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As Filed with the Securities and Exchange Commission on December 14, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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APPALACHIAN BANCSHARES, INC. APAB CAPITAL TRUST I
(Name of Small Business Issuer in Its Charter) (Name of Small Business Issuer in Its Charter)
Georgia Delaware
(State or Jurisdiction (State or Jurisdiction
of Incorporation or Organization) of Incorporation or Organization)
58-2242407 Applied For
(I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number)
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6022
(Primary Standard Industrial
Classification Code Number)
829 Industrial Boulevard
Ellijay, Georgia 30540
(Address and Telephone Number of Registrant's Principal Executive Offices)
Tracy R. Newton
President
Appalachian Bancshares, Inc.
829 Industrial Boulevard
Ellijay, Georgia 30540
(706) 276-8000
(Name, Address and Telephone Number of Agent for Service)
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COPIES TO:
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Walter E. Jospin, Esq. Robert M. Donlon, Esq.
Elizabeth Hardy Noe, Esq. Smith Helms Mulliss & Moore, LLP
Paul, Hastings, Janofsky & Walker LLP 201 North Tryon Street
600 Peachtree Street, N.E., Suite 2400 30th Floor
Atlanta, Georgia 30308 Charlotte, North Carolina 28202
(404) 815-2400 (704) 343-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED(1) OFFERING PRICE AGGREGATE REGISTRATION
PER UNIT(2) OFFERING PRICE(2) FEES(3)(4)
% Trust Preferred Securities
of APAB Capital Trust I........... $11,500,000 100% $11,500,000 $3,036
% Junior Subordinated
Debentures of Appalachian
Bancshares, Inc................... $11,500,000 100% $11,500,000 N/A
Guarantee of Appalachian
Bancshares, Inc. of certain
obligations under the Trust
Preferred Securities............. N/A N/A N/A N/A
Total............................. $11,500,000 100% $11,500,000 $3,036
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(1) Includes $1,500,000 subject to the Underwriters' over-allotment option
granted by the Company. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended,
exclusive of interest and dividends, if any.
(3) The Junior Subordinated Debentures will be purchased by APAB Capital
Trust I with the proceeds from the sale of the Preferred Securities.
Such securities may be later distributed with no additional
consideration to the holders of the Preferred Securities upon the
dissolution of APAB Capital Trust I and the distribution of its assets.
(4) No separate consideration will be received for the Guarantee. Pursuant
to Rule 457(n) under the Securities Act of 1933, as amended, no
separate registration fee is payable for the Guarantee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THIS IS A PRELIMINARY PROSPECTUS AND IS NOT YET COMPLETE. , 2000
[LOGO]
1,000,000 Preferred Securities
APAB CAPITAL TRUST I
% Cumulative Trust Preferred Securities
(Liquidation amount $10 per preferred security)
Guaranteed by
APPALACHIAN BANCSHARES, INC.
APAB Capital Trust I is a subsidiary of Appalachian Bancshares, Inc.
This is an offering by the Trust of preferred securities. In connection with
this offering, the Trust will:
- - Sell preferred securities to the public;
- - Use all of the proceeds from the sale of the preferred securities to
buy % junior subordinated debentures from Appalachian Bancshares,
Inc.; and
- - Distribute the cash payments it receives on the junior subordinated
debentures to the holders of the preferred securities.
The preferred securities represent undivided beneficial interests in
the Trust. For each preferred security that you own, you will be entitled to
receive cumulative cash distributions at an annual rate of % on the $10
liquidation amount, payable quarterly on March 31, June 30, September 30 and
December 31 of each year, beginning on March 31, 2000. We have the right to
defer payment of distributions at any time for periods of up to 20 consecutive
quarters.
There is currently no public market for the preferred securities. APAB
Capital Trust I intends to apply to list the preferred securities on The Nasdaq
SmallCap Market under the trading symbol "APABP."
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Investing in the preferred securities involves risks. Some of these
risks are described under the heading "Risk Factors" beginning on page 8.
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PER PREFERRED SECURITY TOTAL
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Public Offering Price............................................. $ 10.00 $10,000,000
Proceeds to Trust................................................. $ 10.00 $10,000,000
Underwriting Commissions......................................... $ 0.40 $ 400,000
Proceeds to Appalachian Bancshares, Inc., before expenses and
fees.............................................................. $ 9.60 $ 9,600,000
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Appalachian Bancshares, Inc., as the ultimate recipient of the proceeds of the
offering, will pay all underwriting commissions.
Wachovia Securities has the right to purchase up to an additional 150,000 shares
of preferred securities at the same price and on the same terms, within 30 days
from the date of this prospectus, to cover over-allotments.
THESE SECURITIES ARE NOT DEPOSITS, ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WACHOVIA SECURITIES, INC.
, 2000
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[MAP]
2
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. It
does not contain all of the information that you should consider. We encourage
you to read the entire prospectus carefully before investing, including the
section entitled "Risk Factors" and the financial statements and notes to those
financial statements. Unless we otherwise indicate, all information in this
prospectus assumes that the underwriters will not exercise their over-allotment
option. When we refer to "the Company" in this prospectus, we mean Appalachian
Bancshares, Inc. excluding its bank subsidiaries.
THE COMPANY AND THE BANKS
Appalachian Bancshares, Inc. is a bank holding company engaged in providing a
full range of banking services through two commercial bank subsidiaries. The
bank subsidiaries are Gilmer County Bank and Appalachian Community Bank. The
Company was incorporated as a business corporation in May 1996 under the laws of
the State of Georgia for the purpose of acquiring 100% of the issued and
outstanding shares of common stock of Gilmer County Bank. We acquired Gilmer
County Bank in August 1996 and Appalachian Community Bank in November 1998.
The Banks operate as community banks, emphasizing prompt, personalized customer
service to the individuals and businesses located in their markets. The Banks
perform banking services customary for full service banks of similar size and
character. These services include:
- the furnishing of personal and commercial checking accounts
and other demand and time deposit accounts; and
- the extension of personal and commercial loans and lines of
credit.
Gilmer County Bank draws most of its customer deposits and conducts most of its
lending transactions from and within a primary service area encompassing Gilmer
County, southwestern Fannin County, northern Pickens County, western Dawson
County and southeastern Murray County, Georgia. Appalachian Community Bank draws
most of its customer deposits and conducts most of its lending transactions from
and within a primary service area which includes Union County, Towns County and
Fannin County, Georgia.
At September 30, 1999, we had total assets of $207,237,912, deposits of
$179,889,497 and total shareholders' equity of $11,870,391.
Our principal executive office is located at 829 Industrial Boulevard, Ellijay,
Georgia. Our telephone number is (706) 276-8000.
APAB CAPITAL TRUST I
APAB Capital Trust I was created to:
- - issue and sell the preferred securities to the public;
- - use the proceeds it receives from the sale of the preferred securities
to purchase the % junior subordinated debentures from us; and
- - distribute the cash payments it receives on the junior subordinated
debentures to the holders of the preferred securities.
The Trust will issue all of the preferred securities to purchasers in the
offering. The Trust has also issued all of its common securities to us. The
common securities held by us will represent an aggregate liquidation amount
equal to at least 3 % of the total capital of the Trust. As owner of the Trust's
common securities, we will also be entitled to distributions from the Trust each
time holders of preferred securities receive a distribution. However, our right
to distributions will be subordinate to the rights of the holders of preferred
securities if an event of default has occurred under the terms of the preferred
securities.
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The junior subordinated debentures will be the only assets of the Trust. Our
payments to the Trust under the junior subordinated debentures will be the
Trust's sole source of revenue.
The executive office and telephone number of the Trust are the same as ours.
The following chart illustrates the flow of funds of the offering of the
preferred securities.
[GRAPH]
THE OFFERING
The issuer ...................... APAB Capital Trust I, a Delaware statutory
business trust.
Securities offered............... 1,000,000 preferred securities having a
liquidation amount of $10.00 per preferred
security. The preferred securities
represent preferred undivided beneficial
interests in the assets of the Trust,
which will consist solely of junior
subordinated debentures.
Offering price................... $10.00 per preferred security.
Over-allotment option............ Wachovia Securities, Inc. has an option,
exercisable within 30 days of the date of
the offering, to purchase up to an
additional 150,000 preferred securities at
the initial offering price, to cover
over-allotments.
Distributions.................... As a holder of preferred securities, you
will be entitled to receive cumulative
cash distributions at an annual rate of %
of the $10.00 liquidation amount of each
preferred security, or $ per year. The
Trust will pay distributions quarterly,
unless deferred. See "Description of the
Preferred Securities."
Junior Subordinated Debentures.... The Trust will buy the junior subordinated
debentures from us using the proceeds from
the sale of the preferred securities.
Unless we redeem the junior subordinated
debentures, they will mature on , 2030.
Our obligations under the junior
subordinated debentures will be junior to
our senior indebtedness and all existing
and future liabilities and obligations of
the Banks. At September 30, 1999, we had
$3.6 million in outstanding senior
indebtedness, which we intend to repay
using the proceeds of this offering.
However, there is no limitation on the
amount of senior
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indebtedness we may issue in the future.
Use of Proceeds................... The Trust will use the proceeds from the
sale of the preferred securities to buy our
junior subordinated debentures. We will use
approximately $3.6 million of the net
proceeds from the sale of the junior
subordinated debentures to repay our
existing long-term debt. We will use an
additional approximately $2.9 million of the
proceeds to purchase 132,500 shares of our
common stock from three institutional
investors. We will use the remaining net
proceeds for general corporate purposes,
including capital contributions to the Banks
to support growth.
Guarantee......................... We will guarantee all of the Trust's
obligations under the preferred securities
to the extent described in this prospectus.
We will guarantee the payment of
distributions on the preferred securities
and payments on liquidation of the Trust or
redemption of the preferred securities. Our
guarantee is limited to the liquidation
amount of the preferred securities plus any
accrued and unpaid dividends. Our guarantee
will apply only to the extent we have made
payments to the Trust on the junior
subordinated debentures. If we do not make
payments on the junior subordinated
debentures, the Trust will not have
sufficient funds to make payments on the
preferred securities. Our obligations to
make payments under the guarantee will be
junior to our obligations to make payments
on our senior indebtedness. See "Description
of the Guarantee" and "Relationship Among
the Preferred Securities, the Junior
Subordinated Debentures, the Expense
Agreement and the Guarantee."
Right to Defer Interest Payments.. The ability of the Trust to make
distributions on the preferred securities is
solely dependent upon the receipt of
interest payments from us on the junior
subordinated debentures. If we are not in
default under the trust indenture governing
the terms of the junior subordinated
debentures, we may defer interest payments
on the junior subordinated debentures at our
discretion for a period of up to 20
consecutive quarters, but not beyond ,
2030. There is no limitation on the number
of times that we may begin an interest
deferral period if we are not in default
under the trust indenture. At the end of
any interest deferral period, we must pay
all accrued and unpaid interest. During an
interest deferral period, interest will
continue to accrue and compound. If we defer
interest, you will be required to accrue
interest income for United States federal
income tax purposes even though you do not
receive any cash distribution. If we elect
to defer interest, we will be subject to
certain restrictions during the deferral
period, with the most significant being
that we may not declare or pay cash
dividends on our common stock or make
any payments on any debt securities
that rank equal or junior to the junior
subordinated debentures. We have no current
intention of deferring interest payments on
the debentures. See "Description of the
Junior Subordinated Debentures - Right to
Defer Interest Payment Obligation" and
"Federal Income Tax Consequences - United
States Federal Income Taxation of U.S.
Holders - Interest Income and Original
Issue Discount."
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Redemption.......... We may, at our option subject to the receipt of any
required regulatory approval, redeem:
- all or some of the junior subordinated
debentures at any time on or after
, 2005, or
- all of the junior subordinated
debentures at any time within
ninety days of the receipt of an
opinion of counsel that there has
been an unfavorable change for tax,
regulatory capital or investment
company purposes in the Trust, the
preferred securities or the
debentures.
If we redeem some of the junior subordinated
debentures before their stated maturity date, the
Trust must redeem the same dollar amount of its common
and preferred securities. We will pay the full
principal amount of the redeemed junior subordinated
debentures, plus any accrued and unpaid interest, upon
any redemption. See "Description of the Preferred
Securities - Redemption."
Distribution of the
Junior Subordinated
Debentures if We
Dissolve the Trust........We may dissolve the Trust at any time.
We may be required to obtain regulatory approval
before dissolving the Trust. If we dissolve the
Trust, after it satisfies any creditors, you will be
entitled to receive the liquidation amount of $10 per
preferred security plus accumulated and unpaid
distributions to the date of payment. This payment
may be in the form of a distribution of the junior
subordinated debentures. If we distribute the
debentures to you, we will use our reasonable best
efforts to list them on the Nasdaq SmallCap Market or
a national exchange or comparable automated quotation
system. See "Description of the Preferred Securities
- Liquidation Distribution upon Dissolution," and -
"Liquidation of the Trust and Distribution of the
Junior Subordinated Debentures to Holders."
Voting Rights.............If you purchase the preferred securities, you will
have very limited voting rights. The preferred
securities will have no voting rights concerning
actions of the Company. See "Description of the
Preferred Securities - Voting Rights; Amendment of
Trust Agreement."
Trading Symbol............The Trust intends to apply to list the preferred
securities on the Nasdaq SmallCap Market under the
trading symbol "APABP."
Risk Factors..............We urge you to read carefully the "Risk Factors"
section of prospectus, beginning on page 8, and the
rest of this prospectus before you make your
investment decision. Because the sole source of funds
for distributions or the redemption of the preferred
securities are payments on the junior subordinated
debentures by us, purchasers of the preferred
securities are also making an investment decision with
regard to the junior subordinated debentures.
Therefore, those purchasers should review carefully
all of the information regarding the junior
subordinated debentures contained in this prospectus.
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SUMMARY FINANCIAL DATA
The income statement, balance sheet and per share data contained in the
following summary financial data for the three years ended December, 31, 1998,
are derived from our financial statements which have been audited on an annual
basis by Schauer, Taylor, Cox & Vice, P.C. The summary financial data for the
nine months ended September 30, 1999 are derived from our unaudited financial
statements.
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Nine
months
ended
September
30, Years ended December 31,
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1999 1998 1997 1996
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(amounts in thousands except per share data and ratios)
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END OF PERIOD BALANCES
Assets ....................................................... $ 207,238 $ 189,745 $ 112,181 $ 93,154
Loans, net of unearned income ................................ 159,746 129,831 84,584 64,962
Earning assets ............................................... 195,063 176,789 106,137 88,491
Deposits ..................................................... 179,889 163,861 95,348 81,148
Shareholders' equity ......................................... 11,870 11,480 6,980 5,805
AVERAGE BALANCES
Assets ....................................................... $ 199,031 $ 131,079 $ 103,261 $ 72,346
Loans, net of unearned income ................................ 146,096 95,353 74,753 51,008
Earning assets ............................................... 187,257 123,663 98,403 68,755
Deposits ..................................................... 171,708 110,745 89,808 61,660
Shareholders' equity ......................................... 11,866 8,925 6,392 5,503
PER SHARE DATA
Net Income-basic ............................................. .64 1.04 .88 .45
Net Income-diluted ........................................... .60 .99 .88 .45
Cash dividends ............................................... -0- -0- -0- -0-
Shareholders equity (book value) at period end ............... 8.90 8.68 6.05 5.11
RATIOS
Return on average assets (September 30, 1999, annualized) ... .57% .92% .98% .71%
Return on average equity (September 30, 1999, annualized) ... 9.56% 13.50% 15.90% 9.40%
Net interest margin ........................................ 3.85% 4.04% 4.06% 3.90%
Efficiency ratio ........................................... 69.01% 60.75% 55.35% 59.06%
Ratio of earnings to fixed charges (including interest
on deposits) ............................................. 1.19% 1.27% 1.27% 1.22%
Ratio of earnings to fixed charges (excluding interest
on deposits) ............................................. 2.88% 3.94% 4.99% 4.67%
Allowance for loan losses to period end (total loans) ...... 1.21% 1.30% 1.10% 1.01%
Dividend payment ratio ..................................... 0% 0% 0% 0%
Average equity to average assets ........................... 5.96% 6.80% 6.19% 7.61%
Total capital .............................................. 7.30% 7.88% 9.33% 10.30%
Tier 1 capital ............................................. 6.14% 6.64% 8.23% 9.40%
Leverage ratio ............................................. 4.99% 4.99% 6.40% 5.90%
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements made in this prospectus, including matters
discussed under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," may constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based on management's beliefs, current
expectations, estimates and projections about the financial services industry,
the economy and about the Company and the Banks in general. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors that may cause our actual
results, performance or achievements to differ materially from historical
results or from any results expressed or implied by the forward-looking
statements. Factors that may cause our actual results to vary include those
listed in the section captioned "Risk Factors" as well as elsewhere in this
prospectus. Many of these factors are beyond our ability to control or predict,
and readers are cautioned not to put undue reliance on any forward-looking
statement.
RISK FACTORS
AN INVESTMENT IN THE PREFERRED SECURITIES INVOLVES A NUMBER OF RISKS,
SOME OF WHICH RELATE TO THE TERMS OF THE PREFERRED SECURITIES OR THE JUNIOR
SUBORDINATED DEBENTURES AND OTHERS OF WHICH RELATE TO US AND OUR BUSINESS. YOU
SHOULD CAREFULLY REVIEW THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE DECIDING WHETHER
THIS INVESTMENT IS SUITABLE FOR YOU. BECAUSE THE TRUST WILL RELY ON THE PAYMENTS
IT RECEIVES FROM US ON THE JUNIOR SUBORDINATED DEBENTURES TO FUND ALL PAYMENTS
ON THE PREFERRED SECURITIES, AND BECAUSE THE TRUST MAY DISTRIBUTE THE JUNIOR
SUBORDINATED DEBENTURES IN EXCHANGE FOR THE PREFERRED SECURITIES, PURCHASERS OF
THE PREFERRED SECURITIES ARE MAKING AN INVESTMENT DECISION THAT RELATES TO THE
JUNIOR SUBORDINATED DEBENTURES, AS WELL AS THE PREFERRED SECURITIES. YOU SHOULD
CAREFULLY REVIEW THE INFORMATION IN THIS PROSPECTUS ABOUT THE PREFERRED
SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
Statutory restrictions on bank dividends could limit the amounts the Banks may
pay to us and our ability to make payments on our debt, which in turn could lead
to a default under the terms of our debt.
As a bank holding company, we conduct our operations mainly through our
subsidiary Banks. Our principal source of cash is dividends from the Banks. If
the Banks are unable to pay dividends to us, we may be unable to make interest
or principal payments on our debt, including payments on the junior subordinated
debentures. Various statutory provisions could restrict the amount of dividends
the Banks can pay to us. Prior regulatory approval is required for the payment
of dividends out of retained earnings of each Bank if:
- the total classified assets at the most recent examination of
the Bank exceed 80% of the equity capital;
- the aggregate amount of dividends declared or anticipated to
be declared in the calendar year exceeds 50% of the net
profits, after taxes but before dividends, for the previous
calendar year; or
- the bank's ratio of equity capital to adjusted assets is less
than 6% .
For the Company to pay currently the interest which will be due under the junior
subordinated debentures, the Company must received quarterly dividends from the
Banks in the amount of at least $ . At September 30, 1999, the Banks were
permitted to pay the Company dividends of up to $803,000 without prior
regulatory approval, $350,000 of which have been paid to the Company during
1999. See "Supervision and Regulation." If the Banks are unable to pay
sufficient dividends to the Company for it to meet payments under the junior
subordinated debentures, we may defer the payment of interest to the extent
permitted under the terms of the junior subordinated debentures. If deferral of
interest payments is
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not permitted, a default would result which could have an adverse effect on our
results of operations and our financial position.
Our obligations under the junior subordinated debentures and the guarantee are
subordinated to most of our other creditors.
