and all principal of (and
premium, if any, on) all Securities due otherwise than by
acceleration), or
(2) in respect of a covenant or provision hereof that under
Article IX cannot be modified or amended without the consent of each
Holder of any Outstanding Security affected.
Any such waiver shall be deemed to be on behalf of the Holders of all
the Securities, or in the case of waiver by holders of Preferred Securities
issued by the Issuer Trust, by all holders of Preferred Securities issued by the
Issuer Trust.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may, in
its discretion, require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may, in its
discretion, assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in aggregate principal amount of the Outstanding
Securities, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the Stated Maturity.
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
<PAGE>
- 40 -
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture, but in the case of any such certificates or opinions
that by any provisions hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct except that
(1) this subsection shall not be construed to limit the effect
of subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of Holders pursuant to Section 5.12 relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture with respect to the Securities.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all Holders of Securities, as
their names and addresses appear in the Securities Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of (or
premium, if any) or interest (including any
<PAGE>
- 41 -
Additional Interest) on any Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities; and provided further, that, in the case
of any default of the character specified in Section 5.1(3), no such notice to
Holders of Securities shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
that is, or after notice or lapse of time or both would become, an Event of
Default with respect to the Securities.
SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 6.4.Not Responsible for Recitals or Issuance of Securities.
<PAGE>
- 42 -
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 6.7. Compensation and Reimbursement.
(a) The Company agrees to pay to the Trustee from time to time
reasonable compensation for all services rendered by it hereunder in such
amounts as the Company and the Trustee shall agree from time to time (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust).
(b) The Company agrees to reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel), except any such expense disbursement or advance as may be attributable
to its negligence or bad faith.
(c) Since the Issuer Trust is being formed solely to facilitate an
investment in the Preferred Securities, the Company, as Holder of the Common
Securities, hereby covenants to pay all debts and obligations (other than with
respect to the Preferred Securities and the Common Securities) and all
reasonable costs and expenses of the Issuer Trust (including without limitation
all costs and expenses relating to the organization of the Issuer Trust, the
fees and expenses of the trustees and all reasonable costs and expenses relating
to the operation of the Issuer Trust) and to pay any and all taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed on the Issuer Trust by the United States, or any taxing
authority, so that the net amounts received and retained by the Issuer Trust and
the Property Trustee after paying such expenses will be equal to the amounts the
Issuer Trust and the Property Trustee would have received had no such costs or
expenses been incurred by or imposed on the Issuer Trust. The foregoing
obligations of the Company are for the benefit of, and shall be enforceable by,
any person to whom any such debts, obligations, costs, expenses and taxes are
owed (each, a "Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations directly against the
Company, and the Company irrevocably waives any right or remedy to require that
any such Creditor take any action against the Issuer Trust or any other person
before proceeding against the Company.
<PAGE>
- 43 -
The Company shall execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
(d) The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, liability or expense (including the reasonable compensation
and the expenses and disbursements of its agents and counsel) incurred without
negligence or bad faith, arising out of or in connection with the acceptance or
administration of this trust or the performance of its duties hereunder,
including the reasonable costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. This indemnification shall survive the termination
of this Indenture or the resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) occurs, the expenses and the compensation
for the services are intended to constitute expenses of administration under the
Bankruptcy Reform Act of 1978 or any successor statute.
<PAGE>
- 44 -
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities issued hereunder shall be subject to the
provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall
prevent the Trustee from filing with the Commission the application referred to
in the second to last paragraph of said Section 310(b).
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be:
(a) an entity organized and doing business under the laws of the United
States of America or of any state or territory thereof or of the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal, state, territorial or District
of Columbia authority, or
(b) an entity or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees;
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by federal or state authority. If such
entity publishes reports of condition at least annually, pursuant to law or to
the requirements of the aforesaid supervising or examining authority, then, for
the purposes of this Section, the combined capital and surplus of such entity
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall serve
as Trustee for the Securities issued hereunder.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities
by giving written notice thereof to the Company. If an instrument of acceptance
by a successor Trustee shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time with respect to the
Securities by Act of the Holders of a majority in aggregate principal amount of
the Outstanding Securities, delivered to the Trustee and to the Company.
(d) If at any time:
<PAGE>
- 45 -
(1) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to the Securities issued
hereunder, or (ii) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of such Holder and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee with respect to the Securities issued hereunder and
the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee with respect to the Securities. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Securities shall be appointed
by Act of the Holders of a majority in aggregate principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to the Securities and
supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities shall have been so appointed by the
Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, subject to Section 5.14, on behalf of such Holder and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities.
(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities and each appointment of a
successor Trustee with respect to the Securities by mailing written notice of
such event by first-class mail, postage prepaid, to the Holders of Securities as
their names and addresses appear in the Securities Register. Each notice shall
include the name of the successor Trustee with respect to the Securities and the
address of its Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign,
<PAGE>
- 46 -
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless, at the
time of such acceptance, such successor Trustee shall be qualified and eligible
under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any entity into which the Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any entity
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such entity
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated, and in case any Securities shall not
have been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor Trustee or in the name of such
successor Trustee, and in all cases the certificate of authentication shall have
the full force which it is provided anywhere in the Securities or in this
Indenture that the certificate of the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect
to the Securities, which shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
3.6, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be an entity organized and doing business under the laws of the United
States of America, 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 not less than $50,000,000 and subject to
supervision or examination by federal or state authority. If such Authenticating
Agent publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such Authenticating
Agent shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time an Authenticating
Agent shall cease to be eligible in accordance with the provisions of this
<PAGE>
- 47 -
Section, such Authenticating Agent shall resign immediately in the manner and
with the effect specified in this Section.
Any entity into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any entity resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any entity succeeding to all or substantially all of the corporate
trust business of an Authenticating Agent shall be the successor Authenticating
Agent hereunder, provided such entity shall be otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent, which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities.
Any successor Authenticating Agent upon acceptance hereunder shall become vested
with all the rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provision of
this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payment, subject to the
provisions of Section 6.7.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
<PAGE>
- 48 -
This is one of the Securities referred to in the within mentioned
Indenture.
Dated: BANKERS TRUST COMPANY,
as Trustee
By: _____________________________
As Authenticating Agent
Name:
Title:
By: _____________________________
Authorized Signatory
Name:
Title:
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) quarterly, not more than 15 days after March 15, June 15, September
15, and December 15 in each year, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such dates,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar, 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, excluding from any such list names and addresses received by the
Trustee in its capacity as Securities Registrar.
SECTION 7.2.Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
<PAGE>
- 49 -
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
SECTION 7.3. Reports by Trustee and Paying Agent.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted no later than January 31 in each
calendar year, commencing with the first January 31 after the issuance of
Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the Commission. The Company will notify the
Trustee when any Securities are listed on any securities exchange.
(d) The Paying Agent shall comply with all withholding, backup
withholding, tax and information reporting requirements under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations issued thereunder
with respect to payments on, or with respect to, the Securities.
SECTION 7.4.Reports by Company.
The Company shall file or cause to be filed with the Trustee and with
the Commission, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided in the Trust Indenture
Act. In the case of information, documents or reports required to be filed with
the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act,
the Company shall file or cause the filing of such information documents or
reports with the Trustee within 15 days after the same is required to be filed
with the Commission.
<PAGE>
- 50 -
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(1) If the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the entity formed by such
consolidation or into which the Company is merged or the Person that
acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety shall be an entity
organized and existing under the laws of the United States of America
or any state thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of (and premium, if any), and interest
(including any Additional Interest) on all the Securities of every
series and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event
of Default, and no event that, after notice or lapse of time, or both,
would constitute an Event of Default, shall have occurred and be
continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and any such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with and, in the case of a transaction subject to this Section
8.1 but not requiring a supplemental indenture under paragraph (1) of
this Section 8.1, an Officer's Certificate or Opinion of Counsel to the
effect that the surviving, resulting or successor entity is legally
bound by the Indenture and the Securities; and the Trustee, subject to
Section 6.1, may rely upon such Officers' Certificates and Opinions of
Counsel as conclusive evidence that such transaction complies with this
Section 8.1.
SECTION 8.2. Successor Company Substituted.
Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with Section
8.1, the successor entity formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein; and in the event of any such conveyance,
transfer or lease the Company shall be discharged from all obligations and
covenants under the Indenture and the Securities.
Such successor Person may cause to be executed, and may issue either in
its own name or in the name of the Company, any or all of the Securities
issuable hereunder that theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor
<PAGE>
- 51 -
Person instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities that previously shall have been signed and
delivered by the officers of the Company to the Trustee for authentication
pursuant to such provisions and any Securities that such successor Person
thereafter shall cause to be executed and delivered to the Trustee on its behalf
for the purpose pursuant to such provisions. All the Securities so issued shall
in all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of this
Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form may be made in the Securities thereafter to
be issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may amend
or waive any provision of this Indenture or enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to facilitate the issuance of Securities in certificated or other
definitive form; or
(4) to add to the covenants of the Company for the benefit of the
Holders of the Securities or to surrender any right or power herein conferred
upon the Company; or
(5) to add any additional Events of Default for the benefit of the
Holders of the
Securities; or
(6) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall not apply to any Outstanding
Securities; or
(7) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (7) shall not
adversely affect the interest of the Holders of Securities in any material
respect or, in the case of the Securities issued to the Issuer Trust and for so
long as any of the Preferred Securities issued by the Issuer Trust shall remain
outstanding, the holders of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities and to add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 6.11(b); or
<PAGE>
- 52 -
(9) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest (including any Additional Interest) on, any
Security, or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or
reduce the amount of principal of a Discount Security that would be due
and payable upon a declaration of acceleration of the Stated Maturity
thereof pursuant to Section 5.2, or change the place of payment where,
or the coin or currency in which, any Security or interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.5, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Security affected thereby;
provided, further, that, in the case of the Securities issued to the
Issuer Trust, so long as any of the Preferred Securities issued by the
Issuer Trust remains outstanding, (i) no such amendment shall be made
that adversely affects the holders of such Preferred Securities in any
material respect, and no termination of this Indenture shall occur, and
no waiver of any Event of Default or compliance with any covenant under
this Indenture shall be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount (as
defined in the Trust Agreement) of such Preferred Securities then
outstanding unless and until the principal of (and premium, if any, on)
the Securities and all accrued and (subject to Section 3.8) unpaid
interest (including any Additional Interest) thereon have been paid in
full, and (ii) no amendment shall be made to Section 5.8 of this
Indenture that would impair the rights of the holders of Preferred
Securities issued by the Issuer Trust provided therein without the
prior consent of the holders of each such Preferred Security then
outstanding unless and until the principal of (and premium, if any, on)
the Securities of such series and all accrued and (subject to Section
3.8) unpaid interest (including any Additional Interest) thereon have
been paid in full.
<PAGE>
- 53 -
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent herein provided for relating to such action have
been complied with. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the Securities that
it will duly and punctually pay the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities in accordance
with the terms of such Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the
<PAGE>
- 54 -
Securities and this Indenture may be served. The Company initially appoints the
Trustee, acting through its Corporate Trust Office, as its agent for said
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain such office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all of such purposes, and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in each
Place of Payment for Securities for such purposes. The Company will give prompt
written notice to the Trustee of any such designation and any change in the
location of any such office or agency.
SECTION 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with
respect to the Securities, it will, on or before each due date of the principal
of (and premium, if any) or interest (including Additional Interest) on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest (including Additional Interest) so becoming due until such sums shall
be paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to 10:00 a.m., New York City time, on each due date of the principal of
(or premium, if any) or interest, including Additional Interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest, including Additional Interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal (and premium, if any) or interest, including Additional Interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any, or interest (including Additional Interest) on the Securities
in trust for the benefit of the Persons entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon such Securities) in the making of any payment of principal (and
premium, if any) or interest (or Additional Interest) in respect of any
Security;
(3) at any time during the continuance of any default with respect to
the Securities, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent.
<PAGE>
- 55 -
The Company may, at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company in trust for the payment of the principal of (and premium, if
any) or interest (including Additional Interest) on any Security and remaining
unclaimed for two years after such principal (and premium, if any) or interest
(including Additional Interest) has become due and payable shall (unless
otherwise required by mandatory provision of applicable escheat or abandoned or
unclaimed property law) be paid on Company Request to the Company, or (if then
held by the Company) shall (unless otherwise required by mandatory provision of
applicable escheat or abandoned or unclaimed property law) be discharged from
such trust; and the Holder of such Security shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, the City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
<PAGE>
- 56 -
SECTION 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof of the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. For the purpose of this Section 10.4, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 10.5. Waiver of Certain Covenants.
Subject to the rights of holders of Preferred Securities specified in
Section 9.2, if any, the Company may omit in any particular instance to comply
with any covenant or condition provided pursuant to Section 3.1, 9.1(3) or
9.1(4) with respect to the Securities, if before or after the time for such
compliance the Holders of at least a majority in aggregate principal amount of
the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.
SECTION 10.6. Additional Sums.
So long as no Event of Default has occurred and is continuing and
except as otherwise specified as contemplated by Section 2.1 or Section 3.1, if
(i) the Issuer Trust is the Holder of all of the Outstanding Securities, and
(ii) a Tax Event described in clause (i) or (iii) of the definition of "Tax
Event" in Section 1.1 hereof has occurred and is continuing in respect of the
Issuer Trust, the Company shall pay the Issuer Trust (and its permitted
successors or assigns under the Trust Agreement) for so long as the Issuer Trust
(or its permitted successor or assignee) is the registered holder of the
Outstanding Securities, such additional sums as may be necessary in order that
the amount of Distributions (including any Additional Amounts (as defined in the
Trust Agreement)) then due and payable by the Issuer Trust on the Preferred
Securities and Common Securities that at any time remain outstanding in
accordance with the terms thereof shall not be reduced as a result of such
Additional Taxes (the "Additional Sums"). Whenever in this Indenture or the
Securities there is a reference in any context to the payment of principal of or
interest on the Securities, such mention shall be deemed to include mention of
the payments of the Additional Sums provided for in this paragraph to the extent
that, in such context, Additional Sums are, were or would be payable in respect
thereof pursuant to the provisions of this paragraph and express mention of the
payment of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made; provided, however, that the deferral of the payment
of interest pursuant to Section 3.12 or the Securities shall not defer the
payment of any Additional Sums that may be due and payable.
<PAGE>
- 57 -
SECTION 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities that it
shall not (x) declare or pay any dividends or distributions on, or redeem
purchase, acquire or make a liquidation payment with respect to, any shares of
the Company's capital stock, or (y) make any payment of principal of or interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Securities (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a Subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) 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, (d) any
declaration of a dividend in connection with any Rights Plan, or the issuance of
rights, stock or other property under any Rights Plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock) if at such time (i) there shall have occurred any event (A) of which
the Company has actual knowledge that with the giving of notice or the lapse of
time, or both, would constitute an Event of Default with respect to the
Securities, and (B) which the Company shall not have taken reasonable steps to
cure, (ii) if the Securities are held by the Issuer Trust, the Company shall be
in default with respect to its payment of any obligations under the Guarantee
relating to the Preferred Securities issued by the Issuer Trust, or (iii) the
Company shall have given notice of its election to begin an Extension Period
with respect to the Securities as provided herein and shall not have rescinded
such notice, or such Extension Period, or any extension thereof, shall be
continuing.
The Company also covenants with each Holder of Securities issued to the
Issuer Trust (i) to hold, directly or indirectly, 100% of the Common Securities
of the Issuer Trust, provided that any permitted successor of the Company as
provided under Section 8.2 may succeed to the Company's ownership of such Common
Securities, (ii) as holder of such Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of the Securities to the holders of the Preferred Securities
in liquidation of the Issuer Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause the Issuer Trust to continue not to be taxable as a
corporation for United States federal income tax purposes.
<PAGE>
- 58 -
SECTION 10.8. Original Issue Discount.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount includible in income for each authorized
minimum denomination of principal amount at Stated Maturity of outstanding
Securities during such year.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities as permitted or required by any form of
Security issued pursuant to this Indenture shall be made in accordance with such
form of Security and this Article; provided, however, that, if any provision of
any such form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by or pursuant to a Board Resolution. In case of any redemption at the election
of the Company, the Company shall, not less than 30 nor more than 60 days prior
to the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee and, in the case of Securities held by the Issuer
Trust, the Property Trustee under the Trust Agreement, of such date and of the
principal amount of Securities to be redeemed and provide the additional
information required to be included in the notice or notices contemplated by
Section 11.4; provided that, for so long as such Securities are held by the
Issuer Trust, such notice shall be given not less than 45 nor more than 75 days
prior to such Redemption Date (unless a shorter notice shall be satisfactory to
the Property Trustee under the Trust Agreement). In the case of any redemption
of Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities, the Company shall furnish the Trustee
with an Officers' Certificate and an Opinion of Counsel evidencing compliance
with such restriction.
SECTION 11.3. Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of a portion
of the principal amount of any Security, provided that the unredeemed portion of
the principal amount of any Security shall be in an authorized denomination
(which shall not be less than the minimum authorized denomination) for such
Security.
The Trustee shall promptly notify the Company in writing of the
Securities selected for partial redemption and the principal amount thereof to
be redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security that has been or is to be
redeemed.
<PAGE>
- 59 -
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not later than the thirtieth day, and not earlier than the
sixtieth day, prior to the Redemption Date, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities to be redeemed, each notice of redemption
shall state:
(a) the Redemption Date;
(b) the Redemption Price or, if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the estimate of
the Redemption Price provided pursuant to the Indenture together with a
statement that it is an estimate and that the actual Redemption Price will be
calculated on the third Business Day prior to the Redemption Date (if such an
estimate of the Redemption Price is given, a subsequent notice shall be given as
set forth above setting forth the Redemption Price promptly following the
calculation thereof);
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal
amounts) of the particular Securities to be redeemed;
(d) that, on the Redemption Date, the Redemption Price will become due
and payable upon each such Security or portion thereof, and that interest
thereon, if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) such other provisions as may be required in respect of the terms of
the Securities;
and
(g) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
The notice, if mailed in the manner provided above, shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice. In any case, a failure to give such notice by mail or any defect in the
notice to the Holder of any Security designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Security.
SECTION 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on the Redemption Date
specified in the notice of redemption given as provided in Section 11.4, the
Company will deposit with the Trustee or with one or more Paying Agents (or if
the Company is acting as its own Paying Agent, the Company will segregate and
hold in trust as provided in Section 10.3) an amount of money sufficient to pay
the Redemption Price of, and any accrued interest (including Additional
Interest) on, all the Securities (or portions thereof) that are to be redeemed
on that date.
<PAGE>
- 60 -
SECTION 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4,
the Securities or portion of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said Securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, installments of interest (including Additional
Interest) whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant record
dates according to their terms and the provisions of Section 3.8.
Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to the Holder
thereof, at the expense of the Company, a new Security or Securities, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms.
If any Security called for redemption shall not be so paid under
surrender thereof for redemption, the principal of and premium, if any, on such
Security shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
SECTION 11.7. Right of Redemption of Securities Initially Issued to
the Issuer Trust.