Our obligations under the junior subordinated debentures and under the
guarantee are unsecured and rank junior in right of payment to all the Company's
senior indebtedness and equal to any other junior debt securities the Company
may issue in the future. The junior subordinated debentures also will
effectively be junior to all obligations of the Banks. The preferred securities,
the junior subordinated debentures and the guarantee do not limit our ability to
incur additional indebtedness, including indebtedness that ranks senior to the
junior subordinated debentures and the guarantee. We also may create or assume
liens on the Company's properties and those of the Banks. We are not required to
maintain any financial ratios or specified level of net worth, revenues, income,
cash flow or liquidity by these securities.
Because the Company is a holding company, our right to participate in
any distribution of the assets of the Banks, upon their liquidation,
reorganization or otherwise, is subject to the prior claims of creditors of the
Banks, except to the extent that we may be recognized as a creditor of either
Bank. Accordingly, the junior subordinated debentures and the guarantee will be
effectively subordinated to all existing and future liabilities of the Banks as
well as any other future subsidiaries of ours, and holders of the trust
preferred securities and the junior subordinated debentures and beneficiaries of
the guarantee should look only to our assets for payments on the junior
subordinated debentures or under the guarantee, as the case may be. See
"Description of the Guarantee - Status of the Guarantee" and "Description of the
Junior Subordinated Debentures - Subordination."
If the Banks do not pay dividends to the Company and, as a result, it is unable
to make payments on the junior subordinated debentures, the Trust will not be
able to pay distributions and other payments on the preferred securities and the
guarantee will not apply.
The Trust's ability to pay distributions on the preferred securities
depends upon the Company making timely payments on the junior subordinated
debentures. In turn, our ability to make payments on the junior subordinated
debentures depends on the Banks paying dividends to us in amounts sufficient for
us to service our obligations. If we default on our obligations to pay principal
and interest on the junior subordinated debentures, the Trust will not have
sufficient funds to pay distributions on, or the $10 liquidation amount of, the
preferred securities.
If we default on our obligation, you will not be able to rely upon the
guarantee for payment, because the guarantee only applies if we make a payment
of principal or interest on the junior subordinated debentures. Instead, you or
the property trustee will have to sue us to enforce the holder's rights under
the indenture relating to the junior subordinated debentures. See "Description
of the Guarantee."
If we defer distributions on the junior subordinated debentures, you will have
to include interest in your taxable income before you receive cash.
You will not receive distributions on the preferred securities if we
defer interest payments on the junior subordinated debentures. If this occurs,
you will have to include accrued interest in your income for United States
federal income tax purposes before you actually receive the cash distributions
at the end of the deferral period. In addition, you would not receive the cash
related to that income from the Trust if you sell your preferred securities
before the record date for the payment of any deferred distribution, even if you
held the preferred securities on the date that the payments would normally have
been paid. See "Federal Income Tax Consequences - United States Federal Income
Taxation of U.S. Holders - Sales or Redemption of the Preferred Securities."
If we are not in default on the payment of interest on the junior
subordinated debentures, we may defer interest payments on the junior
subordinated debentures one or more times for up to 20 consecutive quarters, but
not beyond the maturity date of the junior subordinated debentures. During an
interest deferral period, the Trust would defer distributions
9
<PAGE> 12
on the preferred securities in the same amount. See "Description of the
Preferred Securities Distributions" and "Description of the Junior Subordinated
Debentures - Right to Defer Interest Payment Obligation."
If you sell your preferred securities during an interest deferral
period, you must treat any accrued but unpaid interest on the junior
subordinated debentures as ordinary income. You must also add the amount of the
accrued but unpaid interest to your adjusted tax basis in the preferred
securities. You will recognize a capital loss if the selling price is less than
your adjusted tax basis. There are limitations on the amount of capital losses
that can be used to offset income for United States federal income tax purposes.
See "Federal Income Tax Consequences - United States Federal Income Taxation of
U.S. Holders - Sales or Redemption of the Preferred Securities."
If we defer distributions on the junior subordinated debentures, the market
price of the preferred securities may decline.
If we defer any interest payment on the junior subordinated debentures,
the preferred securities will likely trade at prices that do not fully reflect
the value of accrued but unpaid interest related to the underlying junior
subordinated debentures. If we defer interest payments in the future, the market
price of the preferred securities will likely be adversely affected. Therefore,
if you sell your preferred securities during an interest deferral period, you
may not receive the same return on your investment as someone who continues to
hold their preferred securities. In addition, due to our right to defer interest
payments, the market price of the preferred securities may be more volatile than
the market prices of other similar securities that are not subject to optional
deferrals.
The preferred securities may be redeemed prior to maturity. You may be taxed on
the proceeds and you may not be able to reinvest the proceeds at the same or a
higher rate of return.
If a tax event, an investment company event or a capital treatment
event occurs and continues as described under the caption "Description of the
Junior Subordinated Debentures - Redemption or Exchange," we may redeem the
junior subordinated debentures in whole, but not in part. We may also redeem the
preferred securities at our option, in whole or in part, on or after ,
2005, and will redeem them upon the maturity of the junior subordinated
debentures, in each case, subject to our receipt of any required regulatory
approvals.
If the junior subordinated debentures are redeemed, the preferred
securities will be redeemed at a redemption price equal to the $10 liquidation
amount, plus accumulated and unpaid distributions to the redemption date. Under
current United States federal income tax law, the redemption of the preferred
securities would be a taxable event to you. In addition, you may not be able to
reinvest the money you receive in the redemption at a rate that is equal to or
higher than the rate of return you received on the preferred securities. See
"Description of the Preferred Securities -- Redemption" and "Federal Income Tax
Consequences."
The junior subordinated debentures may be distributed to the holders of the
preferred securities and the junior subordinated debentures may trade at a lower
price than what you paid for the preferred securities.
We may dissolve the Trust at any time and distribute the junior
subordinated debentures to you in exchange for your preferred securities. We
cannot predict the market prices for the junior subordinated debentures that may
be distributed to you if the Trust is dissolved. The junior subordinated
debentures may trade at a lower price than what you paid to purchase the
preferred securities in this offering.
If the junior subordinated debentures are distributed to the holders of
preferred securities at the time the Trust is liquidated, we will use our
reasonable best efforts to list the junior subordinated debentures on any stock
exchange or quotation system on which the preferred securities are then listed.
However, we cannot assure you that the exchange or quotation system will approve
the junior subordinated debentures for listing or that a trading market will
exist for the junior subordinated debentures.
Under current United States federal income tax law, a distribution of
junior subordinated debentures upon the dissolution of the Trust would not be a
taxable event to you. Should there be a change in law, a change in legal
interpretation or a tax event under the indenture, the distribution could be
taxable to holders of the preferred securities. If,
10
<PAGE> 13
however, the Trust were characterized as an association taxable as a corporation
at the time of the dissolution of the Trust, the distribution of the junior
subordinated debentures would constitute a taxable event to you. In addition,
any redemption of the preferred securities for cash would be a taxable event to
you. See "Federal Income Tax Consequences - United States Federal Income
Taxation of U.S. Holders -- Distribution of the Junior Subordinated Debentures
to Holders of the Preferred Securities," and " - Sales or Redemption of the
Preferred Securities."
If you sell your preferred securities between record dates for distribution
payments, you may have to include accrued but unpaid distributions in your
taxable income.
If the Internal Revenue Service determines that the junior subordinated
debentures are subject to the original issue discount rules, and you dispose of
your preferred securities between record dates for any distribution payments,
you will have to include as ordinary income, for United States federal income
tax purposes, an amount equal to the accrued but unpaid interest on your
proportionate share of the interest on the junior subordinated debentures
through the date of your disposition. However, we believe that the junior
subordinated debentures are not subject to the original issue discount rules.
The preferred securities may trade at prices that do not fully reflect
the value of accrued but unpaid interest on the underlying junior subordinated
debentures. You will recognize a capital loss on the amount that the selling
price is less than your adjusted tax basis. There are limitations on the amount
of capital losses that can be used to offset ordinary income for United States
federal income tax purposes.
See "Federal Income Tax Consequences" for more information.
We generally will control the Trust because your voting rights are very limited
and your interests may not be the same as our interests.
As a holder of preferred securities, you will have limited voting
rights. These voting rights will relate only to modifications of the preferred
securities and trust agreement and the exercise of the Trust's rights as holder
of the junior subordinated debentures and the guarantee. In general, unless an
event of default has occurred and is continuing, only the Company, as holder of
the Trust's common securities, can appoint, remove or replace the trustees under
the trust agreement.
We and the trustees of the Trust may amend the trust agreement without
your consent under certain circumstances, even if it adversely affects your
interests, as described under the heading "Description of the Preferred
Securities - Removal of Trustees" and "- Voting Rights; Amendment of Trust
Agreement."
You may have difficulty selling your preferred securities if an active trading
market does not develop.
There is no current public market for the preferred securities. The
Trust intends to apply to list the preferred securities on The Nasdaq SmallCap
Market under the trading symbol "APABP." However, a listing does not guarantee
that a trading market for the preferred securities will develop. As a result of
our right to defer interest payments, the market price of the preferred
securities may be more volatile than other securities that are not subject to
such optional interest deferral. If a trading market for the preferred
securities does develop, we can make no assurances regarding the depth of that
market and the ability of holders to sell their preferred securities easily.
RISK FACTORS RELATING TO OUR BUSINESS
Future changes in interest rates may reduce our profits.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
- the interest income we earn on our interest-earning assets,
such as loans and investment securities; and
11
<PAGE> 14
- the interest expense we pay on our interest-bearing
liabilities, such as deposits and amounts we borrow.
If interest rates were to increase for a sustained period of time, the
higher rates could reduce our net earnings because the amount of our
interest-bearing liabilities repricing or maturing within one to three years
exceed our interest-earning assets with similar characteristics. If market
interest rates increase, we would be very limited in our ability to restructure
our fixed rate loan portfolio to offset the increase in market rates of interest
we pay on our certificates of deposit. Additionally, if market interest rates
increase, we would be limited in our ability to reprice our variable rate loans
because the terms of the loan agreements contain limitations on the maximum
rates allowed and the timing and frequency of rate adjustments. Further, we have
a high concentration of short-term deposits such as passbook savings accounts.
This concentration could create further difficulty as market rates increase and
we are forced to increase the rates paid on these accounts to compete
effectively.
Our allowance for loan losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan
losses to provide for loan defaults and non-performance. Our allowance for loan
losses may not be adequate to cover actual loan losses, and future provisions
for loan losses could materially and adversely affect our operating results. Our
allowance for loan losses is based on prior experience, as well as an evaluation
of the risks in the current portfolio, and is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future losses
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates that may be beyond our control, and these losses may
exceed current estimates. State and federal regulatory agencies, as an integral
part of their examination process, review our loans and allowances for loan
losses. We believe that our allowance for loan losses is adequate to cover
anticipated losses. There can be no assurance, however, that we will not further
increase the allowance for loan losses or that the regulators will not require
us to increase this allowance. Either of these occurrences could adversely
affect our earnings.
Declines in real estate value could adversely affect our performance.
Approximately sixty-eight percent (68%) of our loans are secured by
real estate. The properties securing these loans are primarily located in North
Georgia. Real estate values are typically affected by general economic and other
conditions in the area where the real estate is located, fluctuations in
interest rates and changes in tax and other laws. Any decline in real estate
values could significantly reduce the value of the real estate collateral
securing our real estate loans and could increase the likelihood of defaults
under our real estate loans. This, in turn, would adversely affect our results
of operations and our financial position.
An economic downturn, especially one affecting Gilmer County, Union County and
surrounding counties, could adversely affect our performance.
Gilmer County Bank draws most of its customer deposits and conducts
most of its lending transactions from and within a primary service area
encompassing Gilmer County, southwestern Fannin County, northern Pickens County,
western Dawson County and southeastern Murray County. Appalachian Community Bank
draws most of its customer deposits and conducts most of its lending
transactions from and within a primary service area which includes Union County,
Towns County and Fannin County. If the economic conditions of our primary
service areas decline, then our financial position and results of operations
will be materially adversely affected.
A decline in the agricultural sector of the economy, especially one affecting
Gilmer County and surrounding counties, could adversely affect our performance.
Gilmer County Bank services a substantial number of businesses in the
agricultural industry. In particular, Gilmer County Bank services a large
percentage of the poultry industry located within Gilmer County and surrounding
counties. If the agricultural sector of the economy, especially the poultry
industry, declines, our financial condition and results of operation could be
materially adversely affected.
12
<PAGE> 15
Changes in general economic conditions and monetary policies that affect
financial institutions generally will directly impact our financial condition.
General economic conditions beyond our control may have a significant
impact on our financial condition and results of operations, including:
- the strength of credit demand by customers;
- fiscal and debt management policies of the federal government;
- the monetary policy of the Federal Reserve Board;
- the introduction and growth of the investment instruments by
non-bank financial competitors; and
- changes in rules and regulations governing the payment of
interest on deposit accounts.
The amount of common stock held by our executive officers and directors gives
them influence over the election of our Board of Directors and other matters
that require shareholder approval.
A total of 472,636 shares of our common stock, or 33.36% of the common
stock outstanding at November 15, 1999, including shares held by our 401(k) plan
and voted by our executive officers, is beneficially owned by our directors and
executive officers. Therefore, if they vote together, our directors and
executive officers have the ability to exert significant influence over the
election of our Board of Directors and other corporate actions requiring
shareholder approval, including the adoption of proposals made by stockholders.
Future laws or regulations could hurt our profitability.
We operate in a highly regulated industry. We are regulated by the
Federal Reserve Board, and our Banks are regulated by the FDIC and the Georgia
Department of Banking and Finance. Federal and state banking 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 regulation of general business operations
and financial conditions of our Banks, including permissible types, amounts and
terms of loans and investments, the amount of reserves maintained against
deposits, restrictions on dividends, establishment of branch offices and the
maximum rate of interest that may be charged by law. These and other
restrictions limit the manner in which we can conduct our business and obtain
financing, and could reduce our profitability.
We may not be able to raise additional capital.
Our plans for growth or our inability to maintain regulator-required
capital levels through ordinary course operations may cause us to seek to raise
additional capital. Should we need additional capital in the future, we may not
be able to raise additional funds through the issuance of additional securities.
Even if we are able to obtain additional capital through the issuance of
additional securities, we may not be able to issue the securities at prices or
on terms favorable to us. Our failure to raise additional capital on acceptable
terms in a timely manner could have an adverse effect on our business and our
financial position. Further, our failure to raise additional capital to satisfy
regulator-required capital levels could result in additional restrictions being
applied to our business.
At September 30, 1999, we did not meet the minimum required Total Capital ratio
on a consolidated basis. Continued failure to meet this ratio could have an
adverse effect on our business and financial position.
At September 30, 1999, on a consolidated basis we did not meet the
regulator-required Total Capital ratio as a result of our acquisition of
Appalachian Community Bank. Our failure to meet the Total Capital ratio or any
other regulator-required capital ratios in the future could result in, among
other things, increased scrutiny from applicable regulatory authorities, a
reduction of permissible activities or a default under our existing credit
facilities. Any of these events could have a material adverse effect on our
business, financial condition and results of operations.
13
<PAGE> 16
Our competition may increase due to the Gramm-Leach-Bliley Act, which was signed
into law by the President of the United States on November 12, 1999.
The Gramm-Leach-Bliley Act, signed into law by President Clinton on
November 12, 1999, repealed most of the barriers set up by the 1933
Glass-Steagall Act which separated the banking, insurance and securities
industries. The legislative intent of the Gramm-Leach-Bliley Act is to increase
competition among the various financial service industries. This act will
provide financial organizations with the flexibility to structure new
affiliations through a holding company structure or a financial subsidiary. As a
result of this new legislation, the number and type of entities competing with
us in our markets could increase. It is too early to determine what effect, if
any, this new law will have on us.
If we do not compete successfully against other financial institutions in our
market area, our profitability will be hurt.
We operate in a competitive environment. In the market areas in which
we compete, other savings banks, commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies and brokerage and investment banking firms and other financial
intermediaries offer similar services. Many of these competitors have
substantially greater resources and lending limits and may offer certain
services that we do not currently provide. In addition, some of the non-bank
competitors are not subject to the same extensive regulations that govern our
business. Due to this competition, we may have to pay higher rates of interest
to attract deposits and offer lower rates on loans to attract borrowers. Our
profitability depends on our ability to compete successfully in our market area.
We cannot predict how changes in technology will affect our business.
The financial services market, including banking services, is
increasingly affected by advances in technology, including developments in:
- telecommunications;
- data processing;
- automation;
- Internet-based banking;
- telebanking; and
- debit cards and so called "smart-cards."
Our ability to compete successfully in the future will depend on
whether we can anticipate and respond to technological changes. To develop these
and other new technologies we will likely have to make additional capital
investments. Although we continually invest in new technology, we cannot assure
you that we will have sufficient resources or access to the necessary
proprietary technology to remain competitive in the future.
Because many of our loans are short-term and need to be constantly replaced, our
total assets may decline.
At September 30, 1999, 93% of our loans mature in less than three
years. In addition, due to prepayments, the average life of the loans is
typically less than their average contractual maturities. Our asset growth
depends upon our ability to continue to originate and purchase an increasing
amount of loans.
Our continued success depends, in large part, on the continued service of key
employees.
Our success is dependent, in large part, on the continued service of
key employees, including our President and Chief Executive Officer, Tracy R.
Newton, our Executive Vice President, Kent W. Sanford, and our Chief Financial
Officer, Alan R. May. These officers are not subject to employment agreements
with us, nor have they entered into agreements not to compete with the Banks if
they are no longer employed by us. The loss of any of these officers, or one or
more of our other key personnel, could have an material adverse effect on our
business. In the event of the loss of any of these employees, there can be no
assurance that we would be able to find acceptable replacements in a timely
manner.
14
<PAGE> 17
USE OF PROCEEDS
The Trust will use all of the proceeds from the sale of the preferred
securities and common securities to purchase junior subordinated debentures from
the Company. The Company will pay all underwriting discounts and commissions and
offering expenses from the proceeds of our sale of the junior subordinated
debentures. We estimate that as a result we will receive net proceeds of
approximately million ($ million, if the underwriters over-allotment option
is exercised in full), in each case after deducting underwriting discounts and
commissions, and estimated offering expenses. We intend to use these net
proceeds from the sale of the junior subordinated debentures:
- to repay $3.6 million of existing long-term debt (other than
borrowings from the Federal Home Loan Bank);
- to purchase 132,500 shares of our common stock previously sold
in a private placement to three institutional investors for an
aggregate price of approximately $2.9 million; and
- for general corporate purposes, including capital
contributions to the Banks to support growth.
The $3.6 million described above will be used to repay the outstanding
balance on our term loan with The Bankers Bank. Interest currently accrues on
this term loan at the prime rate less 3/4 of a percentage point and is payable
quarterly. This term loan would mature on November 30, 2008 if not prepaid with
the proceeds of this offering.
The common stock to be repurchased was issued in a private placement in
November, 1998 for an aggregate purchase price of $2.65 million. Each of the
holders of this common stock entered into an agreement permitting us to
repurchase such stock, at our option, at the current value, but not less than an
amount equal to the original purchase price of $2.65 million plus a mandatory
appreciation of 8.0% per year. Current value will be determined by agreement. If
we are unable to reach agreement, current value will be determined by an
independent appraisal. Each of the holders of this common stock also entered
into an agreement with us giving them the right to have their shares of common
stock registered for resale either upon their demand or in connection with a
registration statement proposed to be filed by us relating to any of our equity
securities. These holders of common stock would not have the right to seek
registration in connection with this offering. As a result of the repurchase of
the common stock with the proceeds of this offering, all rights to registration
will terminate.
The capital contributions to be made to the Banks will be used by the
Banks to support growth and improve their financial conditions and results of
operations. We presently intend to contribute approximately $600,000 to Gilmer
County Bank and approximately $2,000,000 to Appalachian Community Bank. However,
the amounts of capital contributions may be adjusted as a result of a change in
the financial condition of either Bank or a change in any federal or state
regulatory restrictions regarding the flow of funds between a bank holding
company and its subsidiary banks.