The Company, at its option, may redeem such Securities (i) on or after
____________, 2002, in whole at any time or in part from time to time, or (ii)
upon the occurrence and during the continuation of a Tax Event, an Investment
Company Event or a Capital Treatment Event, at any time within 90 days following
the occurrence and during the continuation of such Tax Event, Investment Company
Event or Capital Treatment Event, in whole (but not in part), in each case at a
Redemption Price specified in such Security, together with accrued interest
(including Additional Interest) to the Redemption Date.
If less than all the Securities are to be redeemed, the aggregate
principal amount of such Securities remaining Outstanding after giving effect to
such redemption shall be sufficient to satisfy any provisions of the Trust
Agreement.
ARTICLE XII
SINKING FUNDS
Except as may be provided in any supplemental or amended indenture, no
sinking fund shall be established or maintained for the retirement of
Securities.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Indebtedness.
<PAGE>
- 61 -
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness.
SECTION 13.2. No Payment When Senior Indebtedness in Default; Payment
Over of Proceeds Upon Dissolution, Etc.
If the Company shall default in the payment of any principal of (or
premium, if any) or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, upon written notice of such
default to the Company by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of (or premium, if any) or interest (including
Additional Interest) on any of the Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.
In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company (each such event, if
any, herein sometimes referred to as a "Proceeding"), all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made to any Holder on
account thereof. Any payment or distribution, whether in cash, securities or
other property (other than securities of the Company or any other entity
provided for by a plan of reorganization or readjustment, the payment of which
is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for these subordination provisions) be
payable or deliverable in respect of the Securities shall be paid or delivered
directly to the holders of Senior Indebtedness in accordance with the priorities
then existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
In the event of any Proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the Holders of the Securities, together
with the holders of any obligations of the Company ranking on a parity with the
Securities, shall be entitled to be paid from the remaining assets of the
Company the amounts at the time due and owing on account of unpaid principal of
(and premium, if any) and interest on the Securities and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any capital stock or any obligations of
the Company ranking junior to the Securities, and such other obligations. If,
notwithstanding the foregoing, any payment or distribution of any character or
any security, whether in cash, securities or other property (other than
securities of the Company or any other entity provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any plan of reorganization or readjustment), shall be received by
the
<PAGE>
- 62 -
Trustee or any Holder in contravention of any of the terms hereof and before all
Senior Indebtedness shall have been paid in full, such payment or distribution
or security shall be received in trust for the benefit of, and shall be paid
over or delivered and transferred to, the holders of the Senior Indebtedness at
the time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all such Senior Indebtedness in full. In
the event of the failure of the Trustee or any Holder to endorse or assign any
such payment, distribution or security, each holder of Senior Indebtedness is
hereby irrevocably authorized to endorse or assign the same.
The Trustee and the Holders shall take such action (including, without
limitation, the delivery of this Indenture to an agent for the holders of Senior
Indebtedness or consent to the filing of a financing statement with respect
hereto) as may, in the opinion of counsel designated by the holders of a
majority in principal amount of the Senior Indebtedness at the time outstanding,
be necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.
The provisions of this Section 13.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
The securing of any obligations of the Company, otherwise ranking on a
parity with the Securities or ranking junior to the Securities shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
SECTION 13.3. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time, except during
the pendency of the conditions described in the first paragraph of Section 13.2
or of any Proceeding referred to in Section 13.2, from making payments at any
time of principal of (and premium, if any) or interest (including Additional
Interest) on the Securities, or (b) the application by the Trustee of any monies
deposited with it hereunder to the payment of or on account of the principal of
(and premium, if any) or interest (including any Additional Interest) on the
Securities or the retention of such payment by the Holders, if, at the time of
such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
SECTION 13.4. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on
all Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company that by its express terms is subordinated to
Senior Indebtedness of the Company to substantially the same extent as the
Securities are subordinated to the Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium if any) and interest (including Additional Interest) on the Securities
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the
<PAGE>
- 63 -
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among
the Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
SECTION 13.5. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as between the Company and the Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including any Additional Interest) on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than their rights
in relation to the holders of Senior Indebtedness; or (c) prevent the Trustee or
the Holder of any Security (or to the extent expressly provided herein, the
holder of any Preferred Security) from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, including filing
and voting claims in any Proceeding, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 13.6. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination provided
in this Article and appoints the Trustee his or her attorney-in-fact for any and
all such purposes.
SECTION 13.7. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to such Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of such Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extent the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
<PAGE>
- 64 -
SECTION 13.8. Notice to Trustee.
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 to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts that would prohibit the making of any payment to or by the Trustee in
respect of the Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee, agent or representative therefor; provided, however, that if
the Trustee shall not have received the notice provided for in this Section at
least two Business Days prior to the date upon which by the terms hereof any
monies may become payable for any purpose (including, the payment of the
principal of (and premium, if any, on) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received and
shall not be affected by any notice to the contrary that may be received by it
within two Business Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself or herself to be a holder of Senior Indebtedness (or a trustee or
attorney-in-fact therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee or attorney-in-fact therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior 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, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 13.9. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, conservator,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Trustee or to
the Holders of Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and
shall not be liable to any such holders if it shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
Person cash, property or securities to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article or otherwise.
<PAGE>
- 65 -
SECTION 13.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness that
may at any time be 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.
SECTION 13.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
<PAGE>
- 66 -
SECTION 13.13. Certain Conversions or Exchanges Deemed Payment.
For purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any, on) or interest (including any Additional Interest) on such
Securities or on account of the purchase or other acquisition of such
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion or exchange of a
Security shall be deemed to constitute payment on account of the principal of
such security. For the purposes of this Section, the term "junior securities"
means (i) shares of any stock of any class of the Company, and (ii) securities
of the Company that are subordinated in right of payment to all Senior
Indebtedness that may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater extent than, the
Securities are so subordinated as provided in this Article.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
[Remainder of page left intentionally blank; signatures appear on following
page.]
<PAGE>
- 67 -
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: SUN BANCORP, INC.
--------------------
By:
------------------------------------------
Name:
Title:
Attest: BANKERS TRUST COMPANY, as
-------------------- Trustee
By:
------------------------------------------
Name:
Title:
EXHIBIT 4.3
<PAGE>
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of February 13, 1997 (this "Trust
Agreement"), among (i) SUN BANCORP, INC., a New Jersey corporation (the
"Depositor"), and (ii) BANKERS TRUST (DELAWARE), a Delaware banking corporation
(the "Trustee").
The Depositor and the Trustee hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "Sun
Capital Trust" in which name the Trustee, or the Depositor to the extent
provided herein, may engage in the transactions contemplated hereby, make and
execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers conveys and sets over to the
Trustee the sum of $1. The Trustee hereby acknowledges receipt of such amount in
trust from the Depositor, which amount shall constitute the initial trust
estate. The Trustee hereby declares that it will hold the trust estate in trust
for the Depositor. It is the intention of the parties hereto that the Trust
created hereby constitute a business trust under Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust Act"), and
that this document constitutes the governing instrument of the Trust. The
Trustee is hereby authorized and directed to execute and file a certificate of
trust with the Delaware Secretary of State in accordance with the provisions of
the Business Trust Act.
3. The Depositor and the Trustee will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Preferred Securities and Common Securities
referred to therein. Prior to the execution and delivery of such amended and
restated Trust Agreement, the Trustee shall not have any duty or obligation
hereunder or with respect to the trust estate, except as otherwise required by
applicable law or as may be necessary to obtain, prior to such execution and
delivery, any licenses, consents or approvals required by applicable law or
otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on Form S-1 (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the registration
under the Securities Act of 1933, as amended, of the Preferred Securities of the
Trust and possibly certain other securities and (b) a Registration Statement on
Form 8-A (the "1934 Act Registration Statement") (including all pre-effective
and post-effective amendments thereto) relating to the registration of the
Preferred Securities of the Trust under the Securities Exchange Act of 1934, as
amended; (ii) to file with The Nasdaq National Market or any national stock
exchange (each, an "Exchange") and execute on behalf of the Trust one or more
listing applications and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Preferred Securities to be listed on any of the Exchanges; (iii) to file and
execute on behalf of the trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and other
papers and documents as shall be necessary or desirable to register the
Preferred Securities under the securities or blue sky laws of such jurisdictions
as the Depositor, on behalf of the Trust, may deem necessary or desirable and
(iv) to execute on behalf of the Trust that certain
<PAGE>
Underwriting Agreement relating to the Preferred Securities, among the Trust,
the Depositor and the Underwriter named therein, substantially in the form
included as an exhibit to the 1933 Act Registration Statement. In connection
with the filings referred to above, the Depositor hereby constitutes and
appoints Philip W. Koebig, III and Robert F. Mack, and each of them, as its true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, the Exchange and
administrators of state securities or blue sky laws, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as the Depositor might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their respective substitute or substitutes, shall do
or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees initially shall be one (1) and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by a
written instrument signed by the Depositor which may increase or decrease the
number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise meets
the requirements of applicable Delaware law. Subject to the foregoing, the
Depositor is entitled to appoint or remove without cause any Trustee at any
time. The Trustees may resign upon thirty (30) days' prior notice to the
Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
SUN BANCORP, INC.,
as Depositor
By: /s/ Philip W. Koebig III
Name: Philip W. Koebig III
Title: Executive Vice President
BANKERS TRUST (DELAWARE),
as Trustee
By: /s/ M. Lisa Wilkins
Name: M. Lisa Wilkins
Title: Assistant Secretary
<PAGE>
CERTIFICATE OF TRUST
OF
SUN CAPITAL TRUST
This Certificate of Trust is being executed as of February 13,
1997 for the purpose of organizing a business trust pursuant to the Delaware
Business Trust Act, 12 Del. C. Sections 3801 et seq. (the "Act").
The undersigned hereby certifies as follows:
1. Name. The name of the business trust is "Sun Capital
Trust" (the "Trust").
2. Delaware Trustee. The name and business address of
the Delaware resident trustee of the Trust meeting the requirements of Section
3807 of the Act are as follows:
Bankers Trust (Delaware)
1001 Jefferson Street
Suite 550
Wilmington, Delaware 19801
3. Effective. This Certificate of Trust shall be
effective immediately upon filing in the Office of the Secretary of State of
the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being all of the trustees
of the Trust, have duly executed this Certificate of Trust as of the day and
year first above written.
BANKERS TRUST (DELAWARE)
as Delaware Trustee
By: /s/ M. Lisa Wilkins
Name: M. Lisa Wilkins
Title: Assistant Secretary
EXHIBIT 4.4
<PAGE>
AMENDED AND RESTATED
TRUST AGREEMENT
among
SUN BANCORP, INC., as Depositor,
BANKERS TRUST COMPANY
as Property Trustee,
and
BANKERS TRUST (DELAWARE),
as Delaware Trustee
Dated as of __________, 1997
SUN CAPITAL TRUST
<PAGE>
SUN CAPITAL TRUST
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Trust Agreement
Section Section
------- -------
Section 310(a)(1)......................... 8.7
(a)(2)......................... 8.7
(a)(3)......................... 8.9
(a)(4)......................... 2.7(a)(ii)
(b)............................ 8.8, 10.10(b)
Section 311(a)............................ 8.13, 10.10(b)
(b)............................ 8.13, 10.10(b)
Section 312(a)............................ 10.10(b)
(b)............................ 10.10(b), (f)
(c)............................ 5.7
Section 313(a)............................ 8.15(a)
(a)(4)......................... 10.10(c)
(b)............................ 8.15(c), 10.10(c)
(c)............................ 10.8, 10.10(c)
(d)............................ 10.10(c)
Section 314(a)............................ 8.16, 10.10(d)
(b)............................ Not Applicable
(c)(1)......................... 8.17, 10.10(d), (e)
(c)(2)......................... 8.17, 10.10(d), (e)
(c)(3)......................... 8.17, 10.10(d), (e)
(e)............................ 8.17, 10.10(e)
Section 315(a)............................ 8.1(d)
(b)............................ 8.2
(c)............................ 8.1(c)
(d)............................ 8.1(d)
(e)............................ Not Applicable
Section 316(a)............................ Not Applicable
(a)(1)(A)...................... Not Applicable
(a)(1)(B)...................... Not Applicable
(a)(2)......................... Not Applicable
(b)............................ 5.13
(c)............................ 6.7
Section 317(a)(1)......................... Not Applicable
(a)(2)......................... 8.14
(b)............................ 5.10
Section 318(a)............................ 10.10(a)
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I. DEFINED TERMS
SECTION 1.1. Definitions................................... 1
ARTICLE II. CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name.......................................... 10
SECTION 2.2. Office of the Delaware Trustee;
Principal Place of Business................. 10
SECTION 2.3. Initial Contribution of Trust Property,
Organizational Expenses..................... 10
SECTION 2.4. Issuance of the Preferred Securities.......... 11
SECTION 2.5. Issuance of the Common Securities;
Subscription and Purchase of Junior
Subordinated Debentures..................... 11
SECTION 2.6. Declaration of Trust.......................... 11
SECTION 2.7. Authorization to Enter into Certain
Transactions................................ 12
SECTION 2.8. Assets of Trust............................... 14
SECTION 2.9. Title to Trust Property....................... 14
ARTICLE III. PAYMENT ACCOUNT
SECTION 3.1. Payment Account............................... 14
ARTICLE IV. DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions................................. 15
SECTION 4.2. Redemption.................................... 16
SECTION 4.3. Subordination of Common Securities............ 18
SECTION 4.4. Payment Procedures............................ 18
SECTION 4.5. Tax Returns and Reports....................... 18
SECTION 4.6. Payment of Taxes, Duties, Etc.
of the Issuer Trust......................... 19
SECTION 4.7. Payments under Indenture or Pursuant
to Direct Actions........................... 19
SECTION 4.8. Liability of the Holder of Common
Securities.................................. 19
ARTICLE V. TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership............................. 19
SECTION 5.2. The Trust Securities Certificates............. 19
SECTION 5.3. Execution and Delivery of Trust
Securities Certificates....................... 20
SECTION 5.4. Global Preferred Security..................... 20
SECTION 5.5. Registration of Transfer and Exchange
Generally; Certain Transfers and
Exchanges; Preferred Securities
Certificates................................ 21
- i -
<PAGE>
Page
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen
Trust Securities Certificates............... 22
SECTION 5.7. Persons Deemed Holders........................ 23
SECTION 5.8. Access to List of Holders'
Names and Addresses........................... 23
SECTION 5.9. Maintenance of Office or Agency............... 23
SECTION 5.10. Appointment of Paying Agent................... 23
SECTION 5.11. Ownership of Common Securities
by Depositor................................ 24
SECTION 5.12. Notices to Clearing Agency.................... 24
SECTION 5.13. Rights of Holders............................. 24
ARTICLE VI. ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Holder's Voting
Rights..................................... 26
SECTION 6.2. Notice of Meetings............................ 27
SECTION 6.3. Meetings of Holders........................... 27
SECTION 6.4. Voting Rights................................. 27
SECTION 6.5. Proxies, etc.................................. 27
SECTION 6.6. Holder Action by Written Consent.............. 27
SECTION 6.7 Record Date for Voting and Other
Purposes.................................... 28
SECTION 6.8. Acts of Holders............................... 28
SECTION 6.9. Inspection of Records......................... 29
ARTICLE VII. REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties
of the Property Trustee and
the Delaware Trustee........................ 29
SECTION 7.2. Representations and Warranties of
Depositor................................... 30
ARTICLE VIII. THE ISSUER TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities........... 30
SECTION 8.2. Certain Notices............................... 32
SECTION 8.3. Certain Rights of Property Trustee............ 33
SECTION 8.4. Not Responsible for Recitals
or Issuance of Securities................... 34
SECTION 8.5. May Hold Securities........................... 34
SECTION 8.6. Compensation; Indemnity; Fees................. 34
SECTION 8.7. Corporate Property Trustee Required;
Eligibility of Trustees and
Administrators.............................. 35
- ii -
<PAGE>
Page
SECTION 8.8. Conflicting Interests......................... 36
SECTION 8.9. Co-Trustees and Separate Trustee.............. 36
SECTION 8.10. Resignation and Removal; Appointment
of Successor................................ 37
SECTION 8.11. Acceptance of Appointment by
Successor..................................... 38
SECTION 8.12. Merger, Conversion, Consolidation or
Succession to Business...................... 38
SECTION 8.13. Preferential Collection of Claims
Against Depositor or Issuer Trust........... 38
SECTION 8.14. Trustee May File Proofs of Claim.............. 39
SECTION 8.15. Reports by Property Trustee................... 39
SECTION 8.16. Reports to the Property Trustee............... 40
SECTION 8.17. Evidence of Compliance with Conditions
Precedent................................... 40
SECTION 8.18. Number of Issuer Trustees..................... 40
SECTION 8.19. Delegation of Power........................... 40
SECTION 8.20. Appointment of Administrators................. 40
ARTICLE IX. DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date.............. 41
SECTION 9.2. Early Termination............................. 41
SECTION 9.3. Dissolution................................... 42
SECTION 9.4. Liquidation................................... 42
SECTION 9.5. Mergers, Consolidations, Amalgamations
or Replacements of the Issuer Trust......... 43
ARTICLE X. MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Holders............... 44
SECTION 10.2. Amendment..................................... 44
SECTION 10.3. Separability.................................. 45
SECTION 10.4. Governing Law................................. 45
SECTION 10.5. Payments Due on Non-Business Day.............. 45
SECTION 10.6. Successors.................................... 45
SECTION 10.7. Headings...................................... 45
SECTION 10.8. Reports, Notices and Demands.................. 46
SECTION 10.9. Agreement Not to Petition..................... 46
SECTION 10.10. Trust Indenture Act; Conflict with
Trust Indenture Act......................... 46
SECTION 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture..................... 47
- iii -
<PAGE>
Page
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depositary Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Preferred Securities Certificate
- iv -
<PAGE>
AGREEMENT
Amended and Restated Trust Agreement, dated as of __________, 1997,
among (i) Sun Bancorp, Inc., a New Jersey corporation (including any successors
or assigns, the "Depositor"), (ii) Bankers Trust Company, a New York banking
corporation, as property trustee, (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), and (iii) Bankers Trust (Delaware), a Delaware banking corporation,
as Delaware trustee (the "Delaware Trustee") (the Property Trustee and the
Delaware Trustee are referred to collectively herein as the "Issuer Trustees")
and (iv) the several Holders, as hereinafter defined.
WITNESSETH
WHEREAS, the Depositor and the Delaware Trustee have heretofore duly
declared and established a business trust pursuant to the Delaware Business
Trust Act by the entering into a certain Trust Agreement, dated as of
__________, 1997 (the "Original Trust Agreement"), and by the execution and
filing by the Delaware Trustee with the Secretary of State of the State of
Delaware of the Certificate of Trust, filed on __________, 1997 (the
"Certificate of Trust"), attached as Exhibit A; and
WHEREAS, the Depositor and the Delaware Trustee desire to amend and
restate the Original Trust Agreement in its entirety as set forth herein to
provide for, among other things, (i) the issuance of the Common Securities by
the Issuer Trust to the Depositor, (ii) the issuance and sale of the Preferred
Securities by the Issuer Trust pursuant to the Underwriting Agreement, (iii) the
acquisition by the Issuer Trust from the Depositor of all of the right, title
and interest in the Junior Subordinated Debentures, and (iv) the appointment of
the Property Trustee and the Administrators.
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees, intending to be legally
bound, as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) The words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles as in effect at the time of computation;
<PAGE>
- 2 -
(e) Unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement;
(f) The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision; and
(g) all references to the date the Preferred Securities were originally
issued shall refer to the date the Preferred Securities were originally issued.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest (as
defined in the Indenture) paid by the Depositor on a Like Amount of Debentures
for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each Person appointed in accordance with Section
8.20 solely in such Person's capacity as Administrator of the Issuer Trust
heretofore formed and continued hereunder and not in such Person's individual
capacity, or any successor Administrator appointed as herein provided; with the
initial Administrators being ______________ and _____________.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Preferred Security or beneficial interest
therein, the rules and procedures of the Depositary for such Preferred Security,
in each case to the extent applicable to such transaction and as in effect from
time to time.
"Bank" has the meaning specified in the preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises judging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable federal or
State bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they
<PAGE>
- 3 -
become due and its willingness to be adjudicated a bankrupt, or the taking of
corporate action by such Person in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board of Directors" means the board of directors of the Depositor or
the Executive Committee of the board of directors of the Depositor (or any other
committee of the board of directors of the Depositor performing similar
functions) or a committee designated by the board of directors of the Depositor
(or any such committee), comprised of two or more members of the board of
directors of the Depositor or officers of the Depositor, or both.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors, or such committee of the Board of
Directors or officers of the Depositor to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect on
the date of such certification, and delivered to the Issuer Trustees.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the City of New York, New York or in the
State of New Jersey are authorized or required by law or executive order to
remain closed or (c) a day on which the Property Trustee's Corporate Trust
Office or the Delaware Trustee's Corporate Trust Office or the Corporate Trust
Office of the Debenture Trustee is closed for business.
"Capital Treatment Event" means, in respect of any Issuer Trust, the
reasonable determination by the Depositor that, as a result of the occurrence of
any amendment to, or change (including any announced prospective change) in, the
laws (or any rules or regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of the
issuance of the Preferred Securities of such Issuer Trust, there is more than an
insubstantial risk that the Depositor will not be entitled to treat an amount
equal to the Liquidation Amount of such Preferred Securities as "Tier 1 Capital"
(or the then equivalent thereof) for purposes of the risk-based capital adequacy
guidelines of the Board of Governors of the Federal Reserve System, as then in
effect and applicable to the Depositor, provided, however that it shall not be
deemed to be a Capital Treatment Event if the Depositor is not entitled to treat
the aggregate amount of the Liquidation Amount of such Preferred Securities as
"Tier 1 Capital" due to the restriction imposed by the Federal Reserve that no
more than 25% of Tier 1 Capital can consist of perpetual preferred stock.
"Certificate Depositary Agreement" means the agreement among the Issuer
Trust, the Depositor and the Depository Trust Company ("DTC"), as the initial
Clearing Agency, dated as of the Closing Date, substantially in the form
attached as Exhibit B, as the same may be amended and supplemented from time to
time.
"Certificate of Trust" has the meaning specified in the preamble to
this Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC shall be the initial Clearing Agency.
<PAGE>
- 4 -
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Time of Delivery for the Firm Securities,
which date is also the date of execution and delivery of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended or any
successor statute, in each case as amended from time to time.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as Exhibit C.
"Common Security" means an undivided beneficial interest in the assets
of the Issuer Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Corporate Trust Office" means the principal office of the Property
Trustee located in the City of New York, New York, which at the time of the
execution of this Trust Agreement is located at Four Albany Street, New York,
New York 10006; Attention: Corporate Trust and Agency Group - Corporate Market
Services.
"Debenture Event of Default" means an "Event of Default" as defined in
the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption of such Debentures
under the Indenture.
"Debenture Trustee" means Bankers Trust Company, a New York banking
corporation and any successor.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the corporation identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Issuer Trust continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor trustee appointed as herein provided.
"Depositary" means the Depository Trust Company or any successor
thereto.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.1.
"DTC" means the Depository Trust Company.
<PAGE>
- 5 -
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of 30
days; or
(c) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (b) or (c) above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer Trustees and the Depositor by the
Holders of at least 25% in aggregate Liquidation Amount of the Outstanding
Preferred Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of any Bankruptcy Event with respect to the Property
Trustee or all or substantially all of its property if a successor Property
Trustee has not been appointed within a period of 90 days thereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute thereto, in each case as amended from time to
time.
"Expiration Date" has the meaning specified in Section 9.1.
"Firm Securities" means an aggregate Liquidation Amount of $25,000,000
of the Issuer Trust's ____% preferred securities.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 5.4.
"Guarantee Agreement" means the Guarantee Agreement executed and
delivered by the Depositor and Bankers Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the holders of the Preferred Securities, as amended from time to
time.
"Holder" means a Person in whose name a Trust Security or Trust
Securities is registered in the Securities Register; any such Person shall be
deemed to be a beneficial owner within the meaning of the Delaware Business
Trust Act.
<PAGE>
- 6 -
"Indenture" means the Junior Subordinated Indenture, dated as of
__________________, 1997, between the Depositor and the Debenture Trustee (as
amended or supplemented from time to time) relating to the issuance of the
Junior Subordinated Debentures.
"Investment Company Act" means the Investment Company Act of 1940, as
amended or any successor statute, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel experienced in such matters to the effect that, as a result
of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Issuer
Trust is or will be considered an "investment company" that is required to be
registered under the Investment Company Act, which change or prospective change
becomes effective or would become effective, as the case may be, on or after the
date of the issuance of the Preferred Securities.
"Issuer Trust" means Sun Capital Trust.
"Issuer Trustees" means, collectively, the Property Trustee and the
Delaware Trustee.
"Junior Subordinated Debentures" means the aggregate principal amount
of the Depositor's ____% junior subordinated deferrable interest debentures, due
________, 2027, issued pursuant to the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
Liquidation Amounts of such classes and (b) with respect to a distribution of
Junior Subordinated Debentures to Holders of Trust Securities in connection with
a dissolution or liquidation of the Issuer Trust, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the Holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Junior Subordinated
Debentures are to be distributed to Holders of Trust Securities in connection
with a dissolution and liquidation of the Issuer Trust pursuant to Section 9.4.
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"Majority in Liquidation Amount of the Preferred Securities" or
"Majority in Liquidation Amount of the Common Securities" means, except as
provided by the Trust Indenture Act, Preferred Securities or Common Securities,
as the case may be, representing more than 50% of the aggregate Liquidation
Amount of all then Outstanding Preferred Securities or Common Securities, as the
case may be.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, Chief Executive Officer, President or a Vice President, and by the
Chief Financial Officer, the Treasurer, an
<PAGE>
- 7 -
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Depositor,
and delivered to the party provided herein. Any Officers' Certificate delivered
with respect to compliance with a condition or covenant provided for in this
Trust Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer 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 such officer in rendering the Officers' Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Depositor or any Affiliate of the Depositor.
"Option Closing Date" shall have the meaning provided in the
Underwriting Agreement.
"Option Securities" means an aggregate Liquidation Amount of $3,750,000
of the Issuer Trust's ____% preferred securities, issuable to the Underwriters,
at its option, exercisable within 30 days after the date of the Prospectus,
solely to cover over-allotments, if any.
"Original Trust Agreement" has the meaning specified in the preamble to
this Trust Agreement.
"Outstanding," with respect to Trust Securities, means, as of the date
of determination, all Trust Securities theretofore executed and delivered under
this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities, provided that if such
Trust Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in lieu
of which other Trust Securities have been executed and delivered pursuant to
Sections 5.4, 5.5, 5.6 and 5.13; provided, however, that in determining whether
the Holders of the requisite Liquidation Amount of the Outstanding Preferred
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Preferred Securities owned by the Depositor, any
Issuer Trustee, any Administrator or any Affiliate of the Depositor shall be
disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Issuer Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Preferred
Securities that such Issuer Trustee or such Administrator, as the case may be,
knows to be so owned shall be so disregarded and (b) the foregoing shall not
apply at any time when all of the outstanding Preferred Securities are owned by
the Depositor, one or more of the Issuer Trustees, one or more of the
Administrators and/or any such
<PAGE>
- 8 -
Affiliate. Preferred Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Administrators the pledgee's right so to act with respect to such Preferred
Securities and that the pledgee is not the Depositor or any Affiliate of the
Depositor.
"Owner" means each Person who is the beneficial owner of Global
Preferred Securities as reflected in the records of the Clearing Agency or, if a
Clearing Agency Participant is not the Owner, then as reflected in the records
of a Person maintaining an account with such Clearing Agency, directly or
indirectly, in accordance with the rules of such Clearing Agency.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.10 and shall initially be the Property Trustee.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Property Trustee in
its trust department for the benefit of the Holders in which all amounts paid in
respect of the Junior Subordinated Debentures will be held and from which the
Property Trustee, through the Paying Agent, shall make payments to the Holders
in accordance with Sections 4.1 and 4.2.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Securities Certificate" means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as Exhibit
D.
"Preferred Security" means a Firm Security or an Option Security, each
constituting a preferred undivided beneficial interest in the assets of the
Issuer Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Property Trustee" means the Person identified as the "Property
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Issuer Trust formed and continued hereunder and not in
its individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date and
the stated maturity of the Junior Subordinated Debentures shall be a Redemption
Date for a Like Amount of Trust Securities, including but not limited to any
date of redemption pursuant to the occurrence of any Special Event.
"Redemption Price" means with respect to a redemption of any Trust
Security, the Liquidation Amount of such Trust Security, together with
accumulated but unpaid Distributions to but excluding the date fixed for
redemption, plus the related amount of the premium, if any, paid by the
Depositor upon the concurrent redemption of a Like Amount of Junior Subordinated
Debentures.
"Relevant Trustee" has the meaning specified in Section 8.10.
"Responsible Officer" when used with respect to the Property Trustee
means any officer assigned to the Corporate Trust Office, including any managing
director, vice president, assistant vice president, assistant treasurer,
assistant secretary or any other officer of the Property Trustee customarily
<PAGE>
- 9 -
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of the
Indenture, and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Special Event" means any Tax Event, Capital Treatment Event or
Investment Company Event.
"Successor Preferred Securities" of any particular Preferred Securities
Certificate means every Preferred Securities Certificate issued after, and
evidencing all or a portion of the same beneficial interest in the Issuer Trust
as that evidenced by, such particular Preferred Securities Certificate; and, for
the purposes of this definition, any Preferred Securities Certificate executed
and delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Preferred Securities Certificate shall be deemed to
evidence the same beneficial interest in the Issuer Trust as the mutilated,
destroyed, lost or stolen Preferred Securities Certificate.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of
Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such Opinion of Counsel, subject to United States federal income
tax with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Depositor on the Junior Subordinated
Debentures is not, or within 90 days of the delivery of such Opinion of Counsel
will not be, deductible by the Depositor, in whole or in part, for United States
federal income tax purposes, or (iii) the Issuer Trust is, or will be within 90
days of the delivery of such Opinion of Counsel, subject to more than a de
minimis amount of other taxes, duties or other governmental changes.
"Time of Delivery" means 10:00 a.m. Eastern Standard Time, either (i)
with respect to the Firm Securities or Common Securities, on the third Business
Day (unless postponed in accordance with the provisions of Section 9 of the
Underwriting Agreement) following the date of execution of the Underwriting
Agreement, or such other time not later than ten Business Days after such date
as shall be agreed upon by the Underwriters, the Issuer Trust and the Company,
or (ii) with respect to the Option Securities, the Option Closing Date.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including (i) all Exhibits hereto, and (ii) for
all purposes of this Amended and Restated Trust Agreement any such modification,
amendment or supplement, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this Amended and Restated Trust Agreement and
any modification, amendment or supplement, respectively.
<PAGE>
- 10 -
"Trust Indenture Act" means the Trust Indenture Act of 1939 or any
successor statute, in each case as amended from time to time.
"Trust Property" means (a) the Junior Subordinated Debentures, (b) any
cash on deposit in, or owing to, the Payment Account, and (c) all proceeds and
rights in respect of the foregoing and any other property and assets for the
time being held or deemed to be held by the Property Trustee pursuant to the
trusts of this Trust Agreement.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Underwriters" has the meaning specified in the Underwriting Agreement.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
__________, 1997, among the Issuer Trust, the Depositor and the Underwriters, as
the same may be amended from time to time.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name.
The Issuer Trust continued hereby shall be known as "Sun Capital
Trust", as such name may be modified from time to time by the Administrators
following written notice to the Holders of Trust Securities and the other Issuer
Trustees, in which name the Administrators and the Issuer Trustees may engage in
the transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Issuer Trust and sue and be sued.
SECTION 2.2. Office of the Delaware Trustee; Principal Place of
Business.
The address of the Delaware Trustee in the State of Delaware is Bankers
Trust (Delaware), 1001 Jefferson Street, Suite 550, Wilmington, DE 19801,
Attention: ___________, or such other address in the State of Delaware as the
Delaware Trustee may designate by written notice to the Holders and the
Depositor. The principal executive office of the Issuer Trust is in care of Sun
Bancorp, Inc., 226 Landis Avenue, Vineland, New Jersey 08360, Attention: Office
of the Secretary.
SECTION 2.3. Initial Contribution of Trust Property, Organizational
Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor
in connection with this Trust Agreement of the sum of $10, which constitutes the
initial Trust Property. The Depositor shall pay all organizational expenses of
the Issuer Trust as they arise or shall, upon request of any Issuer Trustee,
promptly reimburse such Issuer Trustee for any such reasonable expenses paid by
such Issuer Trustee. The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.
SECTION 2.4. Issuance of the Preferred Securities.
On __________, 1997, the Depositor, both on its own behalf and on
behalf of the Issuer Trust pursuant to the Original Trust Agreement, executed
and delivered the Underwriting Agreement. Contemporaneously with the execution
and delivery of this Trust Agreement, an Administrator, on behalf
<PAGE>
- 11 -
of the Issuer Trust, shall manually execute in accordance with Section 5.3 and
the Property Trustee shall authenticate in accordance with Section 5.3 and
deliver to the Underwriters, Firm Securities Certificates, registered in the
names requested by the Underwriters, in an aggregate amount of 1,000,000 Firm
Securities having an aggregate Liquidation Amount of $25,000,000, against
receipt of the aggregate purchase price of such Preferred Securities of
$25,000,000, by the Property Trustee. At the option of the Underwriters, within
30 days of the date of the Prospectus, and solely for the purpose of covering an
over-allotment, if any, an Administrator, on behalf of the Issuer Trust, shall
manually execute in accordance with Section 5.3 and the Property Trustee shall
authenticate in accordance with Section 5.4 and deliver to the Underwriters,
Option Securities Certificates, registered in the names requested by the
Underwriters, up to 150,000 Option Securities having an aggregate Liquidation
Amount of $3,750,000, against receipt of the aggregate purchase price of such
Option Securities of $3,750,000, by the Property Trustee.
SECTION 2.5. Issuance of the Common Securities; Subscription and
Purchase of Junior
Subordinated Debentures.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrator, on behalf of the Issuer Trust, shall manually
execute in accordance with Section 5.2 and deliver to the Depositor Common
Securities Certificates, registered in the name of the Depositor, in an
aggregate amount of 30,920 Common Securities having an aggregate Liquidation
Amount of $773,000 against receipt by the Property Trustee of the aggregate
purchase price of such Common Securities of $773,000 by the Property Trustee. In
the event of any exercise of an over-allotment option requiring issuance of
additional Preferred Securities Certificates, as described in Section 2.4 above,
a proportionate number of additional Common Securities Certificates, with
corresponding aggregate Liquidation Amount, shall be delivered to the Depositor.
Contemporaneously with the executions, and deliveries of Common Securities
Certificates and any Preferred Securities Certificates, an Administrator, on
behalf of the Issuer Trust, shall subscribe for and purchase from the Depositor
corresponding amounts of Junior Subordinated Debentures, registered in the name
of the Property Trustee and having an aggregate principal amount equal to
$25,773,000, plus, in the event of any exercise of the over-allotment option (i)
a corresponding additional number of Junior Subordinated Debentures not
exceeding an aggregate principal amount of $3,750,000 and (ii) a corresponding
number of Junior Subordinated Debentures not exceeding an aggregate principal
amount equal to the aggregate Liquidation Amount of Common Securities issued
pursuant to such exercise of an over-allotment option; and, in satisfaction of
the purchase price for such Junior Subordinated Debentures, the Property
Trustee, on behalf of the Issuer Trust, shall deliver to the Depositor the sum
of $25,773,000, plus any corresponding over-allotment option amount (being the
sum of the amounts delivered to the Property Trustee pursuant to (i) the second
sentence of Section 2.4, and (ii) the first and second sentences of this Section
2.5) and receive on behalf of the Issuer Trust the Junior Subordinated
Debentures.
SECTION 2.6. Declaration of Trust.
The exclusive purposes and functions of the Issuer Trust are to (a)
issue and sell Trust Securities and use the proceeds from such sale to acquire
the Junior Subordinated Debentures, and (b) engage in only those other
activities necessary or incidental thereto. The Depositor hereby appoints the
Issuer Trustees as trustees of the Issuer Trust, to have all the rights, powers
and duties to the extent set forth herein, and the Issuer Trustees hereby accept
such appointment. The Property Trustee hereby declares that it will hold the
Trust Property in trust upon and subject to the conditions set forth herein for
the benefit of the Issuer Trust and the Holders. The Depositor hereby appoints
the Administrators (as agents of the Issuer Trust), with such Administrators
having all rights, powers and duties set forth herein with respect to
accomplishing the purposes of the Issuer Trust, and the Administrators hereby
accept such appointment, provided, however, that it is the intent of the parties
hereto that such
<PAGE>
- 12 -
Administrators shall not be trustees or fiduciaries with respect to the Issuer
Trust and this Agreement shall be construed in a manner consistent with such
intent. The Property Trustee shall have the right and power to perform those
duties assigned to the Administrators. The Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities, of the Property Trustee or the Administrators set
forth herein. The Delaware Trustee shall be one of the trustees of the Issuer
Trust for the sole and limited purpose of fulfilling the requirements of Section
3807 of the Delaware Business Trust Act and for taking such actions as are
required to be taken by a Delaware Trustee under the Delaware Business Trust
Act.
SECTION 2.7. Authorization to Enter into Certain Transactions.
(a) The Issuer Trustees and the Administrators shall conduct the
affairs of the Issuer Trust in accordance with the terms of this Trust
Agreement. Subject to the limitations set forth in paragraph (b) of this Section
and in accordance with the following provisions (i), (ii) and (iii), the Issuer
Trustees and the Administrators shall act as follows:
(i) Each Administrator shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following:
(A) comply with the Underwriting Agreement regarding the
issuance and sale of the Trust Securities;
(B) the compliance with the Securities Act, applicable state
securities or blue sky laws, and the Trust Indenture Act;
(C) the listing of the Preferred Securities upon such securities
exchange or exchanges or upon the Nasdaq National Market as shall be
determined by the Depositor, with the registration of the Preferred
Securities under the Exchange Act, if required, and the preparation and
filing of all periodic and other reports and other documents pursuant
to the foregoing;
(D) the application for a taxpayer identification number for the
Issuer Trust; and
(E) the preparation of a registration statement and a prospectus
in relation to the Preferred Securities, including any amendments
thereto and the taking of any action necessary or desirable to sell the
Preferred Securities in a transaction or series of transactions subject
to the registration requirements of the Securities Act.