MARKET FOR OUR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
There is no established trading market for our common stock which has
been traded inactively in private transactions. Therefore, no reliable
information is available as to trades of the common stock or as to the prices at
which common stock has traded. In 1998, Wachovia Securities, Inc.'s predecessor,
Interstate/Johnson Lane Corporation, became a market maker for our common stock.
In May 1998, we effected a two-for-one share split of our common stock
in the form of a common stock dividend to shareholders of record as of the close
of business on May 1, 1998.
Management has reviewed the limited information available as to the
ranges at which our common stock has been sold. The following table sets forth
the estimated price range for sales of common stock for each quarter of the last
two fiscal years, the first three quarters of the current fiscal year and
through a recent date of the fourth quarter of the
15
<PAGE> 18
current fiscal year as adjusted for the stock split. The following data
regarding the common stock is provided for information purposes only and should
not be viewed as indicative of the actual or market value of the common stock.
<TABLE>
<CAPTION>
ESTIMATED PRICE RANGE
PER SHARE
------------------------
HIGH LOW
<S> <C> <C>
1997:
First Quarter ........................... $ 8.00 $ 8.00
Second Quarter .......................... 9.25 9.00
Third Quarter ........................... 11.00 8.00
Fourth Quarter .......................... 10.50 9.25
1998:
First Quarter ........................... $ 11.75 $ 11.75
Second Quarter .......................... 15.00 15.00
Third Quarter ........................... 20.00 15.00
Fourth Quarter .......................... 20.00 20.00
1999:
First Quarter ........................... $ 22.00 $ 18.00
Second Quarter .......................... 22.00 17.50
Third Quarter ........................... 22.00 18.00
Fourth Quarter (through November 15,1999) 21.00 18.00
</TABLE>
At November 15, 1999 the Company had 1,333,224 shares of Common Stock
outstanding held by approximately 790 shareholders of record.
DIVIDENDS
The Banks are subject to restrictions on the payment of dividends under
Georgia law and the regulations of the Georgia Commission. In March 1999, Gilmer
County Bank paid a $350,000 dividend to the Company, which was used by the
Company for repayment of debt and other expenses.
We are also subject to limits on payment of dividends by the rules,
regulations and policies of federal banking authorities. See "Supervision and
Regulation- Dividends." The primary source of funds available for the payment of
cash dividends by the Company are dividends from the Banks. There are various
statutory and regulatory limitations on the payment of dividends by the Banks,
as well as by the Company to its shareholders. No assurance can be given that we
will declare any dividends in the future, or if declared, what amounts would be
declared or whether such dividends would continue. We have not paid any
dividends to our shareholders to date.
MARKET FOR THE PREFERRED SECURITIES
The Trust intends to apply to list the preferred securities on The
Nasdaq SmallCap Market under the trading symbol "APABP." There can be no
assurance that the preferred securities will be approved for listing on The
Nasdaq SmallCap Market, that an active and liquid trading market will develop,
or if it develops, that it will be maintained. A public trading market having
the desirable characteristics of depth, liquidity and orderliness depends upon
the presence in the marketplace of both willing buyers and sellers of the
preferred securities at any given time, which is not within the control of the
Company, the Trust or Wachovia Securities, Inc. Accordingly, there can be no
assurance that resales of the preferred securities can be made at or above the
purchase price of $10.00 per share.
16
<PAGE> 19
Representatives of the Company and Wachovia Securities, Inc. negotiated
the offering price and dividend rate. The offering price of the preferred
securities may not be indicative of the market price following the offering. See
"Underwriting."
ACCOUNTING AND REGULATORY TREATMENT
For financial reporting purposes, the Trust will be treated as our
subsidiary. As a result, our consolidated financial statements will include the
Trust's financial statements. Our consolidated statements of financial condition
will include the preferred securities under the caption "Guaranteed Preferred
Beneficial Interests in Appalachian's Junior Subordinated Debentures," and the
notes to the consolidated financial statements will include appropriate
disclosures about the preferred securities. For financial reporting purposes, we
will record distributions payable on the preferred securities as interest
expense in our consolidated statements of earnings.
We are required by the Federal Reserve Board to maintain certain levels
of capital for bank regulatory purposes. For these purposes, different capital
instruments are classified as either Tier 1 or Tier 2 capital, with Tier 1 being
the more favorable classification. The Federal Reserve has stated that long-term
cumulative preferred instruments issued by a special-purpose subsidiary of a
bank holding company and structured in the manner in which the preferred
securities are normally structured will be accorded Tier 1 capital treatment. We
believe that the preferred securities will qualify for Tier 1 capital treatment.
Such treatment, together with our ability to deduct for income tax purposes the
interest payable on the junior subordinated debentures, provides us with a
cost-effective means of obtaining capital for regulatory purposes.
The amount of preferred securities that can be included in Tier 1
capital is limited to 25% of total Tier 1 capital. At September 30, 1999, the
Company had $10.2 million of Tier 1 capital. On a pro forma basis at that date,
we would be able to include approximately $2.5 million of the trust preferred
securities as Tier 1 capital.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 1999, both historical and as adjusted to give effect to the
consummation of the offering of preferred securities, including the application
of the net proceeds as proposed. We urge you to read the following data,
together with the consolidated financial statements and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
(In thousands)
<S> <C> <C>
Deposits $ 179,889 $ 179,889
========= =========
Borrowings:
Federal Home Loan Bank advances $ 9,736 $ 9,736
Notes payable to a commercial bank 3,600 --
--------- ---------
Total borrowings $ 13,336 $ 9,736
========= =========
Guaranteed preferred beneficial interests in Appalachians' junior
subordinated debentures (1) $ -- $ 10,000
========= =========
Shareholders' equity:
Shares of common stock, $5.00 par value, 20,000,000 shares $ 6,886 $ 6,886
authorized; 1,377,224 shares issued
Capital surplus 2,727 2,727
Retained earnings 3,246 3,246
Treasury stock (428) (3,317)
Accumulated other comprehensive income (loss) (561) (561)
--------- ---------
Total shareholders' equity $ 11,870 $ 10,103
========= =========
Appalachian capital ratios (2):
Total capital to risk-weighted assets (3) 7.30% 12.57%
Tier 1 capital to average assets 4.99% 6.65%
Tier 1 capital to risk weighted assets (3) 6.14% 7.72%
</TABLE>
- -------------------
(1) The as adjusted preferred securities of the Trust include beneficial
interests in $10.0 million aggregate principal amount of the junior
subordinated debentures to be issued by us to the Trust. The junior
subordinated debentures will bear interest at the annual rate of % of
the principal amount thereof, payable quarterly, and will mature on
, 2030. We own all of the Trust's common securities.
(2) We computed the adjusted capital ratios based on the estimated net
proceeds from the sale of the capital securities, in a manner
consistent with Federal Reserve Board guidelines.
(3) We assumed the proceeds from the offering are invested in assets which
have a risk-weighting of l00%.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA AND STATISTICAL INFORMATION
The income statement, balance sheet and per share data contained in the
following selected financial information for each of the years ended December
31, 1998, 1997 and 1996 are derived from our financial statements which have
been audited on an annual basis by Schauer, Taylor, Cox & Vice, P.C. The
selected financial information for the nine months ended September 30, 1999 and
1998 are derived from our unaudited financial statements. The selected
statistical data following this selected financial information is derived from
the financial statements referenced above.
<TABLE>
<CAPTION>
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Interest income ................................. $11,844 $7,953 $11,271 $9,143 $6,311
Interest expense ................................ 6,655 4,666 6,498 5,262 3,660
Net interest income ............................. 5,189 3,287 4,773 3,881 2,651
Provision for loan losses ....................... 640 240 300 480 368
Non-interest income ............................. 642 377 529 385 253
Non-interest expense ............................ 3,936 2,185 3,221 2,385 1,715
Net income ...................................... 851 838 1,208 1,018 517
PER SHARE DATA
Net income - basic .............................. .64 .73 1.04 .88 .45
Net income - diluted ............................ .60 .70 .99 .88 .45
Cash dividends .................................. -0- -0- -0- -0- -0-
Shareholders' equity (book value) at period end.. 8.90 6.85 8.68 6.05 5.11
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Loans ....................................... $159,746 $ 94,502 $129,831 $ 84,584 $64,962
Allowance for Loan Losses ................... 1,934 1,090 1,686 930 655
Deposits .................................... 179,889 113,887 163,861 95,348 81,148
Average equity .............................. 11,866 7,444 8,925 6,392 5,503
Average assets .............................. 199,031 122,562 131,079 103,261 72,346
Total assets ............................... 207,238 132,944 189,745 112,181 93,154
Weighted average shares outstanding-basic ... 1,323 1,150 1,166 1,155 1,136
Weighted average shares outstanding-diluted .. 1,419 1,194 1,221 1,162 1,136
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
September 30, Years ended December 31,
-------------------------------------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(amounts in thousands except per share data and ratios)
RATIOS
<S> <C> <C> <C> <C> <C>
Return on average assets (September 30, 1999 and 1998, annualized)........ .57% .91% .92% .98% .71%
Return on average equity (September 30, 1999 and 1998, annualized)........ 9.56% 15.01% 13.50% 15.90% 9.40%
Net interest margin ...................................................... 3.85% 3.95% 4.04% 4.06% 3.90%
Efficiency ratio ......................................................... 69.01% 59.63% 60.75% 55.35% 59.06%
Allowance for loan losses to period end total
loans .................................................................... 1.21% 1.15% 1.30% 1.10% 1.01%
Dividend payout ratio .................................................... 0% 0% 0% 0% 0%
Average equity to average assets ......................................... 5.96% 6.07% 6.80% 6.19% 7.61%
Total capital ............................................................ 7.30% 10.20% 7.88% 9.33% 10.30%
Tier 1 capital ........................................................... 6.14% 9.10% 6.64% 8.23% 9.40%
Leverage ratio ........................................................... 4.99% 6.60% 4.99% 6.40% 5.90%
</TABLE>
20
<PAGE> 23
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The table below shows, for the periods indicated, the daily average
balances outstanding for the major categories of interest-bearing assets and
interest-bearing liabilities, and the average interest rate earned or paid
thereon. These yields are calculated by dividing income or expense by the
average balance of the corresponding assets or liabilities. Yields for the nine
months ended September 30, 1999 have been annualized.
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31,1997
-------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
ASSETS (AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned income (1) ..... $146,096 $10,104 9.22% $ 95,353 $ 9,645 10.12% $ 74,753 $7,675 10.27%
Securities:
Taxable .......................... 21,979 1,017 6.17 15,919 1,009 6.34 17,498 1,160 6.63
Tax-exempt ....................... 10,845 605 7.44 7,943 570 7.18 3,257 258 7.92
--------- -------- -------- ------
Total securities ...................... 32,824 1,622 6.59 23,862 1,579 6.62 20,755 1,418 6.83
Interest bearing deposits with other
banks ............................... 274 13 6.33 0 0 0 0 0 0
Federal funds sold .................... 8,063 318 5.26 4,448 271 6.09 2,895 160 5.53
-------- ------ --------- -------- -------- ------
Total interest-earning assets .... 187,257 12,057 8.58 123,663 11,495 9.30 98,403 9,253 9.40
Non interest-earning assets:
Cash and due from banks .......... 4,773 3,587 2,170
Premises and equipment ........... 3,847 2,419 1,644
Accrued interest and other assets 5,047 2,551 1,818
Allowance for loan losses......... (1,893) (1,141) (774)
-------- --------- --------
Total assets .............................. $199,031 $ 131,079 $103,261
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits .................. $ 46,852 1,411 4.02 $ 30,238 1,444 4.78 22,681 1,116 4.92
Savings deposits ................. 31,348 938 3.99 24,463 1,210 4.95 17,984 933 5.19
Time deposits .................... 83,980 3,640 5.78 52,104 3,237 6.21 45,616 2,862 6.27
-------- ------- --------- -------- -------- ------
162,180 5,989 4.92 106,805 5,891 5.47 86,281 4,911 5.69
Other short-term borrowings ............. 2,025 95 6.26 4,106 178 4.34 4,471 201 4.50
Long-term debt .......................... 12,035 571 6.33 6,649 428 6.44 2,090 150 7.18
-------- --------- -------- -------- ------
Total interest-bearing liabilities 176,240 6,655 5.03 117,560 6,497 5.54 92,842 5,262 5.67
-------- ------- --------- -------- -------- ------
Noninterest-bearing liabilities:
Demand deposits ......................... 9,528 3,940 3,527
Accrued interest and other liabilities .. 1,397 654 500
Shareholders' equity .................... 11,866 8,925 6,392
-------- --------- --------
Total liabilities and shareholders' equity $199,031 $ 131,079 $103,261
======== -======== ========
Net interest income/net interest spread ... 5,402 3.55% 4,998 3.76% 3,991 3.73%
==== ==== ====
Net yield on earning assets ............... 3.85% 4.04% 4.06%
==== ==== ====
Taxable equivalent adjustment:
Loans ................................... 14 31 22
Investment securities ................... 207 194 88
------ -------- ------
Total taxable equivalent adjustment ..... 221 225 110
------ -------- ------
Net interest income ....................... $5,181 $4,773 $3,881
====== ====== ======
</TABLE>
- ------------------------------------
(1) Average loans include nonaccrual loans. All loans and deposits are domestic.
21
<PAGE> 24
The following tables contain a summary of the changes in interest income and
interest expense resulting from changes in interest rates and changes in the
volume of earning assets and interest-bearing liabilities for the years ended
December 31, 1998 and 1997, segregated by category. The change due to volume is
calculated by multiplying the change in volume by the prior year's rate. The
change due to rate is calculated by multiplying the change in rate by the prior
year's volume. The change attributable to both volume and rate is calculated by
multiplying the change in volume by the change in rate. Figures are presented on
a taxable equivalent basis.
RATE/VOLUME VARIANCE ANALYSIS
<TABLE>
<CAPTION>
CHANGE INTEREST
AVERAGE VOLUME IN VOLUME AVERAGE RATE INCOME/EXPENSE VARIANCE
1998 1997 1998-97 1998 1997 1998 1997 1998-97
-------- ------- -------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS ASSETS:
Loans, net of unearned income......... $ 95,353 $74,753 $ 20,600 10.12% 10.27% $ 9,645 $ 7,675 $ 1,970
-------- ------- -------- ------- ------- -------
Investment securities:
Taxable ............................. 15,919 17,498 (1,579) 6.34 6.63 1,009 1,160 (151)
Tax Exempt .......................... 7,943 3,257 4,686 7.18 7.92 570 258 312
-------- ------- -------- ------- ------- -------
Total investment
securities ........................ 23,862 20,755 3,107 6.62 6.83 1,579 1,418 161
-------- ------- -------- ------- ------- -------
Federal funds sold .................... 4,448 2,895 1,553 6.09 5.53 271 160 111
-------- ------- -------- ------- ------- -------
Total earnings assets ............. $123,663 $98,403 $ 25,260 9.30 9.40 11,495 9,253 2,242
======== ======= ========
INTEREST-BEARING LIABILITIES:
Deposits:
Demand .............................. $ 30,238 $22,681 $ 7,557 4.78 4.92 1,444 1,116 328
Savings ............................. 24,463 17,984 6,479 4.95 5.19 1,210 933 277
Time ................................ 52,104 45,616 6,488 6.21 6.27 3,237 2,862 375
-------- ------- -------- ------- ------- -------
Total interest-bearing deposits ... 106,805 86,281 20,524 5.52 5.69 5,891 4,911 980
Other short-term borrowings ........... 4,106 4,471 (365) 4.34 4.50 178 201 (23)
Long-term debt ........................ 6,649 2,090 4,559 6.44 7.18 428 150 278
-------- ------- -------- ------- ------- -------
Total interest-bearing liabilities .... $117,560 $92,842 $ 24,718 5.53 5.67 6,497 5,262 1,235
======== ======= ======== ------- ------- -------
Net Interest income/net interest spread 3.77% 3.73% $ 4,998 $ 3,991 $ 1,007
===== ===== ======= ======= =======
Net yield on earning assets ........... 4,04% 4.06%
===== =====
Net cost of funds ..................... 5.26% 5.34%
===== =====
<CAPTION>
VARIANCE(1)
ATTRIBUTED TO 1998
VOLUME RATE
--------- ----
EARNINGS ASSETS:
<S> <C> <C>
Loans, net of unearned income......... $ 2,084 ($114)
------- -----
Investment securities:
Taxable ............................. (102) (49)
Tax Exempt .......................... 338 (26)
------- -----
Total investment
securities ........................ 236 (75)
------- -----
Federal funds sold .................... 93 8
------- -----
Total earnings assets ............. 2,413 (171)
INTEREST-BEARING LIABILITIES:
Deposits:
Demand .............................. 361 (33)
Savings ............................. 322 (45)
Time ................................ 403 (28)
------- -----
Total interest-bearing deposits ... 1,086 (106)
Other short-term borrowings ........... (16) (17)
Long-term debt ........................ 295 (7)
------- -----
Total interest-bearing liabilities .... 1,365 (130)
------- -----
Net Interest income/net interest spread $ 1,048 $ (41)
======= =====
Net yield on earning assets ...........
Net cost of funds .....................
</TABLE>
- -----------------
(1) The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
22
<PAGE> 25
SECURITIES PORTFOLIO
The following table contains the carrying amount of securities at
September 30, 1999 and December 31, 1998 and 1997:
SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1999 1998 1997
------------- ------- --------
<S> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE: (AMOUNTS IN THOUSANDS)
U.S. Treasury and U.S. Government agencies $16,190 $13,642 $13,980
Mortgage-backed securities ............... 6,701 1,908 1,165
State and municipal securities ........... 4,304 5,776 -0-
Equity securities ........................ 620 614 400
------- ------- -------
Total ............................... $27,815 $21,940 $15,545
======= ======= =======
SECURITIES HELD-TO-MATURITY:
State and municipal securities ........... $ 5,801 $ 6,218 $ 4,181
======= ======= =======
</TABLE>
Average taxable securities were 67.0% of the portfolio for the nine
months ended September 30, 1999, 66.7% of the portfolio for the year ended
December 31, 1998 and 84.3% of the portfolio for the year ended December 31,
1997. The increase of tax exempt securities in 1998 reflects the Banks' intent
to reduce the effect of federal income taxation.
The maturities and weighted average yields of the investments in the
1998 portfolio of securities are presented below. The average maturity of the
securities portfolio is 6.4 years with an average yield of 6.6%. Taxable
equivalent adjustments, using a 34% tax rate, have been made in calculating
yields on tax-exempt obligations. Equity securities have been excluded since
these instruments have no maturity date.
SECURITIES PORTFOLIO MATURITY SCHEDULE
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
-------------- ----------------- ---------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury ............... $ 502 6.14% $ 510 6.10% $ -0- -0-% $ -0- -0-%
U.S. Government agencies .... 1,197 6.01 4,945 6.22 5,986 5.95 500 6.00
Mortgaged-backed ............ -0- -0- 1,908 6.98 -0- -0- -0- -0-
State and municipal ......... 103 5.87 104 6.84 3,395 6.54 2,176 7.12
------ ------ ------- -------
$1,802 6.04 $7,467 6.50 $ 9,381 6.16 $ 2,676 6.91
====== ====== ======= =======
SECURITIES HELD-TO-MATURITY:
State and municipal ......... $ 250 6.04% $1,109 6.42% $ 669 7.90% $ 4,190 7.83%
====== ==== ====== ==== ======= ===== ======= ====
</TABLE>
With the exception of securities of the U.S. Government and U.S.
Government agencies, the Banks held no securities as to which the aggregate
value on December 31, 1998 or September 30, 1999 exceeded 10% of shareholders'
equity at that date. Securities which are payable from and secured by the same
source of revenue or taxing authority are considered to be securities of a
single issuer.
23
<PAGE> 26
LOAN PORTFOLIO
The following table shows the classification of loans by major category
at September 30, 1999 and December 31, 1998 and 1997.