(F) any action incidental to the foregoing as necessary or
advisable to give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Junior Subordinated Debentures;
(C) the receipt and collection of interest, principal and any
other payments made in respect of the Junior Subordinated Debentures in
the Payment Account;
(D) the distribution of amounts owed to the Holders in respect
of the Trust Securities;
<PAGE>
- 13 -
(E) the exercise of all of the rights, powers and privileges of
a holder of the Junior Subordinated Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Junior Subordinated Debentures
to the Holders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Issuer Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware; and
(I) after an Event of Default (other than under paragraph (b),
(c), (d), or (f) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee), comply with the
provisions of this Trust Agreement and take any action to give effect
to the terms of this Trust Agreement and protect and conserve the Trust
Property for the benefit of the Holders (without consideration of the
effect of any such action on any particular Holder); provided, however,
that nothing in this Section 2.7(a)(ii) shall require the Property
Trustee to take any action that is not otherwise required in this Trust
Agreement.
(b) So long as this Trust Agreement remains in effect, the Issuer Trust
(or the Issuer Trustees or Administrators acting on behalf of the Issuer Trust)
shall not undertake any business, activities or transaction except as expressly
provided herein or contemplated hereby. In particular, neither the Issuer
Trustees nor the Administrators shall (i) acquire any investments or engage in
any activities not authorized by this Trust Agreement, (ii) sell, assign,
transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the
Trust Property or interests therein, including to Holders, except as expressly
provided herein, (iii) take any action that would reasonably be expected to
cause the Issuer Trust to become taxable as a corporation for United States
federal income tax purposes, (iv) incur any indebtedness for borrowed money or
issue any other debt, or (v) take or consent to any action that would result in
the placement of a Lien on any of the Trust Property. The Property Trustee shall
defend all claims and demands of all Persons at any time claiming any Lien on
any of the Trust Property adverse to the interest of the Issuer Trust or the
Holders in their capacity as Holders.
(c) In connection with the issue and sale of the Preferred Securities,
the Depositor shall have the power and authority to assist the Issuer Trust with
respect to, or effect on behalf of the Issuer Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation by the Issuer Trust of, and the execution and
delivery of, a registration statement, and a prospectus in relation to the
Preferred Securities, including any amendments thereto and the taking of any
action necessary or desirable to sell the Preferred Securities in a transaction
or a series of transactions subject to the registration requirements of the
Securities Act;
(ii) the determination of the States in which to take appropriate
action to qualify or register for sale all or part of the Preferred Securities
and the determination of any and all such acts, other than actions that must be
taken by or on behalf of the Issuer Trust, and the advice to the Issuer Trustees
of actions they must take on behalf of the Issuer Trust, and the preparation for
execution and filing of any documents to be executed and filed by the Issuer
<PAGE>
- 14 -
Trust or on behalf of the Issuer Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable
laws of any such States in connection with the sale of the
Preferred Securities;
(iii) the negotiation of the terms of, and the execution and
delivery of, the Underwriting Agreement providing for the sale of the Preferred
Securities;
(iv) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities; and
(v) compliance with the listing requirements of the Preferred
Securities upon such securities exchange or exchanges, or upon the Nasdaq
National Market, as shall be determined by the Depositor, the registration of
the Preferred Securities under the Exchange Act, if required, and the
preparation and filing of all periodic and other reports and other documents
pursuant to the foregoing.
(d) Notwithstanding anything herein to the contrary, the Administrators
and the Property Trustee are authorized and directed to conduct the affairs of
the Issuer Trust and to operate the Issuer Trust so that the Issuer Trust will
not be deemed to be an "investment company" required to be registered under the
Investment Company Act, and will not be taxable as a corporation for the United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Depositor for United States
income tax purposes. In this connection, the Property Trustee, the
Administrators and the Holders of Common Securities are authorized to take any
action, not inconsistent with applicable law, the Certificate of Trust or this
Trust Agreement, that the Property Trustee, the Administrators and Holders of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not adversely affect in any material
respect the interests of the holders of the Outstanding Preferred Securities. In
no event shall the Administrators or the Issuer Trustees be liable to the Issuer
Trust or the Holders for any failure to comply with this section that results
from a change in law or regulations or in the interpretation thereof.
SECTION 2.8. Assets of Trust.
The assets of the Issuer Trust shall consist solely of the Trust
Property.
SECTION 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Issuer Trust and the Holders in
accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and its agents shall have
exclusive control and sole right of withdrawal with respect to the Payment
Account for the purpose of making deposits in and withdrawals from the Payment
Account in accordance with this Trust Agreement. All monies and other property
deposited or held from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit of the Holders
and for distribution as herein provided, including (and subject to) any priority
of payments provided for herein.
<PAGE>
- 15 -
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Junior Subordinated Debentures.
Amounts held in the Payment Account shall not be invested by the Property
Trustee pending distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests in
the Trust Property, and Distributions (including Distributions of Additional
Amounts) will be made on the Trust Securities at the rate and on the dates that
payments of interest (including payments of Additional Interest, as defined in
the Indenture) are made on the Junior Subordinated Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative and
will accumulate whether or not there are funds of the Issuer Trust
available for the payment of Distributions. Distributions shall
accumulate from __________________, 1997, and, except in the event (and
to the extent) that the Depositor exercises its right to defer the
payment of interest on the Debentures pursuant to the Indenture, shall
be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing on June 30, 1997. If any date on
which a Distribution is otherwise payable on the Trust Securities is
not a Business Day, then the payment of such Distribution shall be made
on the next succeeding day that is a Business Day (without any interest
or other payment in respect of any such delay), with the same force and
effect as if made on the date on which such payment was originally
payable (each date on which distributions are payable in accordance
with this Section 4.1(a), a "Distribution Date").
(ii) The Trust Securities shall be entitled to Distributions
payable at a rate of ____% per annum of the Liquidation Amount of the
Trust Securities. The amount of Distributions payable for any period
less than a full Distribution period shall be computed on the basis of
a 360-day year of twelve 30-day months and the actual number of days
elapsed in a partial month in a period. Distributions payable for each
full Distribution period will be computed by dividing the rate per
annum by four. The amount of Distributions payable for any period shall
include any Additional Amounts in respect of such period.
(iii) So long as no Debenture Event of Default has occurred and
is continuing, the Depositor has the right under the Indenture to defer
the payment of interest on the Junior Subordinated Debentures at any
time and from time to time for a period not exceeding 20 consecutive
quarterly periods (an "Extension Period"), provided that no Extension
Period may extend beyond __________, 2027. As a consequence of any such
deferral, quarterly Distributions on the Trust Securities by the Trust
will also be deferred (and the amount of Distributions to which Holders
of the Trust Securities are entitled will accumulate additional
Distributions thereon at the rate per annum of ____% per annum,
compounded quarterly) from the relevant payment date for such
Distributions, computed on the basis of a 360- day year of twelve
30-day months and the actual days elapsed in a partial month in such
period. Additional Distributions payable for each full Distribution
period will be computed by dividing
<PAGE>
- 16 -
the rate per annum by four (4). The term "Distributions" as used in
Section 4.1 shall include any such additional Distributions provided
pursuant to this Section 4.1(a)(iii).
(iv) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Issuer Trust has funds
then on hand and available in the Payment Account for the payment of
such Distributions.
(b) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities at the close of business on the
relevant record date, which shall be at the close of business on the 15th day of
March, June, September or December (whether or not a Business Day).
SECTION 4.2. Redemption.
(a) On each Junior Subordinated Debenture Redemption Date and on the
stated maturity of the Junior Subordinated Debentures, the Issuer Trust will be
required to redeem a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price, or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the
estimate of the Redemption Price provided pursuant to the Indenture
together with a statement that it is an estimate and that the actual
Redemption Price will be calculated on the third Business Day prior to
the Redemption Date (and if an estimate is provided, a further notice
shall be sent of the actual Redemption Price on the date, or as soon as
practicable thereafter, that notice of such actual Redemption Price is
received pursuant to the Indenture);
(iii) the CUSIP number or CUSIP numbers of the Preferred
Securities affected;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after said date,
except as provided in Section 4.2(d) below; and
(vi) the place or places where Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities shall use "CUSIP"
numbers, and the Property Trustee shall indicate the "CUSIP" numbers of the
Trust Securities in notices of redemption and related materials as a convenience
to Holders; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Trust
Securities or as contained in any notice of redemption and related material.
<PAGE>
- 17 -
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of Junior Subordinated Debentures. Redemptions of the
Trust Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds then on hand
and available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 4.2(c), the Property Trustee will, with
respect to Preferred Securities held in global form, irrevocably deposit with
the Clearing Agency for such Preferred Securities, to the extent available
therefor, funds sufficient to pay the applicable Redemption Price and will give
such Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the Holders of the Preferred Securities. With respect to
Preferred Securities that are not held in global form, the Property Trustee,
subject to Section 4.2(c), will irrevocably deposit with the Paying Agent, to
the extent available therefor, funds sufficient to pay the applicable Redemption
Price and will give the Paying Agent irrevocable instructions and authority to
pay the Redemption Price to the Holder of the Preferred Securities upon
surrender of their Preferred Securities Certificates. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Trust Securities called for redemption shall be payable to the Holders of such
Trust Securities as they appear on the Register for the Trust Securities on the
relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then, upon the
date of such deposit, all rights of Holders holding Trust Securities so called
for redemption will cease, except the right of such Holders to receive the
Redemption Price and any Distribution payable in respect of the Trust Securities
on or prior to the Redemption Date, but without interest, and such Securities
will cease to be Outstanding. In the event that any date on which any applicable
Redemption Price is payable is not a Business Day, then payment of the
applicable Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day, in each case, with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or refused and not paid
either by the Issuer Trust or by the Depositor pursuant to the Guarantee
Agreement, Distributions on such Trust Securities will continue to accumulate,
as set forth in Section 4.1, from the Redemption Date originally established by
the Issuer Trust for such Trust Securities to the date such applicable
Redemption Price is actually paid, in which case the actual payment date will be
the date fixed for redemption for purposes of calculating the applicable
Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the particular
Preferred Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Property Trustee from the Outstanding
Preferred Securities not previously called for redemption in such a manner as
the Property Trustee shall deem fair and appropriate.
SECTION 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, the Redemption Price of, and the Liquidation Distribution in
respect of, the Trust Securities, as applicable, shall be made, subject to
Section 4.2(e), pro rata among the Common Securities and the Preferred
Securities based on the Liquidation Amount of such Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date any Event of
Default resulting from a Debenture Event of Default in Section 5.1(1) or 5.1(2)
of the Indenture shall have occurred and be continuing, no payment of any
Distribution (including any Additional Amounts) on, Redemption Price of, or
Liquidation Distribution
<PAGE>
- 18 -
in respect of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions
(including any Additional Amounts) on all Outstanding Preferred Securities for
all Distribution periods terminating on or prior thereto, or, in the case of
payment of the Redemption Price, the full amount of such Redemption Price on all
Outstanding Preferred Securities then called for redemption, or in the case of
payment of the Liquidation Distribution the full amount of such Liquidation
Distribution on all Outstanding Preferred Securities, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions (including
any Additional Amounts) on, or the Redemption Price of, Preferred Securities
then due and payable. The existence of an Event of Default does not entitle the
Holders of Preferred Securities to accelerate the maturity thereof.
(b) In the case of the occurrence of any Event of Default resulting
from any Debenture Event of Default, the Holder of the Common Securities shall
have no right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until all
such Events of Default under this Trust Agreement with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Preferred Securities
and not on behalf of the Holder of the Common Securities, and only the Holders
of the Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
SECTION 4.4. Payment Procedures.
Payments of Distributions (including any Additional Amounts) in respect
of the Preferred Securities shall be made by check mailed to the address of the
Person entitled thereto as such address shall appear on the Securities Register
or, if the Preferred Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which will credit the relevant accounts on the applicable Distribution
Dates. Payments of Distributions to Holders of $1,000,000 or more in aggregate
Liquidation Amount of Preferred Securities may be made by wire transfer of
immediately available funds upon written request of such Holder of Preferred
Securities to the Securities Registrar not later than 15 calendar days prior to
the date on which the Distribution is payable. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Holder of the Common Securities.
SECTION 4.5. Tax Returns and Reports.
The Administrators shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Issuer Trust. In this regard, the Administrators shall (a) prepare and file (or
cause to be prepared and filed) all Internal Revenue Service forms required to
be filed in respect of the Issuer Trust in each taxable year of the Issuer Trust
and (b) prepare and furnish (or cause to be prepared and furnished) to each
Holder all Internal Revenue Service forms required to be provided by the Issuer
Trust. The Administrators shall provide the Depositor and the Property Trustee
with a copy of all such returns and reports promptly after such filing or
furnishing. The Issuer Trustees and the Administrators shall comply with United
States federal withholding and backup withholding tax laws and information
reporting requirements with respect to any payments to Holders under the Trust
Securities.
On or before December 15 of each year during which any Preferred
Securities are outstanding, the Administrators shall furnish to the Paying Agent
such information as may be reasonably requested by the Property Trustee in order
that the Property Trustee may prepare the information which it is required to
report for such year on Internal Revenue Service Forms 1096 and 1099 pursuant to
Section 6049 of the Internal Revenue Code of 1986, as amended. Such information
shall include the amount of original issue discount includible in income for
each outstanding Preferred Security during such year.
<PAGE>
- 19 -
SECTION 4.6. Payment of Taxes; Duties, Etc. of the Issuer Trust.
Upon receipt under the Junior Subordinated Debentures of Additional
Sums, the Property Trustee shall promptly pay any taxes, duties or governmental
charges of whatsoever nature (other than withholding taxes) imposed on the
Issuer Trust by the United States or any other taxing authority.
SECTION 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder has
directly received pursuant to Section 5.8 of the Indenture or Section 5.13 of
this Trust Agreement.
SECTION 4.8. Liability of the Holder of Common Securities.
The Holder of Common Securities shall be liable for the debts and
obligations of the Issuer Trust as set forth in Section 6.7 of the Indenture
regarding allocation of expenses.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership.
Upon the formation of the Issuer Trust and the contribution by the
Depositor pursuant to Section 2.3 and until the issuance of the Trust
Securities, and at any time during which no Trust Securities are outstanding,
the Depositor shall be the sole beneficial owner of the Issuer Trust.
SECTION 5.2. The Trust Securities Certificates.
(a) The Trust Securities Certificates shall be executed on behalf of
the Issuer Trust by manual or facsimile signature of at least one Administrator
except as provided in Section 5.3. Trust Securities Certificates bearing the
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Issuer Trust, shall be validly
issued and entitled to the benefits of this Trust Agreement, notwithstanding
that such individuals or any of them shall have ceased to be so authorized prior
to the delivery of such Trust Securities Certificates or did not hold such
offices at the date of delivery of such Trust Securities Certificates. A
transferee of a Trust Securities Certificate shall become a Holder, and shall be
entitled to the rights and subject to the obligations of a Holder hereunder,
upon due registration of such Trust Securities Certificate in such transferee's
name pursuant to Section 5.5.
(b) Upon their original issuance, Preferred Securities Certificates
shall be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of the
Depositary and registered in the name of the Depositary's nominee. Unless and
until it is exchangeable in whole or in part for the Preferred Securities in
definitive form, a global security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
<PAGE>
- 20 -
SECTION 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, the Administrators shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.4 and 2.5, to be executed on behalf of the Issuer Trust and delivered
to the Property Trustee and upon such delivery the Property Trustee shall
countersign and register such Trust Securities Certificates and deliver such
Trust Securities Certificates upon the written order of the Depositor, executed
by two authorized officers thereof, without further corporate action by the
Depositor, in authorized denominations.
SECTION 5.4. Global Preferred Security.
(a) Any Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the nominee of the Clearing Agency and
delivered to such custodian therefor, and such Global Preferred Security shall
constitute a single Preferred Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a
Global Preferred Security may not be exchanged in whole or in part for Preferred
Securities registered, and no transfer of the Global Preferred Security in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Preferred Security, or its nominee thereof unless (i)
such Clearing Agency advises the Property Trustee in writing that such Clearing
Agency is no longer willing or able to properly discharge its responsibilities
as Clearing Agency with respect to such Global Preferred Security, and the
Depositor is unable to locate a qualified successor, (ii) the Issuer Trust at
its option advises the Depositary in writing that it elects to terminate the
book-entry system through the Clearing Agency, or (iii) there shall have
occurred and be continuing an Event of Default.
(c) If a Preferred Security is to be exchanged in whole or in part for
a beneficial interest in a Global Preferred Security, then either (i) such
Global Preferred Security shall be so surrendered for exchange or cancellation
as provided in this Article V or (ii) the Liquidation Amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or equal to the Liquidation Amount of such other
Preferred Security to be so exchanged for a beneficial interest therein, as the
case may be, by means of an appropriate adjustment made on the records of the
Security Registrar, whereupon the Property Trustee, in accordance with the
Applicable Procedures, shall instruct the Clearing Agency or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Preferred Security by the Clearing Agency,
accompanied by registration instructions, the Administrators shall execute and
the Property Trustee shall, subject to Section 5.4(b) and as otherwise provided
in this Article V, countersign, register and deliver any Preferred Securities
issuable in exchange for such Global Preferred Security (or any portion thereof)
in accordance with the instructions of the Clearing Agency. The Property Trustee
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) Every Preferred Security countersigned, registered and delivered
upon registration of transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article V or
Article IV or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Preferred Security, unless such Global Preferred Security
is registered in the name of a Person other than the Clearing Agency for such
Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a
Global Preferred Security, shall be considered the Holder of the Preferred
Securities represented by such Global Preferred Security for all purposes under
this Trust Agreement and the Preferred Securities, and owners of beneficial
interests in such Global Preferred Security shall hold such interests pursuant
to the Applicable Procedures and, except as otherwise provided herein, shall not
be entitled to receive physical delivery
<PAGE>
- 21 -
of any such Preferred Securities in definitive form and shall not be considered
the Holders thereof under this Trust Agreement. Accordingly, any such owner's
beneficial interest in the Global Preferred Security shall be shown only on, and
the transfer of such interest shall be effected only through, records maintained
by the Clearing Agency or its nominee. Neither the Property Trustee, the
Securities Registrar nor the Depositor shall have any liability in respect of
any transfers effected by the Clearing Agency.
(f) The rights of owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such owners and the
Clearing Agency.
SECTION 5.5. Registration of Transfer and Exchange Generally; Certain
Transfers and Exchanges; Preferred Securities Certificates.
(a) The Property Trustee shall keep or cause to be kept at its
Corporate Trust Office a register or registers for the purpose of registering
Preferred Securities Certificates and transfers and exchanges of Preferred
Securities Certificates in which the registrar and transfer agent with respect
to the Preferred Securities (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Preferred Securities Certificates and Common Securities Certificates (subject
to Section 5.11 in the case of Common Securities Certificates) and registration
of transfers and exchanges of Preferred Securities Certificates as herein
provided. Such register is herein sometimes referred to as the "Securities
Register." The Property Trustee is hereby appointed "Securities Registrar" for
the purpose of registering Preferred Securities and transfers of Preferred
Securities as herein provided.