TYPES OF LOANS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998 1997
-------------------- -------------------- ----------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 33,005 20.7% $ 26,883 20.7% $16,536 19.5%
Real estate - construction ........... 11,627 7.3% 8,543 6.5% 5,119 6.1%
Real estate - other(1) ............... 98,321 61.5% 78,965 60.8% 50,928 60.2%
Consumer ............................. 14,658 9.2% 13,743 10.5% 10,835 12.8%
Other loans .......................... 2,135 1.3% 1,697 1.5% 1,166 1.4%
-------- ----- -------- ----- ------- -----
159,746 100.0% 129,831 100.0% 84,584 100.0%
======== ===== ======== ===== ======= =====
Less:
Allowance for loan losses ............ 1,934 1,686 930
-------- -------- ------
Net loans ............................ $157,812 $128,145 $83,654
======== ======== =======
</TABLE>
- ------------------
(1) The "Real estate - other" category includes multi-family residential,
home equity, commercial real estate and undeveloped agricultural real
estate loans.
The following table shows the maturity distribution of selected loan
classifications at September 30, 1999 and an analysis of these loans maturing in
over one year.
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURITY MATURING OVER ONE YEAR
-------------------------------------------------------------------------
OVER ONE
ONE YEAR OVER PREDETERMINED FLOATING OR
YEAR OR THROUGH FIVE INTEREST ADJUSTABLE
LESS FIVE YEARS YEARS TOTAL RATE RATE
---- ---------- ----- ----- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural ............. $17,823 $14,852 $330 $33,005 $11,690 $3,492
Real estate - construction 11,627 -0- -0- 11,627 -0- -0-
------- ------- ---- ------- ------- ------
Total ................ $29,450 $14,852 $330 $44,632 $11,690 $3,492
======= ======= ==== ======= ======= ======
</TABLE>
24
<PAGE> 27
The following table contains information concerning outstanding
balances of nonperforming assets at September 30, 1999 and December 31, 1998 and
1997.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------- ------------ ------------
1999 1998 1997
------------- ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Nonaccruing loans ............................................... $ 650 $ 4 $ 15
Loans past due 90 days or more .................................. 14 23 13
Restructured loans .............................................. -0- -0- -0-
------------- ------------ -----
Total nonperforming loans ....................................... 664 27 28
Nonaccruing securities .......................................... -0- -0- -0-
Other real estate
-0- -0- -0-
------------- ------------ -----
Total nonperforming assets ...................................... $ 664 $ 27 $ 28
============= ============ =====
RATIOS:
Loan loss allowance to total nonperforming assets ............... 2.91 62.44 33.21
============= ============ =====
Total nonperforming loans to total loans
(net of unearned interest) .................................... .42% .02% .03%
============= ============ =====
Total nonperforming assets to total assets ...................... .32% .01% .02%
============= ============ =====
</TABLE>
It is the general policy of the Banks to stop accruing interest income
and place the recognition of interest on a cash basis when any commercial,
industrial or real estate loan is past due as to principal or interest, and the
ultimate collection of either is in doubt. Accrual of interest income on
consumer installment loans is suspended when any payment of principal or
interest, or both, is more than 90 days delinquent. When a loan is placed on a
nonaccrual basis, any interest previously accrued but not collected is reversed
against current income unless the collateral for the loan is sufficient to cover
the accrued interest or a guarantor assures payment of interest.
There has been no significant impact on the Company's financial
statements as a result of the provisions of Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan, or
Statement of Financial Accounting Standards No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures.
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for loan losses, which is charged to operating results,
is based on the growth of the loan portfolio, the amount of net loan losses
incurred and management's estimation of potential future losses based on an
evaluation of the risk in the loan portfolio. Management believes that the
$1,933,510 in the allowance for loan losses at September 30, 1999, or 1.21% of
total net outstanding loans at that date, was adequate to absorb known risks in
the portfolio based upon the Banks' historical experience. No assurance can be
given, however, that increased loan volume, adverse economic conditions or other
circumstances will not result in increased losses in the Banks' loan portfolio.
25
<PAGE> 28
The following table contains information with respect to the Company's
loans, net of unearned income, and the allowance for loan losses for the nine
months ended September 30, 1999 and for each of the last three fiscal years:
ANALYSIS OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------------------
1999 1998 1997 1996
------------- -------- ------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Allowance for loan losses at beginning of year ......... $ 1,686 $ 930 $ 655 $ 325
Adjustment of business acquisition ..................... -0- 557 -0- -0-
Loans charged off:
Commercial, financial and agricultural ................. 309 32 95 -0-
Real estate-construction ............................... -0- -0- 45 -0-
Real estate-other ...................................... 22 -0- 2 6
Consumer ............................................... 96 104 85 32
-------- -------- ------- ----------
Total loans charged off .......................... 427 136 227 38
-------- -------- ------- ----------
Recoveries on loans previously charged off:
Commercial, financial, and agricultural ................ 7 6 2 -0-
Real estate-construction ............................... -0- -0- 8 -0-
Real estate-other ...................................... -0- -0- 1 -0-
Consumer ............................................... 28 29 11 -0-
-------- -------- ------- ----------
Total recoveries on loans previously charged off.. 35 35 22 -0-
-------- -------- ------- ----------
Net loans charged off .................................. 392 101 205 38
-------- -------- ------- ----------
Provisions for loan losses ............................. 640 300 480 368
-------- -------- ------- ----------
Allowance for loan losses at end of period ............. $ 1,934 $ 1,686 $ 930 $ 655
======== ======== ======= ==========
Loans, net of unearned income, at end of period ........ $159,746 $129,831 $84,584 $ 64,962
======== ======== ======= ==========
Average loans, net of unearned income, outstanding for
the period ............................................. $146,096 $ 95,353 $74,753 $ 51,008
======== ======== ======= ==========
RATIOS:
Allowance at end of period to loans, net of unearned
income ................................................. 1.21% 1.02% 1.10% 1.01%
Allowance at end of period to average loans, net of
unearned income ........................................ 1.32% 1.70% 1.24% 1.28%
Net charge-offs to average loans, net of unearned income .27% .10% .27% .07%
Net charge-offs to allowance at end of period .......... 20.27% 5.90% 22.04% 5.80%
Recoveries to prior year charge-offs ................... 25.74% 15.42% 57.89% -0-%
</TABLE>
In assessing adequacy, management relies predominantly on its ongoing
review of the loan portfolio, which is undertaken both to determine whether
there are probable losses which must be charged off and to assess the risk
characteristics of the portfolio in the aggregate. This review takes into
consideration the judgments of the responsible lending officers and senior
26
<PAGE> 29
management, and also those of bank regulatory agencies that review the loan
portfolio as part of the regular bank examination process. In evaluating the
allowance, management also considers the loan loss experience of the Banks, the
amount of past due and nonperforming loans, current and anticipated economic
conditions, lender requirements and other appropriate information.
Management allocated the reserve for loan losses to specific loan
classes as follows:
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------------------
1999 1998 1997
--------------- ---------------- ------------------
PERCENT PERCENT PERCENT
------- ------- -------
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ --------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC LOANS (1)
Commercial, financial and agricultural $ 774 40% $ 421 25% $186 20%
Real estate - construction ........... 135 7 118 7 55 6
Real estate - other .................. 600 31 894 53 567 61
Consumer.............................. 425 22 253 15 122 13
------ --- ------ --- ---- ---
Total .............................. $1,934 100% $1,686 100% $930 100%
====== === ====== === ==== ===
</TABLE>
- ---------------
(1) The Bank had no foreign loans.
DEPOSITS
The average amounts of and the average rate paid on each of the
following categories of deposits for the nine months ended September 30, 1999
and for the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------
1999 1998 1997
------------------ ---------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 9,528 -0-% $ 3,940 -0-% $ 3,527 -0-%
Demand .............................. 46,852 4.02% 30,238 4.78% 22,681 4.92%
Savings ............................. 31,348 3.99% 24,463 4.95% 17,984 5.19%
Time Deposits ....................... 83,980 5.78% 52,104 6.21% 45,616 6.27%
-------- -------- ------- ----
Total interest-bearing deposits.. 162,180 4.92% 106,805 5.47% 86,281 5.69%
-------- -------- ------- ----
Total average deposits .... $171,708 4.65% $110,745 5.32% $89,808 5.47%
======== ======== =======
</TABLE>
27
<PAGE> 30
The two categories of lowest cost deposits comprised the following
percentages of average total deposits during the nine months ended September 30,
1999: average noninterest-bearing demand deposits, 5.5%; and average savings
deposits, 18.3%. Of average time deposits, approximately 41.1% were large
denomination certificates of deposit. The maturities of the time certificates of
deposit of $100,000 or more issued by the Bank at September 30, 1999 are
summarized in the table below.
MATURITIES OF LARGE TIME DEPOSITS
<TABLE>
<CAPTION>
TIME
CERTIFICATES
OF DEPOSIT
------------
(AMOUNTS
IN THOUSANDS)
<S> <C>
Three months or less ............... $ 9,102
Over three through twelve months ... 18,145
Over twelve months ................. 7,274
-------
Total ................ $34,521
=======
</TABLE>
LONG-TERM DEBT AND FEDERAL HOME LOAN BANK ADVANCES
As of September 30, 1999, the Company had long-term borrowings totaling
$13,335,714. Of this amount, $9,735,714 represents borrowings from the Federal
Home Loan Bank against available credit lines of $18,000,000. These borrowings
have varying maturities with interest rates ranging from 5.27% to 6.77% and are
secured by residential mortgages. The remaining long-term debt consists of a
$3,600,000 term loan with The Bankers Bank, secured by stock of Gilmer County
Bank and Appalachian Community Bank bearing interest at prime less 3/4 of a
percentage point.
Maturities of long-term debt following September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
<S> <C>
1999 $ 371,429
2000 3,592,857
2001 1,592,857
2002 1,592,857
2003 1,392,857
2004 1,292,857
Thereafter 3,500,000
-----------
$13,335,714
===========
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table summarizes specified financial ratios for the
Company for the nine months ended September 30, 1999 and for the years ended
December 31, 1998 and 1997.
28
<PAGE> 31
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
1999 1998 1997
------------- ------- -------
<S> <C> <C> <C>
Return on average assets (September 30, 1999, annualized)................... .57% .92% .98%
Return on average equity (September 30, 1999, annualized) ................. 9.56% 13.50% 15.90%
Dividend payout ratio...................................................... 0% 0% 0%
Average equity to average assets ratio .................................... 5.96% 6.80% 6.19%
</TABLE>
29
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of the following discussion is to address information
relating to our financial condition and results of operations that may not be
readily apparent from a review of the consolidated financial statements and
notes thereto, which begin on page F-1 of this prospectus. You should read this
discussion in conjunction with information provided in our consolidated
financial statements and accompanying footnotes, and with the statistical
information appearing elsewhere in this prospectus under the caption "Selected
Consolidated Financial Data and Statistical Information." Unless we specifically
state otherwise, the discussion of net interest income in this financial review
is presented on a taxable equivalent basis to facilitate performance comparisons
among our various taxable and tax-exempt assets.
ACQUISITION OF APPALACHIAN COMMUNITY BANK
In November 1998, we acquired First National Bank of Union County. This
bank, located in the North Georgia town of Blairsville, Union County, was then
converted to a state chartered bank and renamed Appalachian Community Bank. At
the time of our purchase, Appalachian Community Bank's asset quality had
declined and it had problems in a number of areas, including depth of management
and earnings performance. Even though the bank had problems, the acquisition was
pursued by us for the following reasons:
- - The Appalachian acquisition offered us an opportunity to diversify our
loan portfolio by providing entry into a complimentary market;
- - Entry into the Union County market through acquisition instead of
through the formation of a new bank produced time and cost savings;
- - The acquisition, coupled with the bank's conversion and name change,
provided us with a platform for branching under a name suitable for use
throughout North Georgia, allowing us to avoid a name change for Gilmer
County Bank which has an established identity in the Gilmer County
market; and
- - We were able to negotiate the acquisition on favorable terms, allowing
us to transfer the lower quality assets and some of the bank's
liabilities to the seller, giving us an opportunity for a clean bank
with a stable deposit base.
In light of these perceived benefits and based on our belief that, with
our management and our commitment of resources, the existing problems at
Appalachian Community Bank can be resolved, the acquisition is deemed to be in
our best long-term interest.
The integration of Appalachian Community Bank has had the effect of
temporarily reducing our earnings and increasing our expenses. We have incurred
during 1999 a number of non-recurring expenses as a result of the acquisition.
The most significant resulting expenses incurred have been advertising and
marketing related, as we worked to improve Appalachian Community Bank's market
penetration. For the nine months ended September 30, 1999, advertising and
marketing expenses were $87,000, compared to $20,000 for the same period of
1998. Further, Appalachian Community Bank's computer systems required
substantial upgrades, increasing our computer-related expenses to $129,000 for
the nine months ended September 30, 1999, compared to $71,000 for the same
period of 1998. We will continue to experience these higher levels of expenses
during the fourth quarter of 1999, but we expect expenses will return to more
normal levels in 2000.
We transferred a substantial number of lower quality loans to the
seller at the time of acquisition which were also a substantial portion of the
bank's highest yielding earning assets. In an effort to replace these loans and
the resulting interest income, we allowed Appalachian Community Bank to
participate in approximately $4,000,000 of loans generated at Gilmer County
Bank, net of the loans Appalachian generated for Gilmer County Bank's
participation. Although resulting in an increase in expenses relating to these
loans, this strategy was beneficial in that it allowed Appalachian Community
Bank to build its asset base and focus on increasing deposits to support future
activity. As a result of increased local loan volume during the third
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<PAGE> 33
quarter of 1999, we were able to reduce these participations and Appalachian
Community Bank began to operate on a basis independent from Gilmer County Bank.
Appalachian Community Bank's assets were $50.4 million at December 31,
1998, $52.3 million at March 31, 1999, $58.2 million at June 30, 1999 and $58.7
million at September 30, 1999. Loans were $27.1 million at December 31, 1998,
$34.1 million at March 31, 1999, $37.7 million at June 30, 1999 and $42.9
million at September 30, 1999. Total deposits were $43.8 million at March 31,
1999, $44.8 million at June 30, 1999 and $50.2 million at September 30, 1999.
These changes and the impact of the trends in non-recurring expenses
have resulted in Appalachian Community Bank's reported net income increasing
from a loss of $178,000 for the quarter ended March 31, 1999, to net income of
$20,000 for the quarter ended June 30, 1999 and net income of $182,000 for the
quarter ended September 30, 1999.
Management believes that its efforts with respect to Appalachian
Community Bank are producing the intended results.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net earnings for the nine months ended September 30, 1999 were $851,330
compared to net earnings of $838,605 for the same period in 1998. This
represents a 1.5% increase in net earnings. Net interest income increased
$1,894,075 or 57.6%, during the first nine months of 1999 as compared to the
same period in 1998; noninterest expenses increased $1,751,274, or 80.1%, during
same period, while noninterest income increased by $273,527 or 72.6%. Total
interest expense increased $1,989,258, or 42.6%, during the first nine months of
1999 as compared to the same period in 1998. The amounts for the first nine
months of 1999 reflected the effects of the addition of Appalachian Community
Bank, which we acquired in November 1998. Prior to the acquisition and during
the first nine months in 1998, we had only one subsidiary, Gilmer County Bank.
Net earnings for the quarter ended September 30, 1999 were $347,113
compared to net earnings of $306,990 for the quarter ended September 30, 1998.
This represents a 13.1% increase as compared to the same period in 1998. Total
interest expense increased by $725,950 as compared to the same period in 1998.
Net interest income increased $675,779, or 59.2%, during the three months ended
September 30, 1999 as compared to the same period in 1998; noninterest expenses
increased $547,250, or 69.9%, during the same period, while noninterest income
increased by $99,594, or 77.2%. The amounts for the three months ended September
30,1998 reflected our holding only one subsidiary, Gilmer County Bank while the
amounts for three months ended September 30, 1999 reflect increases as a result
of the addition of Appalachian Community Bank.
Our net income of $1,208,231 for the year ended December 31, 1998
represents an increase of $190,425, or 18.7%, from the net income of $1,017,766
for the year ended December 31, 1997. Our net income in 1997 represented an
increase of $501,030, or 97.0%, over net income of $516,736 in 1996. The
increase in net income for these periods relates to the growth in the Gilmer
County Bank's deposit and loan base as well as an increase in Gilmer County
Bank's net interest margin and interest rate spread.
After restatement for a 2-for-1 stock split in 1998, earnings per share
increased to $1.04, or $.99 on a fully diluted basis, in 1998 compared to a
$0.88 per share net income in 1997 and a $0.45 per share net income in 1996.
Return on average assets, which reflects the Banks' abilities to utilize their
assets, was .92% in 1998, compared with .98% in 1997 and .71% in 1996. Return on
average shareholders' equity decreased to 13.5% in 1998 compared with 15.9% in
1997, due to the additional shares issued in connection with acquisition of
Appalachian Community Bank.
COMPARISON OF NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NET INTEREST INCOME
Net interest income, the difference between interest earned on assets
and the cost of interest-bearing liabilities, is the largest component of our
net income. Fluctuations in interest rates as well as volume and mix changes in
earning assets and interest-bearing liabilities impact net interest income.
Revenue from our earning assets during the nine months ended September
31
<PAGE> 34
30, 1999 increased $1,902,131, or 57.9%, from the same period in 1998. This
increase is attributable to the acquisition of Appalachian Community Bank.
Interest expense for the nine months ended September 30, 1999 increased
$1,989,258, or 42.6%, compared to the same period of 1998. This increase was
primarily due to an increase of $1,748,372 in interest expense accrued on
deposit accounts. The remaining increase is attributed to interest expense on
loans from the Federal Home Loan Bank and The Bankers Bank.
Net interest income increased $683,835, or 59.9%, during the quarter
ended September 30, 1999 as compared to the same period in 1998. An increase of
$1,409,785, or 51.1%, in revenue from earning assets is the primary reason for
the increase in net interest income for the quarter.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the charge against current
earnings necessary to maintain the reserve for loan losses at a level which
management considers appropriate. This level is determined based upon
management's assessment of current economic conditions, the composition of the
loan portfolio and the levels of nonaccruing and past due loans. The provision
for loan losses was $640,000 for the nine months ended September 30, 1999
compared to $240,000 for the same period of 1998. Charge-offs exceeded
recoveries by $393,448 for the nine months ended September 30, 1999. The reserve
for loan losses as a percent of outstanding loans, net of unearned income, was
1.2% at September 30, 1999 compared to 1.3% at December 31, 1998. The reserve
for loan losses as a percent of outstanding loans, net of unearned income, was
1.2% at September 30, 1998. The increase in the loan loss reserve is due to a
loan to a medical facility that is no longer in business. We are in the process
of attempting to convert collateral from this loan to cash.
The provision for loan losses was $285,000 for the three months ended
September 30, 1999 compared to $60,000 for the same period in 1998.
NONINTEREST INCOME
Noninterest income for the nine months ended September 30, 1999 was
$642,303 compared to $376,832 for the same period of 1998, representing an
increase of 70.4%. This increase was primarily due to an increase in service
charges on deposit accounts of $138,644, or 83.7%, an increase in insurance
commissions of $30,486, or 181.0%, and an increase in other operating income of
$104,235, or 58.4%. Earnings on cash surrender value of life insurance policies
provided $26,144 of the increase to other operating income. These increases are
primarily attributable to the addition of Appalachian Community Bank.
Noninterest income increased by $91,538, or 71.0%, in the third quarter
of 1999 as compared to the same period in 1998. Service charges on deposits
increased by $51,647, or 94.5%. These increases are also attributable to the
addition of Appalachian Community Bank.
NONINTEREST EXPENSES
Noninterest expenses for the nine months ended September 30, 1999 were
$3,936,433, representing a 80.1% increase over the same period of 1998. The
primary components of noninterest expenses are salaries and employee benefits,
which increased to $1,749,649 for the nine months ended September 30, 1999
representing a 68.6% increase over the same period of 1998. Occupancy costs
increased $140,526, or 139.5%, and furniture and equipment expenses increased by
$120,229, or 90.3%. Other operating expenses rose by 85.2% to $1,692,096. These
increases are attributable to the addition of Appalachian Community Bank.