Upon surrender for registration of transfer of any Preferred Security
at the offices or agencies of the Property Trustee designated for that purpose,
the Administrators and the Property Trustee shall execute, countersign, register
and deliver, in the name of the designated transferee or transferees, one or
more new Preferred Securities of the same series of any authorized denominations
of like tenor and aggregate principal amount and bearing such legends as may be
required by this Trust Agreement.
At the option of the Holder, Preferred Securities may be exchanged for
other Preferred Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such legends as may be required by this
Trust Agreement, upon surrender of the Preferred Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Administrators shall execute and the Property Trustee shall countersign,
register and deliver the Preferred Securities that the Holder making the
exchange is entitled to receive.
All Preferred Securities issued upon any transfer or exchange of
Preferred Securities shall be the valid obligations of the Issuer Trust,
evidencing the same debt, and entitled to the same benefits under this Trust
Agreement, as the Preferred Securities surrendered upon such transfer or
exchange.
Every Preferred Security presented or surrendered for transfer or
exchange shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Property Trustee and the Securities Registrar, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Preferred Securities, but the Property Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of Preferred Securities.
<PAGE>
- 22 -
Neither the Issuer Trust nor the Property Trustee shall be required,
pursuant to the provisions of this Section, (i) to issue, register the transfer
of or exchange any Preferred Security during a period beginning at the opening
of business 15 days before the day of selection for redemption of Preferred
Securities pursuant to Article IV and ending at the close of business on the day
of mailing of the notice of redemption, or (ii) to register the transfer of or
exchange any Preferred Security so selected for redemption in whole or in part,
except, in the case of any such Preferred Security to be redeemed in part, any
portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. Any transfer or purported transfer of any
Trust Security not made in accordance with this Trust Agreement shall be null
and void.
(i) Non Global Security to Non Global Security. A Trust Security
that is not a Global Preferred Security may be transferred, in whole or
in part, to a Person who takes delivery in the form of another Trust
Security that is not a Global Security as provided in Section 5.5(a).
(ii) Free Transferability. Subject to this Section 5.5,
Preferred Securities shall be freely transferable.
(iii) Exchanges Between Global Preferred Security and Non-Global
Preferred Security. A beneficial interest in a Global Preferred
Security may be exchanged for a Preferred Security that is not a Global
Preferred Security as provided in Section 5.4.
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrators such security or indemnity as may be required
by them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser,
the Administrators, or any one of them, on behalf of the Issuer Trust shall
execute and make available for delivery, and the Property Trustee shall
countersign and register, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrators or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Securities Certificate issued pursuant
to this Section shall constitute conclusive evidence of an undivided beneficial
interest in the assets of the Issuer Trust corresponding to that evidenced by
the lost, stolen or destroyed Trust Certificate, as if originally issued,
whether or not the lost, stolen or destroyed Trust Securities Certificate shall
be found at any time.
SECTION 5.7. Persons Deemed Holders.
The Issuer Trustees, the Securities Registrar or the Depositor shall
treat the Person in whose name any Trust Securities are issued as the owner of
such Trust Securities for the purpose of receiving Distributions and for all
other purposes whatsoever, and none of the Issuer Trustees, the Administrators,
the Securities Registrar nor the Depositor shall be bound by any notice to the
contrary.
<PAGE>
- 23 -
SECTION 5.8. Access to List of Holders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold
the Depositor, the Property Trustee, or the Administrators accountable by reason
of the disclosure of its name and address, regardless of the source from which
such information was derived.
SECTION 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Preferred Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
Corporate Trust Office at Four Albany Street, New York, NY 10006, Attention:
Corporate Trust and Agency Group - Corporate Market Services, as its corporate
trust office for such purposes. The Property Trustee shall give prompt written
notice to the Depositor, the Administrators and to the Holders of any change in
the location of the Securities Register or any such office or agency.
SECTION 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Holders from the Payment
Account and shall report the amounts of such Distributions to the Property
Trustee and the Administrators. Any Paying Agent shall have the revocable power
to withdraw funds from the Payment Account solely for the purpose of making the
Distributions referred to above. The Property Trustee may revoke such power and
remove any Paying Agent in its sole discretion. The Paying Agent shall initially
be the Property Trustee. Any Person acting as Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Administrators, and
the Property Trustee. In the event that the Property Trustee shall no longer be
the Paying Agent or a successor Paying Agent shall resign or its authority to
act be revoked, the Property Trustee shall appoint a successor (which shall be a
bank or trust company) that is reasonably acceptable to the Administrators to
act as Paying Agent. Such successor Paying Agent or any additional Paying Agent
appointed by the Administrators shall execute and deliver to the Issuer Trustees
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Issuer Trustees that as Paying Agent, such successor Paying
Agent or additional Paying Agent will hold all sums, if any, held by it for
payment to the Holders in trust for the benefit of the Holders entitled thereto
until such sums shall be paid to such Holders. The Paying Agent shall return all
unclaimed funds to the Property Trustee and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to the Property
Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the
Bank also in its role as Paying Agent, for so long as the Bank shall act as
Paying Agent and, to the extent applicable, to any other paying agent appointed
hereunder. Any reference in this Trust Agreement to the Paying Agent shall
include any co-paying agent chosen by the Property Trustee unless the context
requires otherwise.
SECTION 5.11. Ownership of Common Securities by Depositor.
At each Time of Delivery, the Depositor shall acquire and retain
beneficial and record ownership of the Common Securities except (i) in
connection with a consolidation or merger of the Depositor into another
corporation or any conveyance, transfer or lease by the Depositor of its
properties and assets substantially as an entirety to any Person, pursuant to
Section 8.1 of the Indenture, or (ii) a transfer to an Affiliate of the
Depositor in compliance with applicable law (including the Securities Act and
applicable state securities and blue sky laws). To the fullest extent permitted
by law, any attempted transfer of the Common Securities shall be void. The
Administrators shall cause each Common Securities
<PAGE>
- 24 -
Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR IN INTEREST TO THE
DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND
SECTION 5.11 OF THE TRUST AGREEMENT."
SECTION 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Administrators and
the Issuer Trustees shall give all such notices and communications specified
herein to be given to the Clearing Agency, and shall have no obligations to the
Owners.
SECTION 5.13. Rights of Holders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Holders shall not have any right or title therein other than the undivided
beneficial interest in the assets of the Issuer Trust conferred by their Trust
Securities and they shall have no right to call for any partition or division of
property, profits or rights of the Issuer Trust except as described below. The
Trust Securities shall be personal property giving only the rights specifically
set forth therein and in this Trust Agreement. The Trust Securities shall have
no preemptive or similar rights and when issued and delivered to Holders against
payment of the purchase price therefor will be fully paid and nonassessable by
the Issuer Trust. Subject to Section 4.8 hereof the Holders of the Trust
Securities, in their capacities as such, shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have such
right to make such declaration by a notice in writing to the Property Trustee,
the Depositor and the Debenture Trustee.
At any time after such a declaration of acceleration with respect to
the Junior Subordinated Debentures has been made and before a judgment or decree
for payment of the money due has been obtained by the Debenture Trustee as
provided in the Indenture, the Holders of a majority in Liquidation Amount of
the Preferred Securities, by written notice to the Property Trustee, the
Depositor and the Debenture Trustee, may rescind and annul such declaration and
its consequences if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest on all of the
Junior Subordinated Debentures,
(B) any accrued Additional Interest on all of the Junior
Subordinated Debentures,
(C) the principal of (and premium, if any, on) any Junior
Subordinated Debentures which have become due otherwise than by
such declaration of acceleration and interest and Additional
Interest thereon at the rate borne by the Junior Subordinated
Debentures, and
<PAGE>
- 25 -
(D) all sums paid or advanced by the Debenture Trustee
under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee and the
Property Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Junior
Subordinated Debentures, other than the non-payment of the
principal of the Junior Subordinated Debentures which has become
due solely by such acceleration, have been cured or waived as
provided in Section 5.13 of the Indenture.
If the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor, the
Property Trustee and the Debenture Trustee, subject to the satisfaction of the
conditions set forth in Clause (i) and (ii) of this Section 5.13.
The Holders of at least a Majority in Liquidation Amount of the
Preferred Securities may, on behalf of the Holders of all the Preferred
Securities, waive any past default under the Indenture, except a default in the
payment of principal or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debentures. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such
an acceleration, or rescission and annulment thereof, by Holders of the
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.13(b).
(c) For so long as any Preferred Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Preferred Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.9 of the Indenture, for enforcement of payment to such Holder of the
principal amount of or interest on Junior Subordinated Debentures having an
aggregate principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such Holder (a "Direct Action"). Except as set forth in
Sections 5.13(b) and 5.13 (c), the Holders of Preferred Securities shall have no
right to exercise directly any right or remedy available to the holders of, or
in respect of, the Junior Subordinated Debentures.
<PAGE>
- 26 -
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Holder's Voting Rights.
(a) Except as provided in this Trust Agreement and in the Indenture and
as otherwise required by law, no Holder of Preferred Securities shall have any
right to vote or in any manner otherwise control the administration, operation
and management of the Issuer Trust or the obligations of the parties hereto, nor
shall anything herein set forth or contained in the terms of the Trust
Securities Certificates be construed so as to constitute the Holders from time
to time as members of an association.
(b) So long as any Junior Subordinated Debentures are held by the
Property Trustee on behalf of the Issuer Trust, the Property Trustee shall not
(i) direct the time, method and place of conducting any proceeding for any
remedy available to the Debenture Trustee, or executing any trust or power
conferred on the Property Trustee with respect to such Junior Subordinated
Debentures, (ii) waive any past default that may be waived under Section 5.13 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Junior Subordinated Debentures shall be due and payable
or (iv) consent to any amendment, modification or termination of the Indenture
or the Junior Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the Holders of at least a
Majority in Liquidation Amount of the Preferred Securities, provided, however,
that where a consent under the Indenture would require the consent of each
Holder of Junior Subordinated Debentures affected thereby, no such consent shall
be given by the Property Trustee without the prior written consent of each
Holder of Preferred Securities. The Property Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of Preferred
Securities, except by a subsequent vote of the Holders of Preferred Securities.
The Property Trustee shall notify all Holders of the Preferred Securities of any
notice of default received with respect to the Junior Subordinated Debentures.
In addition to obtaining the foregoing approvals of the Holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Issuer Trustees
shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced
in such matters to the effect that such action will not cause the Issuer Trust
to be taxable as a corporation for United States federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Issuer Trust otherwise proposes to effect, (i) any action that would
adversely affect in any material respect the interests, powers, preferences or
special rights of the Preferred Securities, whether by way of amendment to the
Trust Agreement or otherwise, or (ii) the dissolution of the Issuer Trust, other
than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Trust Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a Majority in Liquidation
Amount of the Preferred Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Issuer Trust to be taxable as a
corporation for United States federal income tax purposes.
SECTION 6.2. Notice of Meetings.
Notice of all meetings of the Holders, stating the time, place and
purpose of the meeting, shall be given by the Property Trustee pursuant to
Section 10.8 to each Holder of record, at his registered address, at least 15
days and not more than 90 days before the meeting. At any such meeting, any
business properly before the meeting may be so considered whether or not stated
in the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
<PAGE>
- 27 -
SECTION 6.3. Meetings of Holders.
No annual meeting of Holders is required to be held. The Property
Trustee, however, shall call a meeting of Holders to vote on any matter upon the
written request of the Holders of record of 25% of the aggregate Liquidation
Amount of the Preferred Securities and the Administrators or the Property
Trustee may, at any time in their discretion, call a meeting of Holders of
Preferred Securities to vote on any matters as to which Holders are entitled to
vote.
Holders of at least a Majority in Liquidation Amount of the Preferred
Securities, present in person or represented by proxy, shall constitute a quorum
at any meeting of Holders of the Preferred Securities.
If a quorum is present at a meeting, an affirmative vote by the Holders
of record present, in person or by proxy, holding Preferred Securities
representing at least a Majority in Liquidation Amount of the Preferred
Securities held by the Holders present, either in person or by proxy, at such
meeting shall constitute the action of the Holders of Preferred Securities,
unless this Trust Agreement requires a greater number of affirmative votes.
SECTION 6.4. Voting Rights.
Holders shall be entitled to one vote for each $25 of Liquidation
Amount represented by their Outstanding Trust Securities in respect of any
matter as to which such Holders are entitled to vote.
SECTION 6.5. Proxies, etc.
At any meeting of Holders, any Holder entitled to vote thereat may vote
by proxy, provided that no proxy shall be voted at any meeting unless it shall
have been placed on file with the Property Trustee, or with such other officer
or agent of the Issuer Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only Holders
of record shall be entitled to vote. When Trust Securities are held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 6.6. Holder Action by Written Consent.
Any action which may be taken by Holders at a meeting may be taken
without a meeting if Holders holding at least a Majority in Liquidation Amount
of all Trust Securities entitled to vote in respect of such action (or such
larger proportion thereof as shall be required by any other provision of this
Trust Agreement) shall consent to the action in writing.
SECTION 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Holders who are entitled to notice
of and to vote at any meeting or by written consent, or to participate in any
distribution on the Trust Securities in respect of which a record date is not
otherwise provided for in this Trust Agreement, or for the purpose of any
<PAGE>
- 28 -
other action, the Administrators or Property Trustee may from time to time fix a
date, not more than 90 days prior to the date of any meeting of Holders or the
payment of a distribution or other action, as the case may be, as a record date
for the determination of the identity of the Holders of record for such
purposes.
SECTION 6.8. Acts of Holders.
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as otherwise expressly provided herein,
such action shall become effective when such instrument or instruments are
delivered to the Property Trustee. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Trust Agreement and (subject to Section
8.1) conclusive in favor of the Issuer Trustees, if made in the manner provided
in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Issuer Trustee or Administrator receiving the same deems
sufficient.
The ownership of Trust Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Trust Security shall bind every future Holder
of the same Trust Security and the Holder of every Trust Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Issuer
Trustees, the Administrators or the Issuer Trust in reliance thereon, whether or
not notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise among the Holders, the Administrators or the
Issuer Trustees with respect to the authenticity, validity or binding nature of
any request, demand, authorization, direction, consent, waiver or other Act of
such Holder or Issuer Trustee under this Article VI, then the determination of
such matter by the Property Trustee shall be conclusive with respect to such
matter.
A Holder may institute a legal proceeding directly against the
Depositor under the Guarantee Agreement to enforce its rights under the
Guarantee Agreement without first instituting a legal proceeding against the
Guarantee Trustee (as defined in the Guarantee Agreement), the Issuer Trust, any
Issuer Trustee, any Administrator or any person or entity.
<PAGE>
- 29 -
SECTION 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee,
the records of the Issuer Trust shall be open to inspection by Holders during
normal business hours for any purpose reasonably related to such Holder's
interest as a Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf
of and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Holders that:
(a) The Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of New
York, with trust power and authority to execute and deliver, and to carry out
and perform its obligations under the terms of this Trust Agreement.
(b) The execution, delivery and performance by the Property Trustee of
this Trust Agreement has been duly authorized by all necessary corporate action
on the part of the Property Trustee; and this Trust Agreement has been duly
executed and delivered by the Property Trustee, and constitutes a legal, valid
and binding obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of this Trust Agreement by
the Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) At the Time of Delivery, the Property Trustee has not knowingly
created any liens or encumbrances on the Trust Securities.
(e) 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 Trust
Agreement.
(f) 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, the Trust Agreement.
(g) The execution, delivery and performance by the Delaware Trustee of
this Trust Agreement has been duly authorized by all necessary corporate action
on the part of the Delaware Trustee; and this Trust Agreement 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' right
generally and to general principles of equity and the discretion
<PAGE>
- 30 -
of the court (regardless of whether the enforcement of such remedies is
considered in a proceeding in equity or at law).
(h) The execution, delivery and performance of this Trust Agreement by
the Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(i) No consent, approval or authorization of, or registration with or
notice to any state or Federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee, of this Trust Agreement.
(j) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware.
SECTION 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Holders that:
(a) the Trust Securities Certificates issued at the Time of Delivery on
behalf of the Issuer Trust have been duly authorized and will have been duly and
validly executed, and, subject to payment therefor, issued and delivered by the
Issuer Trustees pursuant to the terms and provisions of, and in accordance with
the requirements of, this Trust Agreement, and the Holders will be, as of each
such date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under
the laws of the State of Delaware or any political subdivision thereof in
connection with the execution, delivery and performance by either the Property
Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Issuer Trustees and the
Administrators shall be as provided by this Trust Agreement and, in the case of
the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing,
no provision of this Trust Agreement shall require the Issuer Trustees or the
Administrators to expend or risk their own funds or otherwise incur any
financial liability in the performance of any of their duties hereunder, or in
the exercise of any of their rights or powers, if they shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it or them. Whether or not
therein expressly so provided, every provision of this Trust Agreement relating
to the conduct or affecting the liability of or affording protection to the
Issuer Trustees or the Administrators shall be subject to the provisions of this
Section. Nothing in this Trust Agreement shall be construed to release an
Administrator or the Issuer Trustees from liability for his or its own negligent
action, his or its own negligent failure to act, or his or its own willful
misconduct. To the extent that, at law or in equity, an Issuer Trustee or
Administrator has duties and liabilities relating to the Issuer Trust or to the
Holders, such Issuer Trustee or Administrator shall not be liable to the Issuer
Trust or to any Holder for such Issuer Trustee's or Administrator's good faith
reliance on the provisions of this Trust Agreement. The provisions of this Trust
Agreement, to the extent that they restrict the duties and liabilities of the
Issuer Trustees and
<PAGE>
- 31 -
Administrators otherwise existing at law or in equity, are agreed by the
Depositor and the Holders to replace his or such other duties and liabilities of
the Issuer Trustees and Administrators.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each Holder,
by his or its acceptance of a Trust Security, agrees that he or it will look
solely to the revenue and proceeds from the Trust Property to the extent legally
available for distribution to it or him as herein provided and that neither the
Issuer Trustees nor the Administrators are personally liable to it or him for
any amount distributable in respect of any Trust Security or for any other
liability in respect of any Trust Security. This Section 8.1(b) does not limit
the liability of the Issuer Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
(c) The Property 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
Trust Agreement (including pursuant to Section 10.10), and no implied covenants
shall be read into this Trust Agreement against the Property Trustee. If an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 5.13 of the Indenture), the Property Trustee shall enforce this Trust
Agreement for the benefit of the Holders and shall exercise such of the rights
and powers vested in it by this Trust Agreement, and use the same degree of care
and skill in its exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) 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 Property Trustee
shall be determined solely by the express provisions of this
Trust Agreement (including pursuant to Section 10.10), and the
Property Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in
this Trust Agreement (including pursuant to Section 10.10); 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
Trust Agreement; but in the case of any such certificates or
opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the 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 Trust Agreement;
(ii) the Property Trustee shall not be liable for any error
of judgment made in good faith by an authorized officer of the
Property Trustee, unless it shall be proved that the Property
Trustee was negligent in ascertaining the pertinent facts;
<PAGE>
- 32 -
(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 at least a
Majority in Liquidation Amount of the Preferred Securities
relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee
under this Trust Agreement;
(iv) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Junior
Subordinated Debentures and the Payment Account shall be to deal
with such Property in a similar manner as the Property Trustee
deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(v) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise
agree with the Depositor; and money held by the Property Trustee
need not be segregated from other funds held by it except in
relation to the Payment Account maintained by the Property
Trustee pursuant to Section 3.1 and except to the extent
otherwise required by law;
(vi) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrators or the Depositor
with their respective duties under this Trust Agreement, nor
shall the Property Trustee be liable for the default or
misconduct of any other Issuer Trustee, the Administrators or the
Depositor; and
(vii) no provision of this Trust Agreement 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
the Property 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 Trust Agreement or adequate
indemnity against such risk or liability is not reasonably
assured to it.