Noninterest expenses increased by $547,250 for the quarter ended
September 30, 1999 as compared to the same period in 1998. The primary
components of noninterest expense are salaries and employee benefits, which
increased by $233,820 for the three months ended September 30, 1999,
representing a 63.0% increase over the same period of 1998. Occupancy costs
increased by $42,573, or 119.6%, and other operating expenses increased by
$235,045, of 71.1%, for the third quarter of 1999 as compared with the same
period in 1998. These increases are attributable to the addition of Appalachian
Community Bank.
The table below describes our noninterest expenses for the periods
indicated.
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<PAGE> 35
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997 1996
------ ------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and employee benefits . $1,750 $1,497 $1,154 $ 893
Occupancy expense .............. 241 173 97 96
Furniture and equipment expense 253 253 150 126
Director and committee fees .... 136 127 119 19
Advertising .................... 206 191 122 93
Checking account expense ....... 31 39 33 29
Data processing ................ 226 128 87 47
Insurance ...................... 56 52 56 27
Postage ........................ 99 87 70 52
Professional and regulatory fees 206 146 195 121
Supplies ....................... 178 143 117 106
Correspondent bank charges ..... 31 35 35 -0-
Taxes and licenses ............. 58 36 26 22
Other .......................... 465 314 118 84
------ ------ ------ ------
Total ....................... $3,936 $3,221 $2,379 $1,715
====== ====== ====== ======
</TABLE>
INCOME TAXES
We attempt to maximize net income through active tax planning.
Management is attempting to reduce our tax burden by purchasing tax-exempt
securities. The provision for income taxes of $403,603 for the nine months ended
September 30, 1999 increased $3,603, or 0.9%, compared to the same period of
1998 due to increased profit levels.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
NET INTEREST INCOME
Net interest income was $4,772,773 in 1998, compared to $3,880,715 in
1997, representing an increase of 23.0%. This increase was caused by the growth
of Gilmer County Bank's deposit base and loan portfolio.
Interest and fees earned on loans increased 25.6% from $7,652,481 in
1997 to $9,614,165 in 1998. The increase was primarily from the increase in
volume of average loans from approximately $74,753,000 in 1997 to approximately
$95,353,000 in 1998.
Interest earned on taxable securities decreased 13.1% from $1,160,497
in 1997 to $1,009,595 in 1998, while interest earned on non-taxable securities
increased 82.7% from $205,883 to $376,157 during the same period. The variance
in the income figures reflects management's strategy to decrease income taxes by
investing in tax-free municipal bonds.
The trend in net interest income is also evaluated in terms of average
rates using the net interest margin and the interest rate spread. The net
interest margin, or the net yield on earning assets, is computed by dividing
fully taxable equivalent net interest income by average earning assets. This
ratio represents the difference between the average yield returned on average
earning assets and the average rate paid for funds used to support those earning
assets, including both interest-bearing and
33
<PAGE> 36
noninterest-bearing sources. The net interest margin for 1998 was 4.04% compared
to a net interest rate margin of 4.06% in 1997.
The interest rate spread measures the difference between the average
yield on earning assets and the average rate paid on interest-bearing sources of
funds. The interest rate spread calculation provides a more direct perspective
on the effect of market interest rate movements. The net interest spread was
3.76% in 1998 compared to 3.73% in 1997.
The following chart presents net interest income data on a fully tax
equivalent basis:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rate earned on earning assets .. 9.30% 9.40% 9.22%
Rate paid on borrowed funds .... 5.54% 5.67% 5.73%
Interest rate spread ........... 3.76% 3.73% 3.49%
Net yield on earning assets .... 4.04% 4.06% 3.90%
</TABLE>
During 1998, interest on federal funds sold increased $109,396, or
68.5% from 1997. This increase in income is the result of maintaining larger
average federal funds balances with correspondent banks of approximately
$4,448,000 in 1998 and $2,895,000 in 1997. The average yield for 1998 was 6.09%
and for 1997 was 5.53%.
Total interest expense increased $1,235,966, or 23.5%, from $5,262,253
in 1997 to $6,498,219 in 1998. This increase was the combined effect of an
increase in the average balance of interest-bearing deposits to approximately
$106,805,000 in 1998 from approximately $86,281,000 in 1997. The average rate
paid on deposits in 1998 was 5.47% and in 1997 was 5.69%. The effect of the
significant increase in the average balance of interest-bearing deposits
increased the interest expense on interest-bearing deposits to $5,891,778 in
1998 from $4,911,266 in 1997, an increase of $980,532, or 20.0%.
NONINTEREST INCOME
Noninterest income was $528,921 for 1998 and $378,996 for 1997. These
amounts are primarily from service charges on deposit accounts, insurance
commissions and fees on services to customers. Noninterest income increased
primarily due to the continued growth in Gilmer County Bank's deposit base.
Other operating income increased 56.3% from $161,086 in 1997 to $251,717 in
1998, primarily due to the addition of Appalachian Community Bank and an
increase in credit card fees earned by the Gilmer County Banks.
NONINTEREST EXPENSES
Noninterest expenses totaled $3,221,213 in 1998 and $2,379,358 in 1997.
Salaries and benefits increased $342,287, or 29.6%, to $1,496,743 in 1998, due
to the Banks' increased staffing to accommodate the growth in the Banks' loans
and deposits, as well as the acquisition of Appalachian Community Bank in
November 1998. Furniture and equipment expenses increased $102,448, or 68.1%, in
1998 due to increased data processing costs and the costs associated with
expanded facilities. Other operating expenses increased $321,353, or 32.9%, to
$1,298,630 in 1998 due mainly to increase in advertising and supplies.
INCOME TAXES
Our net operating income of $1,780,481 in 1998 resulted in $572,250, or
32.1%, of income tax expense. Net operating income for 1997 was $1,400,353 with
a related income tax expense of $382,587, or 27.3%.
34
<PAGE> 37
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
NET INTEREST INCOME
Net interest income was $3,880,715 in 1997, as compared to $2,651,070
in 1996, representing an increase of $1,229,645, or 46.4%. This increase was
caused by the growth of Gilmer County Bank's deposit base and loan portfolio as
well as an increase in the Gilmer County Bank's interest rate spread and net
interest margin.
Interest earned on fees and loans increased from $5,205,131 in 1996 to
$7,652,481 in 1997, an increase of $2,447,350 or approximately 47%. This
increase was caused by the increase in the average loan portfolio balance from
approximately $51,008,000 in 1996 to approximately $74,753,000 in 1997.
Interest earned on taxable investment securities increased $182,580, or
18.7%, from $977,917 in 1996 to $1,160,497 in 1997 while interest earned on
nontaxable investment securities increased 602.8% from $24,228 in 1996 to
$170,274 in 1997. The increase in interest earned on nontaxable securities in
1997 is a result of an increase of approximately $2,812,000, or 632%, in the
average investment portfolio for such securities from 1996.
The net interest margin for 1997 was 4.06%, compared with a net
interest margin of 3.90% in 1996. This increase was due primarily to the growth
of the Gilmer County Bank related specifically to an increase in
interest-bearing assets as a percentage of interest-earning liabilities. The net
interest spread for 1997 was 3.73% from earning assets as compared to a net
interest spread of 3.49% in 1996.
During 1997, interest on federal funds sold increased $55,695, or
53.5%, from 1996. The increase in income from federal funds sold is the result
of an increase in the average amount of federal funds sold from approximately
$2,025,000 in 1996 to approximately $2,895,000 in 1997 and an increase in the
average yield for such funds from 5.14% in 1996 to 5.53% in 1997.
Total interest expense increased $1,602,026, or 43.8%, from $3,660,227
in 1996 to $5,262,253 in 1997. This increase was the combined effect of an
increase in the average balance of interest-bearing deposits from approximately
$59,043,000 in 1996 to approximately $86,281,000 in 1997, and a decrease in the
average rate paid on deposits from 5.82% in 1996 to 5.69% in 1997. The effect of
these changes increased the interest expense on interest-bearing deposits from
$3,436,060 in 1996 to $4,911,266 in 1997.
NONINTEREST INCOME
Noninterest income was $384,831 in 1997 and $252,946 in 1996. These
amounts are primarily from service charges on deposit accounts, insurance
commissions and fees on services to customers. Noninterest income increased
primarily due to the continued growth in Gilmer County Bank's deposit base.
Other noninterest income increased from $85,055 in 1996 to $161,086 in 1997,
primarily due to an increase of approximately $39,562 in credit card fees earned
by the Bank in 1997.
NONINTEREST EXPENSES
Noninterest expenses totaled $2,379,358 in 1997 and $1,715,372 in 1996.
Salaries and benefits increased $261,464, or 29.3%, to $1,154,456, which
reflects the Bank's increased staffing to accommodate the growth in Gilmer
County Bank's loans and deposits. Furniture and equipment expenses increased
$23,919, or 18.9%, primarily due to depreciation on equipment of $98,296 in
1997, $8,070 over 1996, and repair and maintenance costs of $51,671, $15,459
over 1996. Other operating expenses increased $377,501, or 62.9%. Directors'
fees increased $100,422 because it was the first full year we paid directors'
fees. The $73,411 increase in professional fees was primarily attributable to
compliance with reporting requirements under the federal securities laws.
INCOME TAXES
Our tax planning resulted in a provision for income taxes of $382,587,
or 27.3%, for 1997 on pre-tax income of $1,400,353. The tax for 1996 was
$303,908, or 37%, on income of $820,644 and for 1995 was a benefit of
($126,952), or 34%,
35
<PAGE> 38
on a loss of $373,644. The 1997 tax amount and rate is lower than the statutory
federal tax rate of 34% primarily due to investments in loans and securities
earning interest income that is exempt from federal taxation. In 1997 the
effective tax rate was 80.3% of the statutory federal tax rate compared to
108.8% in 1996. A more detailed explanation of income tax expense is included in
the accompanying Notes to Consolidated Financial Statements.
FINANCIAL CONDITION
EARNING ASSETS
The Banks' earning assets, which include deposits in other banks,
federal funds sold, securities and loans, averaged $187,257,000 during the first
nine months of 1999, or 94.1% of average total assets, $123,663,000 during 1998,
or 94.3% of average total assets, and $98,403,000 during 1997, or 95.3% of
average total assets. The mix of average earning assets comprised the following
percentages:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Deposits in other banks .1% 0% 0%
Federal funds sold .... 4.3% 3.6% 2.9%
Investment securities . 17.5% 19.3% 21.1%
Loans ................. 78.0% 77.1% 76.0%
</TABLE>
Investment securities and federal funds sold decreased $11,441,715, or
24.6%, from December 31, 1998 to September 30, 1999. Investment securities at
September 30, 1999 were $33,615,576 compared with $28,158,635 at December 31,
1998, reflecting a 19.4%, or $5,456,941, increase. Federal funds sold were
$1,493,557 at September 30, 1999 compared to the December 31, 1998 total of
$18,392,213, a 91.9% decrease. The investment securities portfolio is used to
make various term investments, to provide a source of liquidity and to serve as
collateral to secure certain government deposits. Federal funds sold are
maintained as a tool in managing our daily cash needs. The decrease in federal
funds sold resulted from the reinvestment of funds in loans and securities.
The mix of average earning assets reflects management's attempt to
maximize interest income after tax while maintaining acceptable levels of risk.
The Banks do not participate in the national market of loans to finance
leveraged buy-outs or lesser developed country debt.
LOANS
Loans comprised the largest single category of the Company's earning
assets on September 30, 1999. Loans, net of unearned income and reserve for loan
losses, were 76.2% of total assets at September 30, 1999. Total net loans were
$157,812,634 at September 30, 1999, representing a 23.2% increase from the
December 31, 1998 total of $128,144,700. This increase reflects the continued
increase in loan demand for the Banks' respective market areas coupled with an
increase in the Banks' market share for their respective areas.
Loans also made up the largest component of the Banks' earning assets
for the year ended December 31, 1998. At December 31, 1998, the Banks' total
loans were $129,831,095 compared to total loans of $84,583,853 at the end of
1997. In 1998, average net loans represented 77.1% of average earning assets and
72.7% of total average assets, while in 1997, average net loans represented
76.0% of average earning assets and 72.4% of average total assets. This was the
result of an increase in loan demand in the Banks' market area, combined with an
increase in the Banks' market share of loans in such area. The ratio of total
loans to total deposits was 79.2% in 1998 and 88.7% in 1997.
36
<PAGE> 39
The provision for loan losses was $640,000 for the nine months ended
September 30, 1999. The reserve for loan losses as a percent of outstanding
loans, net of unearned income, was 1.2% at September 30, 1999 compared to 1.3%
at December 31, 1998 and 1.2% at September 30, 1998. The provision for loan
losses is reviewed for adequacy by each Bank monthly in accordance with FDIC
recommended levels. The assessment includes a review of current economic
conditions, the composition of the loan portfolio and the levels of nonaccruing
and past due loans. The provision is then adjusted based on the grade assigned
to existing loans.
SECURITIES AND FEDERAL FUNDS SOLD
The Banks have classified their securities as either available-for-sale
or held-to-maturity, depending on whether the Banks have the intent and ability
to hold such securities to maturity. At December 31, 1998, $21,940,281 was
classified as available-for-sale, while at December 31, 1997, $15,544,585 of the
Banks' securities were classified as available-for-sale. Securities classified
as held-to-maturity were $6,218,354 at year end 1998, and $4,181,021 at year end
1997.
The composition of the Banks' securities portfolio reflects our
investment strategy of maximizing portfolio yields subject to risk and liquidity
considerations. The primary objectives of our investment strategy are to
maintain an appropriate level of liquidity and to provide a tool to assist in
controlling the Banks' interest rate position while at the same time producing
adequate levels of interest income. For securities classified as
held-to-maturity, it is our intention for the Banks to hold such securities for
the foreseeable future. Management of the maturity of the portfolio is necessary
to provide liquidity and to control interest rate risk. Investment securities
and federal funds sold decreased $11,441,715 or 24.6% from December 31, 1998 to
September 30, 1999. Investment securities at September 30, 1999 were $33,615,576
compared with $28,158,635 at December 31, 1998, reflecting a 19.4 % increase of
$5,456,941. Federal funds sold were $1,493,557 at September 30, 1999 compared to
the December 31, 1998 total of $18,392,213, a 91.9% decrease. During 1998,
gross sales amounted to $9,515,761 and maturities amounted to $11,597,617, with
gross sales representing 40% and maturities representing 55.9% of the average
portfolio. Net gains associated with these transactions were $15,950. Gross
unrealized gains at year end 1998 amounted to $423,178, and unrealized losses
amounted to $30,074. During 1997, gross securities sales were $9,982,814, and
maturities were $8,513,974, with gross sales representing 48.1% and maturities
representing 41.0% of the average portfolio for the year. Net losses associated
with sales and maturities totaled $78 in 1997. Gross unrealized gains in the
portfolio amounted to $171,823 at year end 1997 and unrealized losses amounted
to $29,090.
Mortgage-backed securities have varying degrees of risk of impairment
of principal, as opposed to U.S. Treasury and U.S. government agency
obligations, which are considered to contain virtually no default or prepayment
risk. Impairment risk is primarily associated with accelerated prepayments,
particularly with respect to longer maturities purchased at a premium and
interest-only strip securities. The Banks' purchases of mortgage-backed
securities during 1998 and 1997 did not include securities with these
characteristics. The recoverability of the Banks' investments in mortgage-backed
securities is reviewed periodically, and we intend to make appropriate
adjustments to income for impaired values.
Management maintains federal funds sold as a tool in managing its daily
cash needs. Federal funds sold at December 31, 1998, was $18,392,213 and
$1,828,000 in 1997. Average federal funds sold for 1998 was approximately
$4,448,000, or 3.6% of average earning assets, and for 1997 was $2,895,000, or
2.9% of average earning assets. The large increase in year end federal funds
resulted from the acquisition of Appalachian Community Bank and effective
management of interest yield.
There has been no significant impact on our financial statements as a
result of the provisions of Statement of Financial Accounting Standards No. 119,
Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments.
DEPOSITS AND REPURCHASES
Our strategy to attract deposits has been based upon the relative level
of interest rates. When interest rates are relatively high, we attempt to
attract core deposits because they have lower relative interest rates. When
interest rates are relatively low, we reduce core deposit rates and as a result
some of our customers shift their deposits to longer term and higher rate
certificates of deposits. During the past 24 months, we have been reducing the
rates on core deposits. The resulting shift has resulted in a greater dependency
upon certificate of deposits in $100,000 and larger denominations, it has also
lengthened the period in which
37
<PAGE> 40
there is an opportunity to reprice these funding sources. This lengthening of
deposit repricing opportunities helps to reduce our overall rate sensitivity.
Our primary source of funds is derived from deposits of Bank customers.
Total deposits of $179,889,497 at September 30, 1999 increased $16,028,019, or
9.8%, over total deposits of $163,861,478 at December 31, 1998. Deposits
continued to be our primary source of funds with which to support our earning
assets. Noninterest-bearing deposits increased $1,185,801, or 12.8%, from
December 31, 1998 to September 30, 1999, and interest-bearing deposits increased
$14,842,218, or 9.6%, during the same period. Time deposits of $100,000 or more
increased $8,571,271, or 33.0%, from December 31, 1998 to September 30, 1999.
During the year ended December 31, 1998, average deposits increased
23.3% from approximately $89,808,000 in 1997 to approximately $110,745,000
in 1998. At December 31, 1998 total deposits were $163,861,478 of which
$154,573,545, or 94.3%, were interest-bearing. At December 31, 1997, total
deposits were $95,347,946, of which $91,547,035, or 96%, were interest-bearing.
The acquisition of Appalachian Community Bank, as well as the continued
enhancement of existing products and emphasis upon better customer service,
fueled the growth in the deposit base. We intend to emphasize attracting
consumer deposits in order to expand the consumer bases of the Banks and to
continue to fund asset growth.
Securities sold under agreements to repurchase totaled $1,026,030 at
September 30, 1999, a $1,452,314, or 58.6%, decrease from the December 31, 1998
total of $2,478,344. Federal funds purchased totaled $557 at September 30, 1999.
There were no federal funds purchased at December 31, 1998. The decreased
balances reflect the needs of our corporate customers that participate in
repurchase agreements to increase their cash balances on hand.
Securities sold under agreements to repurchase amounted to $2,478,344
at December 31, 1998 compared to $4,228,129 at December 31, 1997. The weighted
average rates were 4.26% for 1998 and 4.50% for 1997. Securities sold under
agreements to repurchase averaged $4,095,716 during 1998 and $4,471,499 during
1997. The maximum amount outstanding at any month end during 1998 was $4,468,355
and $4,693,265 during 1997. The total of securities sold under agreements to
repurchase are associated with the cash flow needs of our corporate customers
that participate in repurchase agreements.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $390,696, or 3.4%, from December 31,
1998 to September 30, 1999, due to net earnings of $851,330, proceeds from the
issuance of common stock to the 401(k) plan of $200,720 less a $661,354 decrease
as a result of unrealized gains or losses on securities available for sale.
Shareholders' equity increased $4,499,641, or 64.5% from December 31,
1997 to December 31, 1998, due in part to net earnings of $1,208,211 and the
increase in unrealized gains on securities available-for-sale totaling $90,542,
net of deferred tax liability. The increase was also a result of the issuance of
19,314 shares of the Company's common stock to the Company's 401(k) plan at a
total purchase price of $310,628, the sale of 132,500 shares of stock in a
private placement in November 1998 generating aggregate proceeds of $2,650,000,
and the issuance of 30,800 shares in connection with the exercise of options by
the certain of our directors generating aggregate proceeds of $394,240. The
decrease in shareholders' equity resulted from the purchase of 14,000 shares of
common stock by the Company on February 26, 1998 from one of our directors at a
price of $11.00 per share for a total purchase price of $154,000.
All amounts presented in this prospectus and in the financial
statements are adjusted to reflect the two-for-one stock split effected in May
1998. See "Market for Our Common Stock and Related Shareholder Matters." The net
effect of the stock split did not change total shareholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
YEAR 2000
Prior to January 1, 2000 we engaged in an action plan designed to
confirm that our computer systems as well as those of our material vendors,
suppliers and customers, would be able to correctly recognize dates subsequent
to the Year 1999. Our
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<PAGE> 41
action plan was designed to comply with the FDIC's guidelines for Year 2000
readiness. Maintenance, testing, and modification costs were expensed as
incurred, while the costs of new software or hardware is being capitalized and
amortized over their useful lives. The amounts required to be expensed to
resolve Year 2000 issues have not had a material effect on our financial
position or results of operations. In connection with our assessment, testing
and remediation of Year 2000 issues, we incurred costs of approximately $10,000
in 1998. During fiscal 1999 our costs are estimated to be approximately
$80,000. We funded our costs associated with the Year 2000 issue through our
regular operating revenue.
LIQUIDITY MANAGEMENT
Liquidity is defined as the ability of a company to convert assets into
cash or cash equivalents without significant loss. Liquidity management involves
maintaining the Banks' ability to meet the day-to-day cash flow requirements of
their customers, whether they are depositors wishing to withdraw funds or
borrowers requiring funds to meet their credit needs. Without proper liquidity
management, the Banks would not be able to perform their primary function of
financial intermediaries and would, therefore, not be able to meet the
production and growth needs of the communities they serve.
The primary function of assets and liabilities management is not only
to assure adequate liquidity in order for the Banks to meet the needs of their
customer base, but to maintain an appropriate balance between interest-sensitive
assets and interest-sensitive liabilities so that we can also meet the
investment requirements of our shareholders. Daily monitoring of the sources and
uses of funds is necessary to maintain an acceptable cash position that meets
both requirements. In the banking environment, both assets and liabilities are
considered sources of liquidity funding and both are, therefore, monitored on a
daily basis.
The asset portion of the balance sheet provides liquidity primarily
through loan principal repayments or sales of investment and trading account
securities. Loans that mature in one year or less equaled approximately $76.2
million, or 47.8% of the total loan portfolio at September 30, 1999 and
investment securities maturing in one year or less equaled $955,000, or 2.8%, of
the portfolio. Other sources of liquidity include short-term investments such as
federal funds sold.
The liability portion of the balance sheet provides liquidity through
various customers' interest-bearing and noninterest-bearing deposit accounts. At
September 30, 1999, funds were also available through the purchase of federal
funds from correspondent commercial banks from available lines of up to an
aggregate of $4,000,000.
In an effort to maintain and improve the liquidity position of Gilmer
County Bank, management made application for membership for Gilmer County Bank
with the Federal Home Loan Bank of Atlanta in 1997. As a member of the Federal
Home Loan Bank, Gilmer County Bank is able to improve its ability to manage
liquidity and reduce interest rate risk by having a funding source to match
longer term loans. The application was approved on April 17, 1997, and Gilmer
County Bank received an initial credit line of up to $8,000,000. Gilmer County
Bank's credit line was increased to $12,000,000 in March 1998. At September 30,
1999, the outstanding balance of Gilmer County Bank's credit line was
$7,835,714. Appalachian Community Bank also has a credit line of up to
$6,000,000 with the Federal Home Loan Bank. At September 30, 1999, Appalachian
Community Bank's outstanding credit line balance was $1,900,000.
CAPITAL RESOURCES
A strong capital position is vital to our continued profitability
because it promotes depositor and investor confidence and provides a solid
foundation for future growth of the organization. A majority of our capital
requirements have been provided from the proceeds from Gilmer County Bank's
initial stock offering in 1994, through draws by Gilmer County Bank on the
credit line with the Federal Home Loan Bank, through draws on a former line of
credit with Hardwick Bank & Trust Company, through a $3.6 million loan from The
Bankers Bank (described below), from the proceeds of the $2.65 million private
placement of our common stock in November 1998, and through the retention of
earnings and the sale of our common stock to the Company's 401(k) plan.
Term Loan. In November 1998, we obtained a $3.6 million term loan under
a Loan and Stock Pledge Agreement and a Promissory Note with The Bankers Bank.
We used $3.45 million of the proceeds of the loan to fund a portion of the
acquisition of Appalachian Community Bank. We used $150,000 of the proceeds of
the loan to pay off our former line of credit with Hardwick Bank & Trust
Company. At September 30, 1999, the balance on the loan was $3.6 million.
Interest on the outstanding
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<PAGE> 42
amounts under the loan is payable quarterly, commencing January 1, 1999, at the
prime rate less 3/4 of a percentage point. We began making interest payments on
January 1, 1999. Principal is due in nine equal annual installments, each in the
amount of $450,000, plus accrued and unpaid interest, beginning on November 30,
2000. The entire outstanding balance of the loan, together with all accrued and
unpaid interest, is due and payable in a final installment on November 30, 2008;
however, we intend to use a portion of the proceeds from this offering to repay
the remaining balance of this loan. The terms of this loan contain certain
affirmative and negative covenants, including, but not limited to, requiring us
to cause the Banks at all times to maintain certain minimum capital ratios,
maintain nonperforming assets below a specified level, and maintain a minimum
ratio of consolidated loan loss reserves to total loans.
Federal Capital Standards. Regulatory authorities are placing increased
emphasis on the maintenance of adequate capital. The guidelines take into
consideration regulator-defined risk factors associated with various categories
of assets, both on and off the balance sheet. Under the guidelines, capital
strength is measured in two tiers which are used in conjunction with
risk-adjusted assets to determine the risk-based capital ratios. Our Tier 1
capital, which consists of common equity, paid-in capital and retained earnings
(less intangible assets), amounted to $10.2 million at September 30, 1999. Tier
2 capital components include supplemental capital components such as the
qualifying allowance for loan losses and qualifying subordinated debt. Tier 1
capital plus Tier 2 capital is referred to as Total Capital and amounted to
$12.1 million at September 30, 1999. The Company's percentage ratios as
calculated under regulatory guidelines were 6.14% and 7.30% for Tier 1 and Total
Capital, respectively, at September 30, 1999. The Company's Tier 1 capital
exceeded the minimum ratio of 4% whereas the Company's Total Capital was under
the minimum ratio of 8%.
Our failure to meet the minimum Total Capital ratio on a consolidated
basis at September 30, 1999 was primarily attributable to the amount of goodwill
resulting from the Company's acquisition of Appalachian Community Bank. As a
result, the Company is currently prohibited from paying dividends to its common
shareholders. Over future periods the effects of the goodwill on the Company's
Total Capital ratio will decrease as the goodwill is amortized on a
straight-line basis over a period of 20 years. Additionally, management intends
to closely monitor the asset mix of the Banks and to take such additional steps
as are necessary in order to avoid a future failure to meet the applicable
capital ratios. These additional steps may include limiting the payment of
dividends by the Company and raising capital including the capital raised in
this offering. There can be no assurances, however, that such steps will be
successful or that we will be able to meet the minimum capital ratios. Our
failure to meet the minimum capital ratios could result in, among other things,
increased scrutiny from applicable regulatory authorities, a reduction in
permissible activities or a default under our credit facilities. Any of these
events could have a material adverse effect on our business, financial condition
and results of operations.
Another important indicator of capital adequacy in the banking industry
is the Leverage ratio. The Leverage ratio is defined as the ratio which
shareholders' equity, minus intangibles, bears to total assets minus
intangibles. At September 30, 1999, our Leverage ratio was 4.99% exceeding the
regulatory minimum requirement of 4%.
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The table below illustrates our regulatory capital ratios under federal
guidelines at September 30, 1999 and at December 31, 1998 and 1997:
CAPITAL ADEQUACY RATIOS
<TABLE>
<CAPTION>
STATUTORY SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
MINIMUM 1999 1998 1997
--------- ------------ ----------- -----------
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
Tier 1 Capital ......................... $ 10,175 $ 9,035 $ 6,916
Tier 2 Capital ......................... 1,934 1,686 930
------------ ----------- -----------
Total Qualifying Capital ............... $ 12,109 $ 10,721 $ 7,846
============ =========== ===========
Risk Adjusted Total Assets (including
off-balance-sheet exposures) ........... $ 165,829 $ 136,122 $ 84,074
============ =========== ===========
Tier 1 Risk-Based Capital Ratio ........ 4.0% 6.14% 6.64% 8.23%
Total Risk-Based Capital Ratio ......... 8.0% 7.30% 7.88% 9.33%
Leverage ratio ......................... 4.0% 4.99% 4.99% 6.40%
</TABLE>
Georgia Commission Capital Requirement. In addition to the capital
standards imposed by federal banking regulators, the Georgia Department of
Banking and Finance (the "Georgia Commission") also imposes capital standards.
This standard, which exceeds the FDIC capital standards, is calculated as the
ratio of total equity to total assets, each as adjusted for unrealized gains and
losses on securities and allowance for loan losses. The Georgia Commission
minimum capital ratio is 6%; however, the Georgia Commission imposed an 8%
primary capital ratio as a condition to the approval of Gilmer County Bank's
charter. This heightened requirement was imposed during the first three years of
Gilmer County Bank's operation. Accordingly, on March 3, 1998 Gilmer County Bank
became subject to the standard 6% primary capital ratio. At September 30, 1999,
the capital ratio as calculated under the Georgia Commission standard for Gilmer
County Bank was 7.51%. At September 30, 1999 the capital ratio as calculated
under the Georgia Commission standard for Appalachian Community Bank was 11.12%.
In March 1999, the Banks' paid dividends totaling $350,000 to the
Company, which were used for the repayment of debt and other expenses.
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rate sensitivity is a function of the repricing
characteristics of the Banks' portfolios of assets and liabilities. These
repricing characteristics are the time frames within which the interest-bearing
assets and liabilities are subject to change in interest rates either at
replacement or maturity during the life of the instruments. Sensitivity is
measured as the difference between the volume of assets and liabilities in the
Bank's current portfolio that are subject to repricing in future time periods.
The differences are known as interest sensitivity gaps and usually are
calculated separately for segments of time ranging from zero to thirty days,
thirty-one to ninety days, ninety-one days to one year, one to five years, over
five years, and on a cumulative basis.
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<PAGE> 44
The following table shows interest sensitivity gaps for these different
intervals as of September 30, 1999.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
0-30 31-90 91-365 1-5 OVER 5
DAYS DAYS DAYS YEARS YEARS TOTAL
---------- ---------- -------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1)
Loans ......................... $ 16,416 $ 27,269 $ 34,757 $ 77,988 $ 2,660 $159,090
Securities:
Taxable ....................... -0- -0- 603 3,862 19,046 23,511
Tax-exempt .................... -0- 2,932 -0- 634 6,539 10,105
Time deposits in other banks .. -0- -0- 208 -0- -0- 208
Federal funds sold ............ 1,494 -0- -0- -0- -0- 1,494
---------- ---------- -------- ---------- ---------- --------
17,910 30,201 35,568 82,484 28,245 194,408
========== ========== ======== ========== ========== ========
Interest-bearing liabilities(2)
Demand deposits (3) ........... 15,219 15,219 15,218 -0- -0- 45,656
Savings deposits (3) .......... 9,884 9,884 9,884 -0- -0- 29,652
Time deposits ................. 8,012 17,078 46,669 22,349 -0- 94,108
Other short-term borrowings (3) -0- -0- 1,026 -0- -0- 1,026
Long-term debt ................ -0- -0- -0- 10,915 2,421 13,336
---------- ---------- -------- ---------- ---------- --------
33,115 42,181 72,797 33,264 2,241 183,778
---------- ---------- -------- ---------- ---------- --------
Interest sensitivity gap .......... $ (15,205) $ (11,980) $(37,229) $ 49,220 $ 25,824 $ 10,630
========== ========== ======== ========== ========== ========
Cumulative interest sensitivity gap $ (15,205) $ (27,185) $(64,414) $ (15,194) $ 10,630
========== ========== ======== ==========
Ratio of interest-earning assets to
interest-bearing liabilities ...... .54 .72 .49 2.48 11.67
========== ========== ======== ========== ==========
Cumulative ratio .................. .54 .64 .57 .92 1 .06
========== ========== ======== ========== ==========
Ratio of cumulative gap to total
interest-bearing assets ........... (.08) (.14) (.33) (.08) .05
========== ========== ======== ========== ==========
</TABLE>
(1) Excludes nonaccrual loans and securities.
(2) Excludes matured certificates which have not been redeemed by the
customer and on which no interest is accruing.
(3) Demand and savings deposits are assumed to be subject to immediate
repricing during the 0-30 day period, the 31- 90 day period, and the
91-365 day period.
The above table indicates that in a rising interest rate environment,
our earnings may be adversely affected in the 0-365 day periods where
liabilities will reprice faster than assets. As seen in this table, for the
first 30 days of repricing opportunity, there is an excess of interest-bearing
liabilities over earning assets of approximately $15.2 million. For the first
365 days, interest-bearing liabilities exceed earning assets by approximately
$64.4 million. During this one-year time frame, 81% of all interest-bearing
liabilities will reprice compared to 43% of all interest-earning assets. Changes
in the mix of earning assets or supporting liabilities either can increase or
decrease the net interest margin without affecting interest rate sensitivity. In
addition, the interest rate spread between an asset and its supporting liability
can vary significantly, while the timing of repricing for both the asset and the
liability remain the same, thus impacting net interest income. Due to
management's continued emphasis on profitability, many of the higher yielding
securities presented in the table above have call features, which may result in
such securities having a shorter effective life. This, in turn, may reduce the
interest rate sensitivity gap presented above. It should be noted, therefore,
that a matched interest-sensitive position by itself will not ensure maximum net
interest income.
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Management continually evaluates the condition of the economy, the
pattern of market interest rates and other economic data to determine the types
of investments that should be made and at what maturities. Using this analysis,
management, from time to time, assumes calculated interest sensitivity gap
positions to maximize net interest income based upon anticipated movements in
the general level of interest rates.
IMPACT OF INFLATION AND CHANGING PRICES
A bank's asset and liability structure is substantially different from
that of an industrial company in that virtually all assets and liabilities of a
bank are monetary in nature. Management believes the impact of inflation on
financial results depends upon the ability of the Banks to react to changes in
interest rates, and by such reaction, to reduce the inflationary impact on
performance. Interest rates do not necessarily move in the same direction, or at
the same magnitude, as the prices of other goods and services. As discussed
previously, management seeks to manage the relationship between
interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
Various information shown elsewhere in this prospectus is used by the
Company to understand how well the Banks are positioned to react to changing
interest rates and inflationary trends. In particular, the summary of net
interest income, the maturity distributions, the composition of the loan and
security portfolios and the data on the interest sensitivity of loans and
deposits should be considered.
RECENT ACCOUNTING PRONOUNCEMENTS
We have adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." Statement No. 130 establishes standards for
reporting and displaying comprehensive income, as defined therein, and its
components in financial statements issued for the fiscal years beginning after
December 15, 1997. Statement No. 130 requires the inclusion in comprehensive
income of the change in certain previously recognized components of
shareholders's equity. In compliance with Statement No. 130, we have included,
as an additional financial statement, Consolidated Statements of Comprehensive
Income for the years ended December 31, 1998, 1997 and 1996. For us, this
required the inclusion of unrealized gains (losses) on investment and available
for sale securities, net of taxes, arising during the respective periods. For
the year ended December 31, 1998, the change in unrealized gains on securities
represented an increase in net income, as reported, by $90,542, or 7.5%, net of
tax. For the year ended December 31, 1997, the change in unrealized gains on
securities represented an increase in net income, as reported, of $42,744, or
4.2%, net of tax. For the year ended December 31, 1996, the change in unrealized
gains on securities represented a decrease in net income, as reported, of
$75,130, or 14.5%, net of tax.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which establishes standards governing how public business
enterprises report information about operating segments in annual financial
statements, and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
This Statement also establishes standards for related disclosures about products
and services, geographic areas, and major customers. This Statement requires the
reporting of financial and descriptive information about an enterprise's
reportable operating segments. This Statement is effective for financial
statements for periods beginning after December 15, 1997. All of our offices
offer similar products and services, are located in the same geographic region
and serve the same customer segments of the market. As a result, management
considers all units as one operating segment and, therefore, feels that the
basic financial statements and related footnotes provide details related to
segment reporting.
Effective for years ending after December 15, 1998, SFAS No. 132,
Employers' Disclosures about Pensions and Other Post-retirement Benefits was
issued by FASB which standardizes the disclosure requirements for pensions and
other post-retirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain other
disclosures previously required. Management does not believe that the adoption
of SFAS No. 132 will have a material impact on our consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board also Issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
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<PAGE> 46
financial condition and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative is to be determined based upon the
intended use of the derivative. For certain hedge designations (cash flow and
foreign currency exposure) the derivative's gain or loss is reported as a
component of other comprehensive income. Other designations require the gain or
loss to be recognized in earnings in the period of change. This Statement is
effective for financial statements for periods beginning after June 15, 1999.
Management does not believe that the adoption of SFAS No. 133 will have a
material impact on the Company's consolidated financial statements.
OUR BUSINESS
OUR HISTORY AND DEVELOPMENT
We are a bank holding company engaged in providing a full range of
banking services through our two commercial bank subsidiaries: Gilmer County
Bank and Appalachian Community Bank. The Company was incorporated as a business
corporation in May 1996 under the laws of the State of Georgia for the purpose
of acquiring 100% of the issued and outstanding shares of common stock of Gilmer
County Bank. In July 1996, the Company received approval from the Federal
Reserve Bank of Atlanta and the Georgia Commission to become a bank holding
company. In August 1996, we acquired 100% of the outstanding shares of Gilmer
County Bank, and the shareholders of Gilmer County Bank became the shareholders
of the Company.
On November 30, 1998, we completed an acquisition of First National
Bank of Union County, which we subsequently renamed Appalachian Community Bank,
from Century South Banks, Inc. First National was a nationally-chartered bank
organized in 1981 with its main banking office located in Blairsville, Georgia.
We acquired First National in a cash transaction for a purchase price of $6.1
million. Century South also assumed some of the existing liabilities and assets
of First National. We funded a portion of the purchase price with the proceeds
of a private placement of 132,500 shares of our common stock to three accredited
investors. The aggregate gross proceeds of the private placement were $2.65
million. Purchasers of common stock in the private placement are entitled to
registration rights under specific circumstances and are subject to call rights
of the Company. We intend to exercise these call rights with a portion of the
proceeds of this offering. We funded the remainder of the purchase price through
a $3.6 million loan with The Bankers Bank, which we intend to repay with a
portion of the proceeds of this offering.
As of the date of this prospectus, the assets of the Company consisted
primarily of its ownership of the capital stock of the Banks.
OUR BUSINESS
We are authorized to engage in any activity permitted by law to a
corporation, subject to applicable federal and state regulatory restrictions on
the activities of bank holding companies. Our holding company structure provides
us with greater flexibility than our Banks would otherwise have to expand and
diversify their business activities through newly formed subsidiaries, or
through acquisitions. While our management has no present plans to engage in any
other business activities, management may, from time to time, study the
feasibility of establishing or acquiring subsidiaries to engage in other
business activities to the extent permitted by law.
GILMER COUNTY BANK
Gilmer County Bank was organized in 1994 under the laws of the State of
Georgia to conduct a commercial banking business in Gilmer County, Georgia, with
its deposits insured by the FDIC. Gilmer County Bank was formed to meet the
banking needs of individuals, small- to medium-sized businesses, and farmers,
especially those engaged in apple and poultry production.
Gilmer County Bank was organized by a group of individuals from Gilmer
County and the surrounding area and commenced business from its main office
location at 829 Industrial Boulevard, Ellijay, Georgia on March 3, 1995. Gilmer
County Bank operated in a development stage prior to that time.