(e) The Administrators shall not be responsible for monitoring the
compliance by the Issuer Trustees or the Depositor with their respective duties
under this Trust Agreement, nor shall either Administrator be liable for the
default or misconduct of any other Administrator, the Issuer Trustees or the
Depositor.
SECTION 8.2. Certain Notices.
Within five Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit, in the manner and to the extent provided in Section
10.8, notice of such Event of Default to the Holders and the Administrators,
unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the Junior
Subordinated Debentures pursuant to the Indenture, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 10.8, notice of
such exercise to the Holders and the Administrators, unless such exercise shall
have been revoked.
<PAGE>
- 33 -
SECTION 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be fully protected in
acting or refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any direction or act of the Depositor contemplated by this Trust
Agreement shall be sufficiently evidenced by an Officers' Certificate;
(c) 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
re-recording, refiling or registration thereof;
(d) the Property Trustee may consult with counsel of its own choosing
(which counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken suffered or
omitted by it hereunder in good faith and in reliance thereon and in accordance
with such advice; the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(e) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction; provided that,
nothing contained in this Section 8.3(e) 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 Trust Agreement;
(f) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Holders, but the Property
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit;
(g) the Property Trustee may execute any of the trusts or powers
hereunder or perform any of its duties hereunder either directly or by or
through its agents or attorneys, provided that 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;
(h) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders (which instructions may
only be given by the Holders of the same proportion in Liquidation Amount of the
Trust Securities as would be entitled to direct the Property Trustee under the
terms of the Trust Securities in respect of such remedy, right or action), (ii)
may refrain from enforcing such remedy or right or taking such other
<PAGE>
- 34 -
action until such instructions are received, and (iii) shall be fully protected
in acting in accordance with such instructions; and
(i) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any duty
or obligation on any Issuer Trustee or Administrator 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 any Issuer Trustee or
Administrator shall be construed to be a duty.
SECTION 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Issuer Trust, and the Issuer Trustees
and the Administrators do not assume any responsibility for their correctness.
The Issuer Trustees and the Administrators shall not be accountable for the use
or application by the Depositor of the proceeds of the Junior Subordinated
Debentures.
SECTION 8.5. May Hold Securities.
Except as provided in the definition of the term "Outstanding" in
Article I, the Administrators, any Issuer Trustee or any other agent of any
Issuer Trustee or the Issuer Trust, in its individual or any other capacity, may
become the owner or pledgee of Trust Securities and, subject to Sections 8.8 and
8.13, may otherwise deal with the Issuer Trust with the same rights it would
have if it were not an Administrator, Issuer Trustee or such other agent.
SECTION 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Issuer Trustees from time to time reasonable
compensation for all services rendered by them hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) to reimburse the Issuer Trustees and the Administrators upon
request for all reasonable expenses, disbursements and advances incurred or made
by the Issuer Trustees in accordance with any provision of this Trust Agreement
(including the reasonable compensation, expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to their negligence or willful misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Issuer Trustee, (ii) each Administrator, (iii) any
Affiliate of any Issuer Trustee, (iv) any officer, director, shareholder,
employee, representative or agent of any Issuer Trustee, and (v) any employee or
agent of the Issuer Trust, (referred to herein as an "Indemnified Person") from
and against any loss, damage, liability, tax, penalty, expense or claim of any
kind or nature whatsoever incurred by such Indemnified Person arising out of or
in connection with the creation, operation or dissolution of the Issuer Trust or
any act or omission performed or omitted by such Indemnified Person in good
faith on behalf of the Issuer Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Trust Agreement, except that no Indemnified
<PAGE>
- 35 -
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Indemnified Person by reason of negligence or willful
misconduct with respect to such acts or omissions.
The provisions of this Section 8.6 shall survive the termination of
this Trust Agreement.
No Issuer Trustee may claim any lien or charge on any Trust Property as
a result of any amount due pursuant to this Section 8.6.
The Depositor, any Administrator and any Issuer 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
Issuer Trust, and the Issuer Trust and the Holders of Trust Securities shall
have no rights by virtue of this Trust Agreement in and to such independent
ventures or the income or profits derived therefrom, and the pursuit of any such
venture, even if competitive with the business of the Issuer Trust, shall not be
deemed wrongful or improper. Neither the Depositor, any Administrator, nor any
Issuer Trustee shall be obligated to present any particular investment or other
opportunity to the Issuer Trust even if such opportunity is of a character that,
if presented to the Issuer Trust, could be taken by the Issuer Trust, and the
Depositor, any Administrator or any Issuer 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 Issuer
Trustee may engage or be interested in any financial or other transaction with
the Depositor or any Affiliate of the Depositor, or may act as depository for,
trustee or agent for, or act on any committee or body of holders of, securities
or other obligations of the Depositor or its Affiliates.
SECTION 8.7. Corporate Property Trustee Required; Eligibility of
Trustees and Administrators.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
a national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Property Trustee with respect to the Trust Securities shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article. At the time of appointment, the Property Trustee must have securities
rated in one of the three highest rating categories by a nationally recognized
statistical rating organization.
(b) There shall at all times be one or more Administrators hereunder.
Each Administrator shall be either a natural person who is at least 21 years of
age or a legal entity that shall act through one or more persons authorized to
bind that entity. An employee, officer or Affiliate of the Depositor may serve
as an Administrator.
(c) There shall at all times be a Delaware Trustee. The Delaware
Trustee shall either be (i) a natural person who is at least 21 years of age and
a resident of the State of Delaware or (ii) a legal entity with its principal
place of business in the State of Delaware and that otherwise meets the
requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.
<PAGE>
- 36 -
SECTION 8.8. Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
SECTION 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Property Trustee shall have power to
appoint, and upon the written request of the Property Trustee, the Depositor and
the Administrators shall for such purpose join with the Property Trustee in the
execution, delivery, and performance of all instruments and agreements necessary
or proper to appoint, one or more Persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to the extent required by law to act as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such Person or Persons in the
capacity aforesaid, any property, title, right or power deemed necessary or
desirable, subject to the other provisions of this Section. Any co-trustee or
separate trustee appointed pursuant to this Section shall either be (i) a
natural person who is at least 21 years of age and a resident of the United
States or (ii) a legal entity with its principal place of business in the United
States that shall act through one or more persons authorized to bind such
entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed by one or more
Administrators, and the Trust Securities shall be countersigned, registered and
delivered and all rights, powers, duties, and obligations hereunder in respect
of the custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Property Trustees specified
hereunder, shall be exercised, solely by the Property Trustee and not by such
co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee and such co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Property Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.
(c) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section, and, in case a Debenture Event of Default has occurred and is
<PAGE>
- 37 -
continuing, the Property Trustee shall have power to accept the resignation of,
or remove, any such co-trustee or separate trustee without the concurrence of
the Depositor. Upon the written request of the Property Trustee, the Depositor
shall join with the Property Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee so
resigned or removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(e) The Property Trustee shall not be liable by reason of any act of
a co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
SECTION 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Issuer Trustee (the "Relevant
Trustee") and no appointment of a successor Trustee pursuant to this Article
shall become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, a Relevant Trustee may
resign at any time by giving written notice thereof to the Holders. The Holders
of the Common Securities shall appoint a successor by requesting from at least
three Persons meeting the eligibility requirements its expenses and charges to
serve as the successor Trustee on a form provided by the Administrators, and
selecting the Person who agrees to the lowest expenses and charges. If the
instrument of acceptance by the successor Trustee required by Section 8.11 shall
not have been delivered to the Relevant Trustee within 60 days after the giving
of such notice of resignation, the Relevant Trustee may petition, at the expense
of the Issuer Trust, any court of competent jurisdiction for the appointment of
a successor Trustee.
The Property Trustee or the Delaware Trustee may be removed at any time
by Act of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, delivered to the Relevant Trustee (in its individual
capacity and on behalf of the Issuer Trust) (i) for cause (including upon the
occurrence of an Event of Default described in subparagraph (f) of the
definition thereof with respect to the Relevant Trustee), or (ii) if a Debenture
Event of Default shall have occurred and be continuing at any time.
If a Relevant Trustee shall be removed or become incapable of acting as
Issuer Trustee, or if any vacancy shall occur in the office of any Issuer
Trustee for any cause, the Holders of the Common Securities shall promptly
appoint a successor Trustee or Trustees, and such successor Issuer Trustee shall
comply with the applicable requirements of Section 8.11. If no successor Trustee
shall have been so appointed by the Holders of the Common Securities and
accepted appointment in the manner required by Section 8.11, any Holder, on
behalf of himself and all others similarly situated, or any other Issuer
Trustee, may petition any court in the State of Delaware for the appointment of
a successor Trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Relevant Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 10.8 and shall give notice to the
Depositor and to the Administrators. Each notice shall include the name of the
Relevant Trustee and the address of its Corporate Trust Office if it is the
Property Trustee.
<PAGE>
- 38 -
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Delaware Trustee who is a natural person dies or
becomes, in the opinion of the Holders of the Common Securities, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by the Property Trustee following the procedures regarding expenses
and charges set forth above (with the successor in each case being a Person who
satisfies the eligibility requirement for Administrators or Delaware Trustee, as
the case may be, set forth in Section 8.7).
SECTION 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee, the
retiring Relevant Trustee and each such successor Trustee with respect to the
Trust Securities shall execute, acknowledge and deliver an instrument wherein
each successor Trustee shall accept such appointment and which shall contain
such provisions as shall be necessary or desirable to transfer and confirm to,
and to vest in, each successor Trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Trust Securities and the Issuer
Trust, and upon the execution and delivery of such instrument the resignation or
removal of the retiring Relevant Trustee shall become effective to the extent
provided therein and each such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the Relevant Trustee; but, on request of the Issuer Trust or any
successor Trustee such Relevant Trustee shall duly assign, transfer and deliver
to such successor Trustee all Trust Property, all proceeds thereof and money
held by such Relevant Trustee hereunder with respect to the Trust Securities and
the Trust.
Upon request of any such successor Trustee, the Issuer Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in the first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 8.12. Merger, Conversion, Consolidation or Succession to
Business.
Any Person into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided that such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
SECTION 8.13. Preferential Collection of Claims Against Depositor or
Issuer Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor (or any other obligor upon the Trust Securities), the Property Trustee
shall be subject to the provisions of the Trust Indenture Act regarding the
collection of claims against the Depositor (or any such other obligor) as is
required by the Trust Indenture Act.
SECTION 8.14. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Issuer Trust or any other obligor upon the Trust
Securities or the property of the Issuer Trust or of such other obligor, the
Property Trustee (irrespective of whether any Distributions on the Trust
Securities shall then be due and payable
<PAGE>
- 39 -
and irrespective of whether the Property Trustee shall have made any demand on
the Issuer Trust for the payment of any past due Distributions) shall be
entitled and empowered, to the fullest extent permitted by law, by intervention
in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Property Trustee and, in the event the Property Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Property Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Property Trustee, its agents and counsel, and
any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or compensation affecting
the Trust Securities or the rights of any Holder thereof or to authorize the
Property Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 8.15. Reports by Property Trustee.
(a) Not later than January 31 of each year commencing with January 31,
1998, the Property Trustee shall transmit to all Holders in accordance with
Section 10.8, and to the Depositor, a brief report dated as of the immediately
preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to
the best of its knowledge it has continued to be eligible under said
Section, a written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken
by the Property Trustee in the performance of its duties hereunder
which it has not previously reported and which in its opinion
materially affects the Trust Securities.
(b) In addition the Property Trustee shall transmit to Holders such
reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto as set forth in Section 10.10 of
this Trust Agreement.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with the Depositor.
SECTION 8.16. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Issuer Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act, as set forth in
<PAGE>
- 40 -
Section 10.10 of this Trust Agreement. The Depositor and the Administrators
shall annually file with the Property Trustee a certificate specifying whether
such Person is in compliance with all the terms and covenants applicable to such
Person hereunder.
SECTION 8.17. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the Issuer
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act as
set forth in Section 10.10 of this Trust Agreement. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) of the Trust
Indenture Act shall be given in the form of an Officers' Certificate.
SECTION 8.18. Number of Issuer Trustees.
(a) The number of Issuer Trustees shall be two. The Property Trustee
and the Delaware Trustee may be the same Person.
(b) If an Issuer Trustee ceases to hold office for any reason, a
vacancy shall occur. The vacancy shall be filled with an Issuer Trustee
appointed in accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of an Issuer Trustee shall not
operate to annul the Issuer Trust.
SECTION 8.19. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
2.7(a) or making any governmental filing; and
(b) The Administrators shall have power to delegate from time to time
to such of their number the doing of such things and the execution of such
instruments either in the name of the Issuer Trust or the names of the
Administrators or otherwise as the Administrators may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of this Trust Agreement.
SECTION 8.20. Appointment of Administrators.
(a) The Administrators (other than the initial Administrators) shall be
appointed by the Holders of a Majority in Liquidation Amount of the Common
Securities and all Administrators (including the initial Administrators) may be
removed by the Holders of a Majority in Liquidation Amount of the Common
Securities or may resign at any time. Each Administrator shall sign an agreement
agreeing to comply with the terms of this Trust Agreement. If at any time there
is no Administrator, the Property Trustee or any Holder who has been a Holder of
Trust Securities for at least six months may petition any court of competent
jurisdiction for the appointment of one or more Administrators.
(b) Whenever a vacancy in the number of Administrators shall occur,
until such vacancy is filled by the appointment of an Administrator in
accordance with this Section 8.20, the Administrators in office, regardless of
their number (and notwithstanding any other provision of this Trust Agreement),
shall have all the powers granted to the Administrators and shall discharge all
the duties imposed upon the Administrators by this Trust Agreement.
<PAGE>
- 41 -
(c) Notwithstanding the foregoing, or any other provision of this Trust
Agreement, in the event any Administrator or a Delaware Trustee who is a natural
person dies or becomes, in the opinion of the Holders of a Majority in
Liquidation Amount of the Common Securities, incompetent, or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by the
remaining Administrators, if there were at least two of them prior to such
vacancy, and by the Depositor, if there were not two such Administrators
immediately prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators or Delaware
Trustee, as the case may be, set forth in Section 8.7).
(d) Except as otherwise provided in this Trust Agreement, or by
applicable law, any one Administrator may execute any document or otherwise take
any action which the Administrators are authorized to take under this Trust
Agreement.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date.
Unless earlier dissolved, the Issuer Trust shall automatically dissolve
on ________, 2028 (the "Expiration Date"), following the distribution of the
Trust Property in accordance with Section 9.4.
SECTION 9.2. Early Termination.
The first to occur of any of the following events is an "Early
Termination Event":
(a) the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect to
the Depositor or all or substantially all of its property, or a court or other
governmental agency shall enter a decree or order and such decree or order shall
remain unstayed and undischarged for a period of 60 days, unless the Depositor
shall transfer the Common Securities as provided by Section 5.11, in which case
this provision shall refer instead to any such successor Holder of the Common
Securities;
(b) the written direction to the Property Trustee from the Holder of
the Common Securities at any time to dissolve the Issuer Trust and to distribute
the Junior Subordinated Debentures to Holders in exchange for the Preferred
Securities (which direction, subject to Section 9.4(a), is optional and wholly
within the discretion of the Holders of the Common Securities);
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all the Junior Subordinated Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a
court of competent jurisdiction.
SECTION 9.3. Dissolution.
The respective obligations and responsibilities of the Issuer Trustees,
the Administrators and the Issuer Trust created and continued hereby shall
terminate upon the latest to occur of the following: (a) the distribution by the
Property Trustee to Holders of all amounts required to be distributed hereunder
upon the liquidation of the Issuer Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust
<PAGE>
- 42 -
Securities pursuant to Section 4.2, (b) the payment of any expenses owed by the
Issuer Trust, (c) the discharge of all administrative duties of the
Administrators, including the performance of any tax reporting obligations with
respect to the Issuer Trust or the Holders and (d) the filing by the Issuer
Trustees of a certificate of cancellation with the Delaware Secretary of State.
SECTION 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d)
of Section 9.2 occurs or upon the Expiration Date, the Issuer Trust shall be
liquidated by the Property Trustee as expeditiously as the Property Trustee
determines to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to each Holder a
Like Amount of Junior Subordinated Debentures, subject to Section 9.4(d). Notice
of liquidation shall be given by the Property Trustee by first-class mail,
postage prepaid, mailed not later than 15 nor more than 45 days prior to the
Liquidation Date to each Holder of Trust Securities at such Holder's address
appearing in the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that, from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust Securities
Certificates not surrendered for exchange will be deemed to represent a Like
Amount of Junior Subordinated Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Junior Subordinated
Debentures, or if Section 9.4(d) applies receive a Liquidation Distribution, as
the Administrators or the Property Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect
the liquidation of the Issuer Trust and distribution of the Junior Subordinated
Debentures to Holders, the Property Trustee shall establish a record date for
such distribution (which shall be not more than 30 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Junior Subordinated Debentures in
exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) the Clearing Agency for the Preferred Securities or its
nominee, as the registered holder of the Global Preferred Securities
Certificate, shall receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by the Clearing Agency or
its nominee, and, (iii) any Trust Securities Certificates not held by the
Clearing Agency for the Preferred Securities or its nominee as specified in
clause (ii) above will be deemed to represent Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Trust
Securities represented thereby and bearing accrued and unpaid interest in an
amount equal to the accumulated and unpaid Distributions on such Trust
Securities until such certificates are presented to the Securities Registrar for
transfer or reissuance.
(d) If, notwithstanding the other provisions of this Section 9.4,
whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the Junior Subordinated Debentures is
not practical, or if any Early Termination Event specified in clause (c) of
Section 9 occurs, the Trust Property shall be liquidated, and the Issuer Trust
shall be dissolved by the Property Trustee in such manner as the Property
Trustee determines. In such event, on the date of the dissolution of the Issuer
Trust, Holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, an amount equal to
the aggregate of Liquidation Amount per Trust Security
<PAGE>
- 43 -
plus accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If, upon any such dissolution, the
Liquidation Distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts payable
by the Issuer Trust on the Trust Securities shall be paid on a pro rata basis
(based upon Liquidation Amounts). The Holders of the Common Securities will be
entitled to receive Liquidation Distributions upon any such dissolution pro rata
(determined as aforesaid) with Holders of Preferred Securities, except that, if
a Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities as provided in
Section 4.3.