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<PAGE> 47
Gilmer County Bank has received approval to open a branch in East
Ellijay, Georgia and has leased unimproved land where we intend to build this
branch. The date for construction has not been set. Gilmer County Bank currently
intends to file an application with the Georgia Commission to establish a data
processing subsidiary. The fixed asset investment necessary to establish these
operations, if approval is granted, is currently estimated at $900,000.
Gilmer County Bank has a correspondent relationship with several banks,
including The Bankers Bank, Federal Home Loan Bank and SouthTrust Bank.
APPALACHIAN COMMUNITY BANK
First National was organized in 1981 as an insured national bank
chartered under the federal banking laws of the United States of America. During
1999, we converted First National into a state chartered bank under the laws of
the State of Georgia and changed its name to Appalachian Community Bank.
Appalachian's deposits are insured by the FDIC.
Appalachian conducts business from its main banking office located in
Blairsville, Georgia. Appalachian has filed an application with the Georgia
Commission to open a branch in Blue Ridge, Georgia. No assurance can be given
that approval will be received. Appalachian has a correspondent relationship
with several banks, including The Bankers Bank, Federal Home Loan Bank and
SouthTrust Bank.
BANKING SERVICES AND OPERATIONS
The Banks operate as community banks performing banking services
customary for full service banks of similar size and character. These services
include:
- the furnishing of personal and commercial checking accounts
and other demand and time deposit accounts; and
- the extension of personal and commercial loans and lines of
credit.
Gilmer County Bank draws most of its customer deposits and conducts most of its
lending transactions from and within a primary service area encompassing Gilmer
County, southwestern Fannin County, northern Pickens County, western Dawson
County and southeastern Murray County, Georgia. Appalachian draws most of its
customer deposits and conducts most of its lending transactions from and within
a primary service area which includes Union County, Towns County and Fannin
County, Georgia.
The principal business of the Banks is to attract and accept deposits
from the public and to make loans and other investments. The principal sources
of funds for the Banks' loans and investments are:
- demand, time, savings, and other deposits, including
negotiable order of withdrawal or NOW accounts;
- installment payments and prepayments on loans granted;
- sales to other lenders or institutions of loans or
participation in loans;
- fees paid by other lenders or institutions for servicing loans
sold by the Banks to them; and
- borrowings.
The principal sources of income for the Banks are interest and fees collected on
loans, including fees received for servicing loans sold to other lenders or
institutions and, to a lesser extent, interest and dividends collected on other
investments. The principal expenses of the Banks are:
- interest paid on savings and other deposits, including NOW
accounts;
- interest paid on borrowings by the Banks;
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- employee compensation;
- office expenses; and
- other overhead expenses.
EMPLOYEES
Except for the officers of the Company, who are also officers of the
Banks, the Company does not have any employees. At September 30, 1999, Gilmer
County Bank had a total of 44 employees, 42 of which were full-time employees,
and Appalachian Community Bank had a total of 27 employees, 23 of which were
full-time employees. We are not parties to any collective bargaining agreements
with employees, and management believes that employee relations generally are
good.
LENDING ACTIVITIES
General. The Banks are authorized to make both secured and unsecured
commercial and consumer loans to individuals, partnerships, corporations and
other entities. The Banks' lending business consists principally of making
secured real estate loans, including residential and commercial construction
loans, and primary and secondary mortgage loans for the acquisition or
improvement of personal residences. In addition, the Banks make consumer loans
to individuals and commercial loans to small and medium-sized businesses and
professional concerns. Loans to the poultry industry constituted approximately
16% of the Banks' total loans at September 30, 1999.
The Banks have engaged in secondary-market mortgage activities,
obtaining commitments, through intermediaries, from secondary mortgage
purchasers to purchase mortgage loans originated by the Banks. Based on these
commitments, the Banks originate mortgage loans on terms corresponding to such
commitments and generate fee income to supplement their interest income. No
mortgage loans are held by the Banks for resale nor are any loans held for
mortgage servicing.
Real Estate Loans. Loans secured by real estate are the primary
component of the Banks' loan portfolio, constituting approximately $110 million,
or 68%, of the Banks' total loans at September 30, 1999. These loans consist of
commercial real estate loans, construction and development loans and residential
real estate loans but exclude home equity loans, which are classified as
consumer loans.
Commercial Loans. The Banks make loans for commercial purposes in
various lines of business. At September 30, 1999, the Banks held approximately
$28 million, or 18% of the Banks' total loans, in commercial loans, excluding
for these purposes commercial loans secured by real estate which are included in
the real estate category above.
Consumer Loans. The Banks make a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit, and revolving lines of credit
such as credit cards. At September 30, 1999, the Banks held approximately $14
million in consumer loans, representing 8.7% of the Banks' total loans.
Loan Approval and Review. The Banks' loan approval policies provide for
various levels of officer lending authority. When the aggregate outstanding
loans to a single borrower exceeds that individual officer's lending authority,
the loan request must be considered and approved by an officer with a higher
lending limit or the officers' loan committee. Individual officers' lending
limits range from $15,000 to $100,000, depending on seniority and type of loan.
The officers' loan committee, which consists of the president, executive vice
president and senior lending officer, has a lending limit of $150,000 for
secured loans. Loans between $150,000 and $300,000 must be approved by a
directors' loan committee, which is made up of the president, the senior lending
officer and three outside directors. Loans above $300,000 require approval by
the majority of the full Board of Directors.
Each of the Banks has a continuous loan review procedure involving
multiple officers of each of the Banks which is designed to promote early
identification of credit quality problems. All loan officers are charged with
the responsibility of rating
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<PAGE> 49
their loans and reviewing those loans on a periodic basis, the frequency of
which increases as the quality of the loan decreases. The Banks' have employed
an in-house specialist to review all loans in excess of $100,000.
DEPOSITS
The Banks offer a variety of deposit programs to individuals and to
small to medium-sized businesses and other organizations at interest rates
generally consistent with local market conditions. The Banks are authorized to
accept and pay interest on deposits from individuals, corporations, partnerships
and any other type of legal entity, including fiduciaries, such as private
trusts. Qualified deposits are insured by the FDIC in an amount up to $100,000.
The following table sets forth the mix of depository accounts at the
Banks as a percentage of total deposits at September 30, 1999.
DEPOSIT MIX
<TABLE>
<CAPTION>
September 30, 1999
<S> <C>
Non-interest bearing demand.............................................. 5.8%
Interest-bearing demand.................................................. 25.4%
Savings.................................................................. 16.3%
Time Deposits............................................................ 33.8%
Certificates of Deposit of $100,000 or more.............................. 18.7%
-----
Total................................................................. 100.0%
</TABLE>
Both of the Banks are members of the Cirrus ATM network of automated
teller machines, which permits the Banks' customers to perform certain
transactions in numerous cities in Georgia and throughout the country. Gilmer
County Bank's charter provides that Gilmer County Bank has trust powers but only
upon application to the Georgia Commission. To date, Gilmer County Bank has not
submitted, and has no plans to submit, an application. Appalachian Community
Bank does not have trust powers.
COMPETITION AND MARKET AREA
The banking business is highly competitive. The Banks compete as
financial intermediaries with other commercial banks, thrift institutions,
credit unions, and money market mutual funds operating in Ellijay, Gilmer County
and Blairsville, Union County, Georgia and elsewhere. Many of the Banks'
competitors have significantly greater resources and higher lending limits (by
virtue of their greater capitalization). Credit unions and money market mutual
funds with which the Banks compete may have competitive advantages as a result
of being subject to different, and possibly less stringent, regulatory
requirements.
As of the date of this prospectus, three non-locally owned banks had
offices in Gilmer County and two locally owned banks had offices in Blairsville.
The Bank of Ellijay, which is owned by Century South Banks, Inc., a bank holding
company headquartered in Gainesville, Georgia, operates a main office and one
branch office in Gilmer County. Regions Bank, an Alabama bank holding company,
operates two offices in Gilmer County. United Community Bank, a branch of
Peoples Bank in Fannin County, maintains a branch office in Gilmer County. Bank
of Blairsville, a branch of Bank of Hiawassee, operates an office in
Blairsville. Union County Bank, headquartered in Blairsville, operates an office
in Blairsville. In addition, many local businesses and individuals have deposits
outside the primary service areas of Gilmer County Bank and Appalachian
Community Bank.
Recent legislation enacted by the Georgia General Assembly allows banks
in Georgia to establish newly formed branch banks in areas in which the Banks
serve, which branches, if established, would also compete with the Banks. See
"Supervision and Regulation."
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<PAGE> 50
MONETARY POLICIES
Our results of operations are significantly affected by the credit
policies of monetary authorities, particularly the Board of Governors of the
Federal Reserve System. The instruments of monetary policy employed by the
Federal Reserve include open market operations in U.S. government securities,
changes in discount rates on member bank borrowings, and changes in reserve
requirements against bank deposits. In view of changing conditions in the
national economy and in the money markets, as well as the effect of action by
monetary and fiscal authorities, including the Federal Reserve System, no
prediction can be made as to possible future changes in interest rates, deposit
levels, loan demand, or the business and earnings of the Banks.
PROPERTIES
Our principal executive offices are located in the Gilmer County Bank's
main office at 829 Industrial Boulevard, Ellijay, Georgia, between the business
districts of Ellijay and East Ellijay. The office building, which contains 9,780
square feet, and the land on which it is located, which is approximately 1.22
acres, are owned by Gilmer County Bank. The building houses offices, operations,
storage, and a lobby. The main banking office of Appalachian Community Bank is
located at 236 Highway 515, Blairsville, Georgia. This office, which opened in
November 1996 and contains approximately 11,900 square feet, and the land on
which it is located are owned by Appalachian Community Bank.
In October 1998, the Company entered into a lease for an 0.88 acre
parcel of unimproved land located on First Avenue in East Ellijay, Gilmer
County, Georgia. The lease commenced on January 1, 1999 and has a 30-year term.
The lease payments are $2,500 per annum initially, and increase at a rate of 2%
per annum starting in the fourth year of the lease. The Company plans to use the
land to build a branch office of Gilmer County Bank, although no date has been
set for construction.
Management believes that our physical facilities are suitable for our
current operations.
LEGAL PROCEEDINGS
We are not aware of any material pending legal proceedings to which the
Company or the Banks are a party or to which any of their property is subject,
other than ordinary routine legal proceedings incidental to the business of the
Banks.
SUPERVISION AND REGULATION
We are subject to state and federal banking laws and regulations which
impose specific requirements or restrictions and provide for general regulatory
oversight over virtually all aspects of operations. These laws and regulations
generally are intended to protect depositors, not stockholders or holders of
trust preferred securities. This discussion is only a summary of various
statutory and regulatory provisions. This summary is qualified by reference to
the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on our business and prospects.
Beginning with the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, numerous additional regulatory requirements have been
placed on the banking industry in the past ten years. On November 12, 1999, the
President signed into law a financial services modernization act which
effectively repealed the anti-affiliation provisions of the 1933 Glass-Steagall
Act and the 1956 Bank Holding Company Act. Our operations may be affected by
legislative changes and the policies of various regulatory authorities. We are
unable to predict the nature or the extent of the effect on our business and
earnings that fiscal or monetary policies, economic control or new federal or
state legislation may have in the future.
THE COMPANY
The Company is a bank holding company within the meaning of the federal
Bank Holding Company Act of 1956 and is registered with and subject to the
regulation of the Federal Reserve. As a bank holding company, the Company is
required to file with the Federal Reserve annual reports and other reports and
information as may be required under the Bank Holding Company Act. The Federal
Reserve may conduct examinations of the Company and the Banks to determine
whether we are in compliance with the regulations promulgated under the Bank
Holding Company Act.
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<PAGE> 51
The Bank Holding Company Act requires a bank holding company to obtain
prior approval of the Federal Reserve:
- to acquire the ownership or control of more than 5% of any
class of voting stock of any bank not already controlled by
it;
- for it or any subsidiary (other than a bank) to acquire all or
substantially all of the assets of a bank; and
- to merge or consolidate with any other bank holding company.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
facilitates branching and permits the establishment of agency relationships
across state lines. The Interstate Banking Act also permits bank holding
companies to acquire banks in any state without regard to whether the
transaction is prohibited under the laws of such state, subject to certain state
provisions, including minimum age requirements of banks that are the target of
the acquisition. The minimum age of local banks subject to interstate
acquisition is limited to a maximum of five years. See "-Regulation and
Legislative Changes."
Bank holding companies generally are also prohibited under the Bank
Holding Company Act from engaging in non-banking activities or from acquiring
direct or indirect control of any company engaged in non-banking activities.
However, the Federal Reserve may permit bank holding companies to engage in
certain types of non-banking activities determined by the Federal Reserve to be
closely related to banking or managing or controlling banks. Activities
determined by the Federal Reserve to fall under this category include:
- making or servicing loans and certain leases;
- providing certain data processing services;
- acting as a fiduciary or investment or financial advisor,
- providing discount brokerage services;
- underwriting bank eligible securities; and
- making investments designed to promote community welfare.
Federal law imposes certain limitations on extensions of credit and
other transactions between banks that are members of the Federal Reserve System
and other affiliates (which includes any holding company of which a bank is a
subsidiary and any other non-bank subsidiary of that holding company). Banks
that are not members of the Federal Reserve System also are subject to these
limitations. Further, federal law prohibits a bank holding company and its
subsidiaries from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property, or the furnishing of services.
Under Federal Reserve policy, a bank holding company is expected to act
as a source of financial strength to its bank subsidiaries and to commit
resources to support these subsidiaries. This support may be required at times
when, absent such policy, the bank holding company might not otherwise provide
such support. Under these provisions, a bank holding company may be required to
loan money to its subsidiary banks in the form of capital notes or other
instruments which qualify for capital under regulatory rules. Any loans by the
bank holding company to subsidiary banks are likely to be unsecured and
subordinate to the bank's depositors and will be senior to the securities
offered in this prospectus.
On November 12, 1999, the President signed into law legislation which
breaks down many of the barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers. These barriers
were established by the 1933 Glass-Steagall Act. This Act prohibited bank
holding companies from owning subsidiaries that were engaged principally in the
issue, flotation, underwriting, public sale or distribution of securities. The
Glass-Steagall Act also prohibited securities firms from engaging in the
activities historically engaged in by banks and prohibited certain affiliations
between insurance companies, banks and securities firms. The new law will
provide financial organizations with the flexibility to structure new
affiliations through a holding company structure or a financial subsidiary. As a
result of this new law, the number
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<PAGE> 52
and type of entities competing with us in our markets could increase. It is too
early to determine what effect, if any, this new law have on us.
The Company also is subject to regulation as a bank holding company
under the Georgia Financial Institutions Code, which requires registration and
filing of periodic information with the Georgia Commission. Registration with
the Georgia Commission includes information relating to the financial condition,
operations, management and inter-company relationships of the Company and the
Banks. The Georgia Commission also may require other information or make
examinations as is necessary to keep itself informed as to whether we are in
compliance with the provisions of Georgia law and related regulations and
orders.
Under the provisions of the Georgia Financial Institutions Code, it is
unlawful without the prior approval of the Georgia Commission:
- for any bank holding company to acquire ownership or control
of more than 5% of the voting shares of a bank;
- for any bank holding company or a subsidiary thereof (other
than a bank) to acquire all or substantially all of the assets
of a bank; or
- for any bank holding company to merge or consolidate with any
other bank holding company.
It is also unlawful under Georgia Financial Institutions Code for any bank
holding company to acquire direct or indirect ownership or control of more than
75% of the voting shares of any presently operating bank unless the bank has
been in existence and continuously operating or incorporated as a bank for a
period of five years or more prior to the date of application to the Georgia
Commission for approval of such acquisition. In addition, in any acquisition by
an existing bank holding company, the initial banking subsidiary of the bank
holding company must have been incorporated for not less than two years before
the holding company can acquire another bank.
THE BANKS
Both Banks are incorporated under the laws of the State of Georgia and
subject to examination by the Georgia Commission. The Georgia Commission
regulates all areas of the Banks' commercial banking operations, including
reserves, loans, mergers, consolidations, reorganizations, issuance of
securities, payment of dividends, interest rates, establishment of branches, and
other aspects of its operations.
Additionally, each of the Banks is insured and regulated by the FDIC.
The major functions of the FDIC with respect to insured banks include:
- paying off depositors to the extent provided by law if a bank
is closed without making adequate provisions to pay the claims
of depositors;
- acting as the receiver of state banks placed in receivership
when appointed receiver by state authorities; and
- preventing the continuance or development of unsound and
unsafe banking practices.
In addition, the FDIC is authorized to examine insured banks that are not
members of the Federal Reserve System, such as our Banks, to determine their
condition for insurance purposes. The FDIC also is authorized to approve
mergers, consolidations and assumption of deposit liability transactions between
insured banks and non-insured banks or institutions, and to prevent capital or
surplus diminution in these transactions where the resulting, continued, or
assumed bank is an insured non-member state bank. The FDIC closely examines
non-member banks for compliance with federal statutes such as the Community
Reinvestment Act of 1977 and the Truth-in-Lending Act.
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<PAGE> 53
DIVIDENDS
The Company is a legal entity separate and distinct from the Banks. The
principal source of cash flow for the Company is dividends from the Banks. There
are various statutory and regulatory limitations on the payment of dividends by
the Banks, as well as by the Company to its shareholders.
The payment of dividends by the Company and the Banks may be affected
or limited by regulatory requirements and policies, such as the maintenance of
adequate capital. Presently, the Company is not permitted to pay dividends to
its shareholders. If, in the opinion of the applicable regulatory authority, a
bank under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which could include the payment of dividends depending on the
institution's financial condition), such authority may require, after notice and
hearing, that the bank cease and desist from such practice. The FDIC issued a
policy statement that provides that insured banks generally should only pay
dividends out of current operating earnings. The Federal Reserve has issued a
policy statement to the same effect for bank holding companies. In addition, all
insured depository institutions are subject to the capital-based limitations
required by the Federal Deposit Insurance Corporation Improvement Act of 1991.
See "-Capital Adequacy."
Under Georgia law, the Banks must obtain approval of the Georgia
Commission before they may pay cash dividends out of retained earnings if:
- the total classified assets at the most recent examination of
such bank exceed 80% of the equity capital;
- the aggregate amount of dividends declared or anticipated to
be declared in the calendar year exceeds 50% of the net
profits, after taxes but before dividends, for the previous
calendar year; or
- the ratio of equity capital to adjusted assets is less than
6%.
As discussed below, additional capital requirements imposed by the Georgia
Commission may limit the Banks' ability to pay dividends to the Company. See
"-Capital Adequacy." Under the Georgia guidelines, at September 30, 1999, the
Banks were permitted to pay the Company dividends of up to $803,000 without
prior regulatory approval, $350,000 of which have been paid to the Company
during 1999. We are seeking a waiver of the approval requirements from the
Georgia Commission to allow the Banks to pay sufficient dividends to the Company
to meet its obligations under the junior subordinated debentures without further
approval during the first year following their issuance. While no assurance can
be given that the waiver will be granted, based on informal conversations with
the Georgia Commission we believe that they will grant our request.
CAPITAL ADEQUACY
Federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to:
- make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding
companies;
- account for off-balance sheet exposure; and
- minimize disincentives for holding liquid assets.
The resulting capital ratios represent qualifying capital as a percentage of
total risk-weighted assets and off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimums.
The Federal Deposit Insurance Corporation Improvement Act of 1991
established a capital-based regulatory plan designed to promote early
intervention for troubled banks and requires the FDIC to choose the least
expensive resolution of bank
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<PAGE> 54
failures. The capital-based regulatory framework contains five categories of
compliance with regulatory capital requirements, including "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." To qualify as a "well capitalized"
institution, a bank must have a Leverage ratio of no less than 5%, a Tier 1
risk-based ratio of no less than 6%, and a total risk-based capital ratio of no
less than 10%. The bank must also not be under any order or directive from the
appropriate regulatory agency to meet and maintain a specific capital level. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based Total Capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. The degree of regulatory scrutiny of a
financial institution will increase, and the permissible activities of the
institution will decrease, as it moves downward through the capital categories.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institutions'
performance under their capital restoration plans. Tier 1 capital includes
stockholders' equity, qualifying perpetual preferred stock and minority
interests in equity accounts of consolidated subsidiaries, but excludes goodwill
and most other intangible assets and excludes the allowance for loan and lease
losses. Tier 2 capital includes the excess of any preferred stock not included
in Tier 1 capital, mandatory convertible securities, hybrid capital instruments,
subordinated debt and intermediate-term preferred stock and general reserves for
loan and lease losses up to 1.25% of risk-weighted assets.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business.