SECTION 9.5. Mergers, Consolidations, Amalgamations or Replacements
of the Issuer Trust.
The Issuer 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 entity, except pursuant to this Section
9.5. At the request of the Holders of the Common Securities, and with the
consent of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, the Issuer Trust may merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such under the laws
of any State; provided, however, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Issuer Trust with respect to the
Preferred Securities or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities have the same
priority as the Preferred Securities with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) a trustee of such successor
entity possessing the same powers and duties as the Property Trustee is
appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization if the
Preferred Securities were rated by any nationally recognized statistical rating
organization immediately prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect, (v)
such successor entity has a purpose substantially identical to that of the
Issuer Trust, (vi) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Issuer Trustee has received an
Opinion of Counsel from independent counsel 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 Preferred Securities (including any
Successor Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
"investment company" under the Investment Company Act and (vii) the Depositor or
any permitted transferee to whom it has transferred the Common Securities
hereunder own 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 Guarantee Agreement.
Notwithstanding the foregoing, the Issuer Trust shall not, except with the
consent of holders of 100% in Liquidation Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes.
<PAGE>
- 44 -
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Holders.
Except as set forth in Section 9.2, the death or incapacity of any
person having an interest, beneficial or otherwise, in Trust Securities shall
not operate to terminate this Trust Agreement, nor entitle the legal
representatives or heirs of such person or any Holder for such person, to claim
an accounting, take any action or bring any proceeding in any court for a
partition or winding-up of the arrangements contemplated hereby, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them. Any merger or similar agreement shall be executed by the Administrators on
behalf of the Issuer Trust.
SECTION 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the
Property Trustee and the Holders of a Majority in Liquidation Amount of the
Common Securities, without the consent of the Delaware Trustee or the
Administrators or any Holder of the Preferred Securities (i) to cure any
ambiguity, correct or supplement any provision herein which may be inconsistent
with any other provision herein, or to make any other provisions with respect to
matters or questions arising under this Trust Agreement, provided, however, that
such amendment shall not adversely affect in any material respect the interests
of any Holder or (ii) to modify, eliminate or add to any provisions of this
Trust Agreement to such extent as shall be necessary to ensure that the Issuer
Trust will not be taxable as a corporation for United States federal income tax
purposes at any time that any Trust Securities are Outstanding or to ensure that
the Issuer Trust will not be required to register as an investment company under
the Investment Company Act.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee and the Holders of a
Majority in Liquidation Amount of the Common Securities without the consent of
the Delaware Trustee or the Administrators but with (i) the consent of Holders
of at least a Majority in Liquidation Amount of the Preferred Securities and
(ii) receipt by the Issuer Trustees of an Opinion of Counsel to the effect that
such amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not cause the Issuer Trust to be taxable as
a corporation for United States federal income tax purposes or affect the Issuer
Trust's exemption from status of an "investment company" under the Investment
Company Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Holder (such consent being
obtained in accordance with Section 6.3 or 6.6 hereof), this Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a Holder to institute suit for the enforcement of any
such payment on or after such date.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Issuer Trustee shall enter into or consent to any amendment to this Trust
Agreement which would cause the Issuer Trust to fail or cease to qualify for the
exemption from status as an "investment company" under the Investment Company
Act or be taxable as a corporation for United States federal income tax
purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor and the Administrators, this Trust
Agreement may not be amended in a manner which imposes any additional obligation
on the Depositor or the Administrators.
<PAGE>
- 45 -
(f) In the event that any amendment to this Trust Agreement is made,
the Administrators or the Property Trustee shall promptly provide to the
Depositor a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
(h) Any amendments to this Trust Agreement shall become effective when
notice of such amendment is given to the holders of the Trust Securities.
SECTION 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
HOLDERS, THE ISSUER TRUST, THE DEPOSITOR, THE ISSUER TRUSTEES AND THE
ADMINISTRATORS WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
SECTION 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day that is a Business Day (except as
otherwise provided in Sections 4.2(d)), with the same force and effect as though
made on the date fixed for such payment, and no Distributions shall accumulate
on such unpaid amount for the period after such date.
SECTION 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Issuer Trust, the Administrators
and any Issuer Trustee, including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that is
permitted under Article VIII of the Indenture and pursuant to which the assignee
agrees in writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.
SECTION 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication that by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Holder or the Depositor may
<PAGE>
- 46 -
be given or served in writing by deposit thereof, first class postage prepaid,
in the United States mail, hand delivery or facsimile transmission, in each
case, addressed, (a) in the case of a Holder of Preferred Securities, to such
Holder as such Holder's name and address may appear on the Securities Register;
and (b) in the case of the Holder of Common Securities or the Depositor, to Sun
Bancorp, Inc., 226 Landis Avenue, Vineland, New Jersey 08360 Attention: Office
of the Secretary, facsimile no.: (609) 696-8844 or to such other address as may
be specified in a written notice by the Depositor to the Property Trustee. Such
notice, demand or other communication to or upon a Holder shall be deemed to
have been sufficiently given or made, for all purposes, upon hand delivery,
mailing or transmission. Such notice, demand or other communication to or upon
the Depositor shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Depositor.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Issuer Trust, the Property Trustee, the Delaware Trustee, the
Administrators, or the Issuer Trust shall be given in writing addressed (until
another address is published by the Issuer Trust) as follows: (a) with respect
to the Property Trustee to Bankers Trust Company, Four Albany Street, 4th Floor,
New York, NY 10006, Attention: Corporate Trust and Agency Group Corporate Market
Services; (b) with respect to the Delaware Trustee to Bankers Trust (Delaware),
1001 Jefferson Street, Suite 550, Wilmington, Delaware 19801, Attention:
________________; and (c) with respect to the Administrators, to them at the
address above for notices to the Depositor, marked "Attention: Office of the
Secretary". Such notice, demand or other communication to or upon the Issuer
Trust or the Property Trustee shall be deemed to have been sufficiently given or
made only upon actual receipt of the writing by the Issuer Trust, the Property
Trustee, or such Administrator.
SECTION 10.9. Agreement Not to Petition.
Each of the Issuer Trustees, the Administrators and the Depositor agree
for the benefit of the Holders that, until at least one year and one day after
the Issuer Trust has been dissolved in accordance with Article IX, they shall
not file, or join in the filing of, a petition against the Issuer Trust under
any bankruptcy, insolvency, reorganization or other similar law (including,
without limitation, the United States Bankruptcy Code) (collectively,
"Bankruptcy Laws") or otherwise join in the commencement of any proceeding
against the Issuer Trust under any Bankruptcy Law. In the event the Depositor
takes action in violation of this Section 10.9, the Property Trustee agrees, for
the benefit of Holders, that at the expense of the Depositor, it shall file an
answer with the bankruptcy court or otherwise properly contest the filing of
such petition by the Depositor against the Issuer Trust or the commencement of
such action and raise the defense that the Depositor has agreed in writing not
to take such action and should be estopped and precluded therefrom and such
other defenses, if any, as counsel for the Issuer Trustee or the Issuer Trust
may assert. If any Issuer Trustee or Administrator takes action in violation of
this Section 10.9, the Depositor agrees, for the benefit of the Holders, that at
the expense of the Depositor, it shall file an answer with the bankruptcy court
or otherwise properly contest the filing of such petition by such Person against
the Depositor or the commencement of such action and raise the defense that such
Person has agreed in writing not to take such action and should be estopped and
precluded therefrom and such other defenses, if any, as counsel for the Issuer
Trustee or the Issuer Trust may assert. The provisions of this Section 10.9
shall survive the termination of this Trust Agreement.
SECTION 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) Trust Indenture Act; Application. (i) This Trust Agreement is
subject to the provisions of the Trust Indenture Act that are required to be a
part of this Trust Agreement and shall, to the extent applicable, be governed by
such provisions; (ii) if and to the extent that any provision of this Trust
Agreement limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control; (iii) for purposes of this Trust Agreement, the Property Trustee, to
the extent permitted by applicable law and/or the rules and regulations of the
<PAGE>
- 47 -
Commission, shall be the only Issuer Trustee which is a trustee for the purposes
of the Trust Indenture Act; and (iv) the application of the Trust Indenture Act
to this Trust Agreement shall not affect the nature of the Preferred Securities
and the Common Securities as equity securities representing undivided beneficial
interests in the assets of the Issuer Trust.
(b) Lists of Holders of Preferred Securities. (i) Each of the Depositor
and the Administrators on behalf of the Trust shall provide the Property Trustee
with such information as is required under Section 312(a) of the Trust Indenture
Act at the times and in the manner provided in Section 312(a) and (ii) the
Property Trustee shall comply with its obligations under Sections 310(b), 311
and 312(b) of the Trust Indenture Act.
(c) Reports by the Property Trustee. Within 60 days after May 15 of
each year, the Property Trustee shall provide to the Holders of the Trust
Securities such reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form, in the manner and at the times 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.
(d) Periodic Reports to Property Trustee. Each of the Depositor and the
Administrators on behalf of the Issuer Trust shall provide to the Property
Trustee, the Commission and the Holders of the Trust Securities, as applicable,
such documents, reports and information as required by Section 314(a)(1) -(3)
(if any) of the Trust Indenture Act and the compliance certificates required by
Section 314(a)(4) and (c) of the Trust Indenture Act (provided that any
certificate to be provided pursuant to Section 314(a)(4) of the Trust Indenture
Act shall be provided within 120 days of the end of each fiscal year of the
Issuer Trust).
(e) Evidence of Compliance with Conditions Precedent. Each of the
Depositor and the Administrators on behalf of the Issuer Trust shall provide to
the Property Trustee such evidence of compliance with any conditions precedent,
if any, provided for in this Trust Agreement which 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 pursuant to Section 314(c) shall comply with
Section 314(e) of the Trust Indenture Act.
(f) Disclosure of Information. The disclosure of information as to the
names and addresses of the Holders of Trust Securities in accordance with
Section 312 of the Trust Indenture Act, regardless of the source from which such
information was derived, shall not be deemed to be a violation of any existing
law or any law hereafter enacted which does not specifically refer to Section
312 of the Trust Indenture Act, nor shall the Property Trustee be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.
<PAGE>
- 48 -
SECTION 10.11. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR
FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE
BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY
OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT, THE GUARANTEE AGREEMENT
AND THE INDENTURE, AND THE AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AGREEMENT AND THE INDENTURE, AND SHALL CONSTITUTE THE
AGREEMENT OF THE ISSUER TRUST, SUCH HOLDER AND SUCH OTHERS THAT THE TERMS AND
PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS
BETWEEN THE ISSUER TRUST AND SUCH HOLDER AND SUCH OTHERS.
SUN BANCORP, INC.
as Depositor
By:
Name:
Title:
BANKERS TRUST COMPANY,
as Property Trustee
By:
Name:
Title:
BANKERS TRUST (DELAWARE),
as Delaware Trustee and not
in its individual capacity
By:
Name:
Title:
Subscribed to and Accepted by, as the Initial Administrators:
<PAGE>
EXHIBIT A
[INSERT CERTIFICATE OF TRUST FILED WITH DELAWARE]
<PAGE>
EXHIBIT B
[INSERT FORM OF CERTIFICATE DEPOSITARY AGREEMENT]
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN
AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND
SECTION 5.11 OF THE TRUST AGREEMENT
Certificate Number Number of Common Securities
C-__
Certificate Evidencing Common Securities
of
Sun Capital Trust
____% Common Securities
(liquidation amount $25 per Common Security)
Sun Capital Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Issuer Trust"), hereby certifies that Sun
Bancorp, Inc. (the "Holder") is the registered owner of _________ (_____) common
securities of the Issuer Trust representing undivided beneficial interests in
the assets of the Issuer Trust and has designated the ____% Common Securities
(liquidation amount $25 per Common Security) (the "Common Securities"). Except
in accordance with Section 5.11 of the Trust Agreement (as defined below) the
Common Securities are not transferable and any attempted transfer hereof other
than in accordance therewith shall be void. The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities are set forth in, and this certificate and the Common
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Issuer Trust, dated as of __________________, 1997, as the same may be amended
from time to time (the "Trust Agreement") among Sun Bancorp, Inc. as Depositor,
Bankers Trust Company, as Property Trustee, Bankers Trust (Delaware), as
Delaware Trustee, and the Holders of Trust Securities, including the designation
of the terms of the Common Securities as set forth therein. The Issuer Trust
will furnish a copy of the Trust Agreement to the Holder without charge upon
written request to the Issuer Trust at its principal place of business or
registered office.
Upon receipt of this certificate, the Holder is bound by the
Trust Agreement and is entitled to the benefits thereunder.
Terms used but not defined herein have the meanings set forth in
the Trust Agreement.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust
has executed this certificate this ___ day of ______________, ____.
SUN CAPITAL TRUST
By:
Name:
Administrator
<PAGE>
COUNTERSIGNED AND REGISTERED:
BANKERS TRUST COMPANY,
as Securities Registrar
By: ________________________
Name:
Signatory Officer
<PAGE>
EXHIBIT D
[IF THE PREFERRED SECURITIES CERTIFICATE IS TO BE A GLOBAL
PREFERRED SECURITIES CERTIFICATE, INSERT -- This Preferred Securities
Certificate is a Global Preferred Securities Certificate within the meaning of
the Trust Agreement hereinafter referred to and is registered in the name of a
Depositary or a nominee of a Depositary. This Preferred Security Certificate is
exchangeable for Preferred Securities Certificates registered in the name of a
person other than the Depositary or its nominee only in the limited
circumstances described in the Trust Agreement and may not be transferred except
as a whole by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary, except in
the limited circumstances described in the Trust Agreement.
Unless this Preferred Security Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to Sun Capital Trust or its agent for registration of
transfer, exchange or payment, and any Preferred Security Certificate issued is
registered in the name of such nominee as is requested by an authorized
representative of DTC (and any payment is made to such entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the registered
owner hereof, has an interest herein.]
NO EMPLOYEE BENEFIT OR OTHER PLAN OR INDIVIDUAL RETIREMENT
ACCOUNT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY
ACQUIRE OR HOLD THIS PREFERRED SECURITIES CERTIFICATE OR ANY INTEREST HEREIN,
UNLESS SUCH PURCHASE OR HOLDING IS COVERED BY THE EXEMPTIVE RELIEF AVAILABLE
UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE")
96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT
TO SUCH PURCHASE OR HOLDING AND, IN THE CASE OF ANY PURCHASER OR HOLDER RELYING
ON ANY EXEMPTION OTHER THAN PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14, HAS
COMPLIED WITH ANY REQUEST BY THE DEPOSITOR OR THE ISSUER TRUST FOR AN OPINION OF
COUNSEL OR OTHER EVIDENCE WITH RESPECT TO THE APPLICABILITY OF SUCH EXEMPTION.
ANY PURCHASER OR HOLDER OF THIS PREFERRED SECURITIES CERTIFICATE OR ANY INTEREST
HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING HEREOF
THAT EITHER (A) THE PURCHASER AND HOLDER ARE NOT A PLAN OR A PLAN ASSET ENTITY
AND IS NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY
PLAN, OR (B) THE PURCHASE AND HOLDING OF THE PREFERRED SECURITIES IS COVERED BY
THE EXEMPTIVE RELIEF PROVIDED BY PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 OR
ANOTHER APPLICABLE EXEMPTION.
<PAGE>
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES
P-__
CUSIP NO. ________________________
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
SUN CAPITAL TRUST
____% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
Sun Capital Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Issuer Trust"), hereby certifies that (the
"Holder") is the registered owner of) ( ) preferred securities of the Issuer
Trust representing a preferred undivided beneficial interest in the assets of
the Issuer Trust and has designated the Sun Capital Trust ____ % Preferred
Securities (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Issuer Trust, in person or by a duly authorized attorney, upon surrender
of this certificate duly endorsed and in proper form for transfer as provided in
Section 5.5 of the Trust Agreement (as defined below). The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Preferred Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Issuer Trust, dated as of __________________, 1997, as the same may be amended
from time to time (the "Trust Agreement"), among Sun Bancorp, Inc., as
Depositor, Bankers Trust Company, as Property Trustee, Bankers Trust (Delaware),
as Delaware Trustee, and the Holders of Trust Securities, including the
designation of the terms of the Preferred Securities as set forth therein. The
Holder is entitled to the benefits of the Guarantee Agreement entered into by
Sun Bancorp, Inc., a New Jersey corporation, and Bankers Trust Company, as
guarantee trustee, dated as of __________________, 1997 (the "Guarantee
Agreement"), to the extent provided therein. The Issuer Trust will furnish a
copy of the Issuer Trust Agreement and the Guarantee Agreement to the Holder
without charge upon written request to the Issuer Trust at its principal place
of business or registered office.
Upon receipt of this certificate, the Holder is bound by the
Trust Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust
has executed this certificate this day of , .
SUN CAPITAL TRUST
By:
<PAGE>
Name:
Administrator
COUNTERSIGNED AND REGISTERED:
BANKERS TRUST COMPANY,
as Securities Registrar
By:
Name:
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
(Insert assignee's social security or tax
identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Security Certificate on the books of the Issuer
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 Preferred Security
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
EXHIBIT 4.6
<PAGE>
GUARANTEE AGREEMENT
Between
SUN BANCORP, INC.
(as Guarantor)
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
________________, 1997
<PAGE>
SUN CAPITAL TRUST
Certain Sections of this Guarantee Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Guarantee Agreement
Act Section Section
- --------------- -------------------
Section 310 (a) (1)........................ 4.1 (a)
(a) (2)........................ 4.1 (a)
(a) (3)........................ Not Applicable
(a) (4)........................ Not Applicable
(b)............................ 2.8, 4.1 (c)
Section 311 (a)............................ Not Applicable
(b)............................ Not Applicable
Section 312 (a)............................ 2.2 (a)
(b)............................ 2.2 (b)
(c)............................ Not Applicable
Section 313 (a)............................ 2.3
(a) (4)........................ 2.3
(b)............................ 2.3
(c)............................ 2.3
(d)............................ 2.3
Section 314 (a)............................ 2.4
(b)............................ 2.4
(c) (1)........................ 2.5
(c) (2)........................ 2.5
(c) (3)........................ 2.5
(e)............................ 1.1, 2.5, 3.2
Section 315 (a)............................ 3.1 (d)
(b)............................ 2.7
(c)............................ 3.1 (c)
(d)............................ 3.1 (d)
(e)............................ Not Applicable
Section 316 (a)............................ 1.1, 2.6, 5.4
(a) (1) (A).................... 5.4
(a) (1) (B).................... 5.4
(a) (2)........................ Not Applicable
(b)............................ 5.3
(c)............................ Not Applicable
Section 317 (a) (1)........................ Not Applicable
(a) (2)........................ Not Applicable
(b)............................ Not Applicable
Section 318 (a)............................ 2.1
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Guarantee Agreement.
<PAGE>
Page
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS
Section 1.1. Definitions................................. 2
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application............ 5
Section 2.2. List of Holders............................. 6
Section 2.3. Reports by the Guarantee Trustee............ 6
Section 2.4. Periodic Reports to Guarantee
Trustee..................................... 6
Section 2.5. Evidence of Compliance with
Conditions Precedent........................ 6
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 THE GUARANTEE
TRUSTEE
Section 3.1. Powers and Duties of the Guarantee
Trustee..................................... 7
Section 3.2. Certain Rights of Guarantee Trustee......... 9
Section 3.3. Indemnity................................... 11
Section 3.4. Expenses.................................... 11
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee; Eligibility.............. 11
Section 4.2. Appointment, Removal and Resignation
of the Guarantee Trustee.................... 12
ARTICLE V. GUARANTEE
Section 5.1. Guarantee................................... 13
Section 5.2. Waiver of Notice and Demand................. 13
Section 5.3. Obligations Not Affected.................... 13
Section 5.4. Rights of Holders........................... 14
Section 5.5. Guarantee of Payment........................ 15
Section 5.6. Subrogation................................. 15
Section 5.7. Independent Obligations..................... 15
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination............................... 16
Section 6.2. Pari Passu Guarantees....................... 16
ARTICLE VII. TERMINATION
Section 7.1. Termination................................. 16
- i -
<PAGE>
Page
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns...................... 16
Section 8.2. Amendments.................................. 17
Section 8.3. Notices..................................... 17
Section 8.4. Benefit..................................... 18
Section 8.5. Interpretation.............................. 18
Section 8.6. Governing Law............................... 19
Section 8.7. Counterparts................................ 19
- ii -
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of ____________, 1997 is executed
and delivered by SUN BANCORP, INC., a New Jersey corporation (the "Guarantor"),
having its principal office at 226 Landis Avenue, Vineland, New Jersey 08360,
and BANKERS TRUST COMPANY, a New York banking corporation, as trustee (the
"Guarantee Trustee"), for the benefit of the Holders (as defined herein) from
time to time of the Preferred Securities (as defined herein) of Sun Capital
Trust, a Delaware statutory business trust (the "Issuer Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of ____________, 1997, among Sun Bancorp, Inc., as
Depositor, Bankers Trust Company, as Property Trustee (the "Property Trustee"),
Bankers Trust (Delaware), as Delaware Trustee (the "Delaware Trustee")
(collectively, the "Issuer Trustees") and the Holders from time to time of
preferred undivided beneficial ownership interests in the assets of the Issuer
Trust, the Issuer Trust is issuing $25,000,000 aggregate Liquidation Amount (as
defined herein) of its _____% Preferred Securities, Liquidation Amount $25 per
capital security (the "Preferred Securities"), representing preferred undivided
beneficial ownership interests in the assets of the Issuer Trust and having the
terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer Trust
and the proceeds thereof, together with the proceeds from the issuance of the
Issuer Trust's Common Securities (as defined herein), will be used to purchase
the Junior Subordinated Debentures due __________, 2027 (as defined in the Trust
Agreement) (the "Junior Subordinated Debentures") of the Guarantor which will be
deposited with Bankers Trust Company, as Property Trustee under the Trust
Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Preferred Securities
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Preferred Securities the
Guarantee Payments (as defined herein) and to make certain other payments on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase of Preferred
Securities by each Holder, which purchase the Guarantor hereby acknowledges
shall benefit the Guarantor, and intending to be legally bound hereby, the
Guarantor executes and delivers this Guarantee Agreement for the benefit of the
Holders from time to time of the Preferred Securities.
ARTICLE I. DEFINITIONS
SECTION 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to
such terms in the Trust Agreement as in effect on the date hereof.
"Additional Amounts" has the meaning specified in the Trust Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.
<PAGE>
- 2 -
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer Trust.
"Distributions" means preferential cumulative cash distributions
accumulating from ____________, 1997 and payable quarterly in arrears on March
31, June 30, September 30, and December 31 of each year, commencing June 30,
1997, at the annual rate of _____% of the Liquidation Amount.
"Event of Default" means (i) a default by the Guarantor in any of its
payment obligations under this Guarantee Agreement, or (ii) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30 days.
"Guarantee Agreement" means this Guarantee Agreement, as modified,
amended or supplemented from time to time.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by or on behalf of the Issuer Trust: (i) any accrued and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Preferred Securities, to the extent the Issuer Trust shall have funds on hand
available therefor at such time, (ii) the Redemption Price, with respect to the
Preferred Securities called for redemption by the Issuer Trust to the extent
that the Issuer Trust shall have funds on hand available therefor at such time,
and (iii) upon a voluntary or involuntary termination, winding-up or liquidation
of the Issuer Trust, unless Junior Subordinated Debentures are distributed to
the Holders, the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment to the extent the
Issuer Trust shall have funds on hand available to make such payment at such
time and (b) the amount of assets of the Issuer Trust remaining available for
distribution to Holders in liquidation of the Issuer Trust (in either case, the
"Liquidation Distribution").
"Guarantee Trustee" means Bankers Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"Guarantor" shall have the meaning specified in the first paragraph of
this Guarantee Agreement.
"Holder" means any holder, as registered on the books and records of
the Issuer Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Guarantee Trustee, or any Affiliate of the
Guarantor or the Guarantee Trustee.
<PAGE>
- 3 -
"Indenture" means the Junior Subordinated Indenture dated as of
____________, 1997, between Sun Bancorp, Inc. and Bankers Trust Company, as
trustee, as may be modified, amended or supplemented from time to time.
"Issuer Trust" shall have the meaning specified in the first paragraph
of this Guarantee Agreement.
"Liquidation Amount" means the stated amount of $25 per Preferred
Security.
"Majority in Liquidation Amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, Preferred Securities representing
more than 50% of the aggregate Liquidation Amount of all then outstanding
Preferred Securities issued by the Issuer Trust.
"Like Amount" means (a) with respect to a redemption of Preferred
Securities, Preferred Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, the proceeds of which will be used to
pay the Redemption Price of such Preferred Securities, (b) with respect to a
distribution of Junior Subordinated Debentures to Holders of Preferred
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities of the Holder to whom such Junior
Subordinated Debentures are distributed, and (c) with respect to any
distribution of Additional Amounts to Holders of Preferred Securities, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities in respect of which such distribution is
made.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman and Chief Executive Officer, President or a
Vice President, and by the Treasurer, an Associate Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of such Person, and delivered
to the Guarantee Trustee. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Guarantee Agreement
shall include:
(a) a statement by each officer signing the Officers' Certificate
that such officer 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 such officer in rendering the Officers'
Certificate;
(c) a statement that 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 such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated
<PAGE>
- 4 -
association, or government or any agency or political subdivision thereof, or
any other entity of whatever nature.
"Preferred Securities" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Redemption Date" means, with respect to any Preferred Security to be
redeemed, the date fixed for such redemption by or pursuant to the Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date (as
such term is defined in the Indenture) and the stated maturity of the Junior
Subordinated Debentures shall be a Redemption Date for a Like Amount of
Preferred Securities.
"Redemption Price" shall have the meaning specified in the Trust
Agreement.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
the Indenture, and also, with respect to a particular matter, any other officer
to whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Senior Indebtedness" shall have the meaning specified in the Indenture.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
____________, 1997, executed by Sun Bancorp, Inc., as Depositor, Bankers Trust
(Delaware), as
Delaware Trustee, and Bankers Trust Company, as Property Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb), as amended.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Guarantee Agreement, the provision of the Trust Indenture Act shall
control. If any provision of this Guarantee Agreement modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Guarantee Agreement as so
modified or excluded, as the case may be.
<PAGE>
- 5 -
SECTION 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be furnished to the
Guarantee Trustee:
(i) quarterly, not more than 15 days after March 15, June
15, September 15 and December 15 in each year, a list, in such form as the
Guarantee Trustee may reasonably require, of the names and addresses of the
Holders as of such date; and
(ii) at such other times as the Guarantee Trustee may
request in writing, within 30 days after the receipt by the Guarantor of any
such request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished.
(b) The Guarantee Trustee shall comply with the requirements of
Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
Not later than January 31 of each year, commencing January 31, 1998,
the Guarantee Trustee shall provide to the Holders such reports, if any, as are
required by Section 313 of the Trust Indenture Act in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, and the Holders
such documents, reports and information, if any, as required by Section 314 of
the Trust Indenture Act and the compliance certificate required by Section 314
of the Trust Indenture Act, in the form, in the manner and at the times required
by Section 314 of the Trust Indenture Act.
SECTION 2.5. Evidence of Compliance with Conditions
Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
<PAGE>
- 6 -
SECTION 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders, notices of all Events of Default known to the Guarantee
Trustee, unless such Events of Default have been cured before the giving of such
notice; provided that, except in the case of a default in the payment of a
Guarantee Payment, the Guarantee Trustee shall be protected in withholding such
notice if and so long as the Board of Directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge
of any Event of Default unless a Responsible Officer charged with the
administration of this Guarantee Agreement shall have received written notice of
such Event of Default.
SECTION 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee
Trustee for the benefit of the Holders, and the Guarantee Trustee shall not
transfer this Guarantee Agreement to any Person except a Holder exercising his
or her rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Successor Guarantee Trustee hereunder. The right, title and interest of the
Guarantee Trustee, as such, hereunder shall automatically vest in any Successor
Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its
appointment hereunder, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall be obligated to perform only such duties as are specifically set forth in
this Guarantee Agreement (including pursuant to Section 2.1), and no implied
covenants shall be read into this Guarantee Agreement against the Guarantee
Trustee. If an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee
<PAGE>
- 7 -
Agreement, and use the same degree of care and skill in its exercise thereof, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed
to relieve the Guarantee Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct, except that:
(i) Prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Guarantee
Trustee shall be determined solely by the express provisions of this Guarantee
Agreement (including pursuant to Section 2.1), and the Guarantee Trustee shall
not be liable except for the performance of such duties and obligations as are
specifically set forth in this Guarantee Agreement (including pursuant to
Section 2.1); and
(B) in the absence of bad faith on the part of the
Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and conforming
to the requirements of this Guarantee Agreement; but in the case of any such
certificates or opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) The Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was made;
(iii) The Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority in
Liquidation Amount of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee Trustee
under this Guarantee Agreement; and
(iv) No provision of this Guarantee Agreement shall require
the Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers if the Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or liability
is not assured to it under the terms of this Guarantee Agreement or adequate
indemnity against such risk or liability is not reasonably assured to it.
<PAGE>
- 8 -
SECTION 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The 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 reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel,
and the advice or written opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in good faith
and in accordance with such advice or opinion. Such legal counsel may be legal
counsel to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement from any
court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee Agreement at
the request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such security and indemnity as would satisfy a
reasonable person in the position of the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any negligence or willful misconduct on the part of any such
agent or attorney appointed with due care by it hereunder.
<PAGE>
- 9 -
(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the Holders,
(B) may refrain from enforcing such remedy or right or taking such other action
until such instructions are received and (C) shall be fully protected in acting
in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to
impose any duty or obligation on the Guarantee Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on it
in any jurisdiction in which it shall be illegal, or in which the Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
SECTION 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence, willful misconduct or bad faith on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or administration
of this Guarantee Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee Trustee will
not claim or exact any lien or charge on any Guarantee Payments as a result of
any amount due to it under this Guarantee Agreement.
SECTION 3.4. Expenses.
The Guarantor shall from time to time reimburse the Guarantee Trustee
for its reasonable expenses and costs (including reasonable attorneys' or
agents' fees) incurred in connection with the performance of its duties
hereunder.
ARTICLE IV. GUARANTEE TRUSTEE
SECTION 4.1. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of Section
310(a) of the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section and
to the extent permitted by the Trust Indenture Act, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
<PAGE>
- 10 -
(b) If at any time the Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately
resign in the manner and with the effect set out in Section 4.2(b).
(c) If the Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply
with the provisions of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee.
(a) No resignation or removal of the Guarantee Trustee and no
appointment of a Successor Guarantee Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the Successor Guarantee
Trustee by written instrument executed by the Successor Guarantee Trustee and
delivered to the Holders and the Guarantee Trustee.
(b) Subject to the immediately preceding paragraph, a Guarantee
Trustee may resign at any time by giving written notice thereof to the Holders.
The Guarantee Trustee shall appoint a successor by requesting from at least
three Persons meeting the eligibility requirements such Person's expenses and
charges to serve as the Guarantee Trustee, and selecting the Person who agrees
to the lowest expenses and charges. If the instrument of acceptance by the
Successor Guarantee Trustee shall not have been delivered to the Guarantee
Trustee within 60 days after the giving of such notice of resignation, the
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for the appointment of a Successor Guarantee Trustee.
(c) The Guarantee Trustee may be removed for cause at any time by
Act (within the meaning of Section 6.8 of the Trust Agreement) of the Holders of
at least a Majority in Liquidation Amount of the Preferred Securities, delivered
to the Guarantee Trustee.
(d) If a resigning Guarantee Trustee shall fail to appoint a
successor, or if a Guarantee Trustee shall be removed or become incapable of
acting as Guarantee Trustee, or if any vacancy shall occur in the office of any
Guarantee Trustee for any cause, the Holders of the Preferred Securities, by Act
of the Holders of record of not less than 25% in aggregate Liquidation Amount of
the Preferred Securities then outstanding delivered to such Guarantee Trustee,
shall promptly appoint a successor Guarantee Trustee. If no Successor Guarantee
Trustee shall have been so appointed by the Holders of the Preferred Securities
and such appointment accepted by the Successor Guarantee Trustee, any Holder, on
behalf of himself and all others similarly situated, may petition any court of
competent jurisdiction for the appointment of a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full on
a subordinated basis as set forth in Section 6.1 hereof to the Holders the
Guarantee Payments (without duplication of amounts theretofore paid by or on
behalf of the Issuer Trust), as and when due, regardless of any
<PAGE>
- 11 -
defense, right of set-off or counterclaim which the Issuer Trust may have or
assert, except the defense of payment. 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 Trust to pay such amounts
to the Holders. The Guarantor shall give prompt written notice to the Guarantee
Trustee in the event it makes any direct payment hereunder.
SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, the Issuer Trust or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice
of redemption and all other notices and demands.
SECTION 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement 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 Trust of any express or implied
agreement, covenant, term or condition relating to the Preferred Securities to
be performed or observed by the Issuer Trust;
(b) the extension of time for the payment by the Issuer Trust of
all or any portion of the Distributions (other than an extension of time for
payment of Distributions that results from the extension of any interest payment
period on the Junior Subordinated Debentures as so provided in the Indenture),
Redemption Price, Liquidation Distribution or any other sums payable under the
terms of the Preferred Securities or the extension of time for the performance
of any other obligation under, arising out of, or in connection with, the
Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Issuer Trust or any of
the assets of the Issuer Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
<PAGE>
- 12 -
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor (other than
payment of the underlying obligation), it being the intent of this Section 5.3
that the obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain the consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of this Guarantee Agreement or exercising any
trust or power conferred upon the Guarantee Trustee under this Guarantee
Agreement; and (iv) any Holder may institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other Person.
SECTION 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer Trust) or upon the distribution of Junior Subordinated Debentures
to Holders as provided in the Trust Agreement.
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all rights (if any) of the Holders
against the Issuer Trust in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement; provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee Agreement, at the time of any such
payment, any amounts are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
SECTION 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer Trust with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3 hereof.
<PAGE>
- 13 -
ARTICLE VI. COVENANTS AND SUBORDINATION
SECTION 6.1. Subordination.
This Guarantee Agreement will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Guarantor to the extent and in the manner set forth in the
Indenture with respect to the Junior Subordinated Debentures, and the provisions
of Article XIII of the Indenture will apply, mutatis mutandis, to the
obligations of the Guarantor hereunder. The obligations of the Guarantor
hereunder do not constitute Senior Indebtedness of the Guarantor.
SECTION 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall
rank pari passu with any similar guarantee agreements issued by the Guarantor on
behalf of the holders of preferred or capital securities issued by the Issuer
Trust and with any other security, guarantee or other obligation that is
expressly stated to rank pari passu with the obligations of the Guarantor under
this Guarantee Agreement.
ARTICLE VII. TERMINATION
SECTION 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Preferred
Securities, (ii) the distribution of Junior Subordinated Debentures to the
Holders in exchange for all of the Preferred Securities or (iii) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder is required to repay any sums paid with respect to
Preferred Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the assignee agrees in writing to perform the
Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder, and any purported assignment that is not in accordance
with these provisions shall be void.
<PAGE>
- 14 -
SECTION 8.2. Amendments.
Except with respect to any changes that do not materially adversely
affect the rights of the Holders (in which case no consent of the Holders will
be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of the
Preferred Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
SECTION 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address or telecopy number
set forth below or such other address or telecopy number or to the attention of
such other Person as the Guarantor may give notice to the Holders:
Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Facsimile No.: (609) 696-8844
Attention: Office of the Secretary
(b) if given to the Issuer Trust, in care of the Guarantee
Trustee, at the Issuer Trust's (and the Guarantee Trustee's) address set forth
below or such other address or telecopy number or to the attention of such other
Person as the Guarantee Trustee on behalf of the Issuer Trust may give notice to
the Holders:
c/o Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Facsimile No.: (609) 696-8844
Attention: Office of the Secretary
with a copy to:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6961
Attention: Corporate Trust and Agency Group;
Corporate Market Services
<PAGE>
- 15 -
(c) if given to the Guarantee Trustee:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6961
Attention: Corporate Trust and Agency Group
Corporate Market Services
(d) if given to any Holder, at the address set forth on the books
and records of the Issuer Trust.
All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Preferred Securities.
SECTION 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not
defined in the preamble hereto have the respective meanings assigned to them in
Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement has the
same meaning throughout;
(c) all references to "the Guarantee Agreement" or "this
Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented
or amended from time to time;
(d) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice
versa; and
(g) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
<PAGE>
- 16 -
SECTION 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 8.7. Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE>
- 17 -
THIS GUARANTEE AGREEMENT is executed as of the day and year first above written.
SUN BANCORP, INC.
By:____________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Guarantee Trustee
and not in its individual
capacity
By:____________________________
Name:
Title:
EXHIBIT 23.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sun Bancorp, Inc. on
Form S-1 of our report dated January 31, 1997 for the year ended December 31,
1996 and to the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Philadelphia, PA
February 14, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001017793
<NAME> Sun Bancorp, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 17,007
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 97,063
<INVESTMENTS-MARKET> 95,581
<LOANS> 297,565
<ALLOWANCE> 2,595
<TOTAL-ASSETS> 436,795
<DEPOSITS> 385,987
<SHORT-TERM> 15,253
<LIABILITIES-OTHER> 2,141
<LONG-TERM> 6,000
0
0
<COMMON> 1,849
<OTHER-SE> 25,566
<TOTAL-LIABILITIES-AND-EQUITY> 436,795
<INTEREST-LOAN> 22,074
<INTEREST-INVEST> 7,127
<INTEREST-OTHER> 68
<INTEREST-TOTAL> 29,270
<INTEREST-DEPOSIT> 11,954
<INTEREST-EXPENSE> 12,534
<INTEREST-INCOME-NET> 16,736
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 206
<EXPENSE-OTHER> 13,207
<INCOME-PRETAX> 4,375
<INCOME-PRE-EXTRAORDINARY> 3,013
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,013
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 4.28
<LOANS-NON> 1,277
<LOANS-PAST> 1,143
<LOANS-TROUBLED> 973
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,065
<CHARGE-OFFS> 400
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 2,595
<ALLOWANCE-DOMESTIC> 2,595
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,595
</TABLE>