The Federal Reserve also has implemented a Leverage ratio, which is
Tier 1 capital as a percentage of average total assets less intangible assets,
to be used as a supplement to the risk-based guidelines. The principal objective
of the Leverage ratio is to place a constraint on the maximum degree to which a
bank holding company may leverage its equity capital base. The Federal Reserve
has established a minimum 3% Leverage ratio of Tier 1 capital to total assets
for the most highly rated bank holding companies and insured banks. All other
bank holding companies and insured banks will be required to maintain a Leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
tangible Tier 1 Leverage ratio is the ratio of a banking organization's Tier 1
capital, less all intangibles, to total assets, less all intangibles. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Resources."
Georgia Commission Capital Requirements. In addition to the capital
standards imposed by federal banking regulators, the Georgia Commission imposed
an 8% primary capital ratio as a condition to the approval of Gilmer County
Bank's charter. This standard, which exceeds the FDIC capital standards, is
calculated as the ratio of total equity to total assets, each as adjusted for
unrealized gains and losses on securities and allowance for loan losses. This
heightened requirement was imposed during the first three years of Gilmer County
Bank's operation, after which time Gilmer County Bank became subject to a 6%
primary capital ratio. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Capital Resources."
FDICIA. The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") was enacted in large measure to improve the supervision and
examination of insured depository institutions in an effort to reduce the number
of bank failures and the resulting demands on the deposit insurance system.
Among other matters, FDICIA requires that all depository institutions with
assets in excess of $150 million prepare and submit to the FDIC and appropriate
federal and state banking regulators audited annual financial statements. The
FDIC has provided by regulation that these provisions of the FDICIA do not apply
to depository institutions with assets of less than $500 million. These
institutions must file reports containing a statement by management of its
responsibilities and by the depository institution's independent public
accountant attesting to the accuracy of management's annual assessment of its
financial reporting, internal controls and regulatory compliance. The
institution must also establish an audit committee composed of members of the
board of directors who are independent of management. An enactment of the FDICIA
also has resulted in the promulgation of regulations by regulatory agencies
which will tend to restrict to some degree the real estate lending practices of
financial institutions.
Under FDICIA, regulators must take prompt corrective action against
depository institutions that do not meet minimum capital requirements. FDICIA
and the related regulations establish five capital categories as shown in the
following table:
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<PAGE> 55
<TABLE>
<CAPTION>
TOTAL RISK- TIER I RISK- TIER I
CLASSIFICATION BASED CAPITAL BASED CAPITAL LEVERAGE
-------------- ------------- ------------- --------
<S> <C> <C> <C>
Well Capitalized(1) 10% 6% 5%
Adequately Capitalized(1) 8% 4% 4%(2)
Undercapitalized(3) <8% <4% <4%
Significantly Undercapitalized(3) <6% <3% <3%
Critically Undercapitalized(3) - - <2%
</TABLE>
- -----------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution is classified as "undercapitalized" if it is below the
specified capital level for any of the three capital measures.
A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives a less than satisfactory examination rating in any one of four
categories. As a depository institution moves downward through the
capitalization categories, the degree of regulatory scrutiny will increase and
the permitted activities of the institution will decrease. Action may be taken
by a depository institution's primary federal regulator against an institution
that falls into one of the three "undercapitalized" categories, including the
requirement of filing a capital plan with the institution's primary federal
regulator, prohibition on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory monitoring.
Other restrictions may be imposed on the institution either by its primary
federal regulator or by the FDIC, including requirements to raise additional
capital, sell assets, or sell the institution.
As of the date of this prospectus, the Company is considered to be
"under capitalized" according to most of the regulatory capital requirements.
Each of Gilmer County Bank and Appalachian Community Bank is considered to be
"adequately capitalized." Because we intend to use a portion of the net proceeds
of this offering to make capital contributions to the Banks, we believe that the
Company, on a consolidated basis, post offering, could be considered "adequately
capitalized" according to one or more of the regulatory capital requirements. We
further believe that post offering, each of Gilmer County Bank and Appalachian
Community Bank, as separate entities, could be considered "well capitalized"
according to one or more of the regulatory capital requirements.
These capital guidelines may affect us in a variety of ways. Rapid
growth, poor loan portfolio performance or poor earnings performance, or a
combination of these factors, could change our capital position in a short
period of time, making an additional capital infusion necessary. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Resources."
FEDERAL DEPOSIT INSURANCE PREMIUMS AND ASSESSMENTS
The deposits of the Banks currently are insured to a maximum of
$100,000 per depositor, subject to aggregation rules. The FDIC establishes rates
for the payment of premiums by federally insured banks and thrifts for deposit
insurance. Since 1993, insured depository institutions like the Banks have paid
for deposit insurance under a risk-based premium system. Insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.
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<PAGE> 56
OTHER APPLICABLE REGULATIONS
RCDRIA. The Riegle Community Development and Regulatory Improvement Act
of 1994 promotes economic revitalization and community development to
"investment areas." It established a Community Development Financial
Institutions Fund to achieve these objectives. The fund is authorized to provide
financial assistance through a variety of mechanisms, including equity
investments, grants, loans, credit union shares and deposits. The amount of
assistance any community development financial institution and its subsidiaries
and affiliates may receive is generally limited to $5 million. A qualifying
institution may receive an additional $3.75 million for the purpose of serving
an investment area in another state.
The act provides certain regulatory relief, requiring each federal
agency to streamline and modify its regulations and policies, remove
inconsistencies and eliminate outmoded and duplicative requirements. The act
directs the federal agencies to coordinate examinations among affiliate banks,
coordinate examinations with other federal banking agencies, and work to
coordinate with state banking agencies. The federal banking agencies also are
directed to work jointly in developing a system for banks and savings
associations to file reports and statements electronically and to adopt a single
form for filing core information in reports and statements.
Interstate Banking Act. The federal Interstate Banking Act permits,
among other things, bank holding companies to acquire banks in any state. It
also permits bank holding companies to establish new branches across state lines
if the individual states into which a potential entrant proposes to branch
specifically pass legislation to "opt-in."
Under the Interstate Banking Act, a bank could merge, beginning on June
1, 1997, with a bank in another state if the transaction did not involve a bank
in a home state which had enacted a law after the date of enactment of the
Interstate Banking Act and before June 1, 1997 that applied equally to all
out-of-state banks and expressly prohibited interstate merger transactions.
States were also allowed to permit merger transactions before June 1, 1997.
Georgia elected to allow merger transactions beginning June 1, 1997. The
Interstate Banking Act authorizes interstate mergers involving the acquisition
of a branch of a bank without the acquisition of the bank only as state law
permits an out-of-state bank to acquire a branch without acquiring the bank.
Georgia has not authorized these transactions. State minimum age laws for banks
to be acquired will be preserved unless state law provides for a minimum age
period of more than five years. After consummation of any interstate merger
transaction, a resulting bank may establish or operate additional branches at
any location where any bank involved in the transaction could have established
or operated a branch under applicable federal or state law.
The Board of Governors of the Federal Reserve System is authorized to
approve the acquisition by a well capitalized and adequately managed bank
holding company of a bank that is located in another state without regard to
whether the acquisition is prohibited under the laws of any state. Again, state
minimum age laws for banks to be acquired will be preserved unless the state law
provides for a minimum age period of more than five years. The Federal Reserve
may not approve an interstate acquisition which would result in the acquirer's
controlling more than 10% of the total amount of deposits of insured depository
institutions in the United States with 30% or more of the deposits in the home
state of the target bank. A state may waive the 30% limit based on criteria that
does not discriminate against out of state institutions. The limitations do not
apply to the initial entry into a state by a bank holding company unless the
state has a deposit concentration cap that applies on a nondiscriminatory basis
to in state or out of state bank holding companies making an initial
acquisition. Anti-trust laws are not affected by the Interstate Banking Act.
The Interstate Banking Act now provides that banks may establish
branches across state lines upon approval of the appropriate federal regulator
if the state "opts-in" by enacting legislation that expressly permits interstate
branching. The establishment of the initial branch in a host state which permits
de novo interstate branching is subject to the same requirements which apply to
the initial acquisition of a bank in a host state, other than the deposit
concentration limits, since the bank would not control any deposits in the host
state at the time of entry. Once a new branch has been established, the bank may
establish and acquire additional branches at any location in the host state in
the same manner as any bank in the host state could have established or acquired
additional branches under applicable federal or state law.
Georgia Interstate Banking Act. In 1994, the Georgia General Assembly
adopted the Georgia Interstate Banking Act. The act permits bank holding
companies located in any state outside of Georgia to acquire Georgia banks, or
to acquire bank
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<PAGE> 57
holding companies owning Georgia banks. The board of directors of a Georgia bank
or bank holding company may adopt a resolution to exempt its bank or bank
holding company from acquisition under this act.
Georgia Intrastate Banking Act. The Georgia General Assembly has also
enacted the Georgia Intrastate Banking Act altering the public policy of the
State regarding intrastate branch banking. The act allows a bank to establish de
novo branch banks on a limited basis beginning July 1, 1996. Between July 1,
1996 and June 30, 1998, any Georgia bank or group of affiliated banks under a
single holding company were permitted, subject to certain restrictions, to
establish new or additional branch banks in any three counties in the State of
Georgia in which the bank or group of banks were not currently operating.
Effective July 1, 1998, the restrictions on the number of de novo branch banks
which could be established lapsed.
Community Reinvestment Act. The Community Reinvestment Act ("CRA")
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the Federal Reserve, the FDIC or any other
appropriate federal agency, shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions and applications to open a branch or facility.
Failure to adequately meet these criteria could pose additional requirements and
limitations on the bank. Gilmer County Bank was examined for CRA compliance in
June 1999 and received a CRA rating of "outstanding." Prior to the conversion to
a state bank, Appalachian Community Bank was examined for CRA compliance in
April 1996 and received a rating of "satisfactory."
Congress and various federal agencies (including, in addition to the
bank regulatory agencies, the Housing and Urban Development Agency, the Federal
Trade Commission and the Department of Justice) (collectively the "Federal
Agencies") responsible for implementing the nation's fair lending laws have been
increasingly concerned that prospective home buyers and other borrowers are
experiencing discrimination in their efforts to obtain loans. In recent years,
the Department of Justice has filed suit against financial institutions, which
it determined had discriminated, seeking fines and restitution for borrowers who
allegedly suffered from discriminatory practices. Most, if not all, of these
suits have been settled (some for substantial sums) without a full adjudication
on the merits.
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Some of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, what effect these would have.
Our earnings are affected by domestic economic conditions and the
monetary and fiscal policies of the United States government and its agencies.
The Federal Reserve's monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order to curb inflation or
combat a recession. The monetary policies of the Federal Reserve have major
effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its
regulation of the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. It is not possible to predict the
nature or impact of future changes in monetary and fiscal policies.
55
<PAGE> 58
MANAGEMENT
The following table and text gives certain information about officers
and directors, including their ages and principal employment for the past five
years.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Tracy R. Newton......................................... 43 President, Chief Executive Officer,
Treasurer, Director
Kent W. Sanford......................................... 37 Executive Vice President, Chief
Operating Officer and Director
Alan R. May............................................. 38 Chief Financial Officer
Alan S. Dover........................................... 43 Director
Charles A. Edmondson.................................... 51 Director
Roger E. Futch.......................................... 54 Director
Joseph C. Hensley....................................... 42 Director, Assistant Secretary
Frank E. Jones.......................................... 56 Director, Chairman of the Board
J. Ronald Knight........................................ 57 Director
P. Joe Sisson........................................... 64 Director, Secretary
Kenneth D. Warren....................................... 49 Director
</TABLE>
Tracy R. Newton has served as President, Chief Executive Officer and a
director of the Company since 1996 and President, Chief Executive Officer and a
director of Gilmer County Bank since its inception in 1994. Prior to Mr.
Newton's employment with the Bank, he served as executive vice president of the
Bank of Ellijay, until he resigned in September 1993 to pursue the formation of
the Bank. His responsibilities at the Bank of Ellijay included the development
and implementation of bank policy and lending. He has had 22 years experience in
community banking, particularly in commercial, agricultural, and consumer
lending and in bank operations.
Kent W. Sanford has served as Executive Vice President, Chief Financial
Officer and Chief Operating Officer of the Company and Gilmer County Bank since
1996 and 1994, respectively, and has served as a director of Gilmer County Bank
since February 1999. Mr. Sanford also serves as the President, Chief Executive
Officer and a director of Appalachian Community Bank, and has served in such
capacities since the acquisition of Appalachian Community Bank by the Company in
November 1998. Prior to Mr. Sanford's employment with Gilmer County Bank in
August 1994, he served for ten years as vice president for the Bank of Ellijay
where he supervised all operations areas and acted as a loan officer and branch
manager.
Alan R. May has served as Chief Financial Officer of the Company since
June 1999 and as Chief Financial Officer of Gilmer County Bank since March 1998.
Prior to Mr. May's employment with Gilmer County Bank in March 1998, he served
as a vice president for Cooke & Andrews Investments where he supervised all
operations areas of the investment company.
Alan S. Dover has been a director of the Company since 1996 and a
director of Gilmer County Bank since 1994. Mr. Dover is the chief executive
officer and owner of A.S. Dover Concrete, Inc., a curbing and excavating
business. He also is owner of A.S. Dover Properties, Inc., a commercial real
estate development firm, and A.S. Dover Construction Company.
56
<PAGE> 59
Charles A. Edmondson has been a director of the Company since 1996, a
director of Gilmer County Bank since 1994 and a director of Appalachian
Community Bank since March 1999. Mr. Edmondson has been with State Farm
Insurance as an agent and agency manager in Ellijay since 1978 and is currently
an agent in Blue Ridge, Georgia. He served as agency manager with State Farm
from 1983 to 1995.
Roger E. Futch has been a director of the Company since 1996 and a
director of Gilmer County Bank since 1994. Mr. Futch has been employed by the
Ellijay Telephone Company since 1968 and currently serves as an operations
manager. He also owns a wholesale and retail apple orchard with his wife and
son.
Joseph C. Hensley has served as Assistant Secretary and a director of
the Company since 1996 and as Assistant Secretary and a director of Gilmer
County Bank since 1994. Mr. Hensley is a senior partner in Hensley, Land &
Associates, P.C., a certified public accounting firm in Ellijay.
Frank E. Jones has been Chairman of the Board of the Company since 1996
and Chairman of the Board of Gilmer County Bank since 1994. Mr. Jones is the
minister of the Ellijay Church of Christ, where he has served for 18 years. Mr.
Jones also serves on the board of directors of Limestone Valley Resource
Conservation District and is a member of the Georgia Policy Council for Children
and Families and the Welfare Reform Policy Council for the State of Georgia.
J. Ronald Knight has been a director of the Company since 1996 and a
director of Gilmer County Bank since 1994. Mr. Knight is president and part
owner of Twin City Motors, Inc., an automobile dealership in Ellijay. He is also
secretary and part owner of Ellijay Mini Storage, Inc.
P. Joe Sisson has served as Secretary and a director of the Company
since 1996 and as Secretary and a director of Gilmer County Bank since 1994. Mr.
Sisson is president and chief executive officer of the Sisson Corporation, a
real estate development firm, and he serves as president of Blue Ridge Mountain
Properties. He also owns interests in Cashes Valley Properties, Sisson, Dupont
and Carder, Inc., Sisson Co., Sisson Brothers, Sisson Properties, and Sisson
Company Contractors. He is a former advisory director of NationsBank, N.A.
Kenneth D. Warren has been a director of the Company since 1996 and a
director of Gilmer County Bank since 1994. Mr. Warren is the president and part
owner of Warren's Auto Sales, Inc., a used car dealership.
57
<PAGE> 60
COMPENSATION OF EXECUTIVE OFFICERS
The following table contains information regarding all compensation,
including bonuses, stock option awards and other payments, paid or accrued for
each of the last three fiscal years for Tracy R. Newton, the Company's President
and Chief Executive Officer, and Kent W. Sanford, the Company's Executive Vice
President and Chief Operating Officer (these individuals are referred to in this
prospectus as the "named executive officers"). No other executive officer of the
Company or either Bank was paid $100,000 or more in salary, bonus and directors'
fees during the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation(1) ------------
----------------------- Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary(2) Bonus Compensation Options(#) Compensation
- --------------------------- ------ ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Tracy R. Newton.................. 1998 $ 97,195 $ 45,851 $ 7,200(3) 0 $ 24,893(4)
President, Chief Executive 1997 90,942 34,852 7,200(3) 66,000 18,855(4)
Officer and Treasurer
1996 78,142 14,887 1,800(3) 0 8,151(4)
Kent W. Sanford.................. 1998 80,331(5) 31,827 0 0 19,652(6)
Executive Vice President 1997 77,081(5) 24,494 0 44,000 15,370(6)
and Chief Operating Officer
1996 64,231(3) 12,096 0 0 8,029(6)
</TABLE>
(1) Information regarding certain perquisites and other personal benefits
has been omitted because the aggregate value of such items do not meet
the minimum amount required for disclosure under the rules and
regulations of the Commission.
(2) Includes deferred contributions made at the individual's election
pursuant to the Company's 401(k) Plan.
(3) Directors' fees paid for service on the Board of Directors of the
Company and Gilmer County Bank.
(4) Includes (i) contributions by Gilmer County Bank of $3,569 in 1996,
$12,321 in 1997 and $17,416 in 1998 under the 401(k) Plan, (ii)
matching contributions by Gilmer County Bank of $1,822 in 1996, $3,774
in 1997 and $4,441 pursuant to the 401(k) Plan, and (iii) health
insurance premiums paid by Gilmer County Bank in each of 1996 and 1997
in the amount of $2,760, and in 1998 in the amount of $3,036.
(5) Includes $3,600 for services as secretary to the Board of Directors of
the Company and Gilmer County Bank.
(6) Includes (i) contributions by Gilmer County Bank of $2,917 in 1996,
$9,671 in 1997 and $13,359 in 1998 under the 401(k) Plan, (ii) matching
contributions by Gilmer County Bank of $2,352 in 1996, $2,939 in 1997
and $3,257 in 1998 pursuant to the 401(k) Plan, and (iii) health
insurance premiums paid by Gilmer County Bank in the amount of $2,760
in 1996 and 1997 and $3,036 in 1998.
STOCK OPTION GRANTS AND RELATED INFORMATION
There were no stock option grants during the fiscal year ended December
31, 1998. The following table contains information concerning unexercised
options held by the named executive officers as of the end of the fiscal year.
No options were exercised by the named executive officers in 1998.
58
<PAGE> 61
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End(#)(1) Options at Fiscal Year-End(2)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Tracy R. Newton.................. 13,200 52,800 $ 158,400 $ 633,600
Kent W. Sanford.................. 8,800 35,200 $ 105,600 $ 422,400
</TABLE>
(1) The options vest and become exercisable in five equal annual
installments beginning on the first anniversary of the date of grant.
Upon the occurrence of certain events resulting in a change of control
of the Company or certain major corporate transactions, the options
become fully vested and exercisable, subject to certain exceptions and
limitations. See "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements."
(2) The options have an exercise price of $8.00 per share and the fair
market value of the common stock at the close of business on December
31, 1998, was $20.00 per share based on the price of the last trade of
which management is aware as of such date.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to the terms of the 1997 Employee Stock Incentive Plan, the
Board of Directors may provide in any option agreement that outstanding options
covered by such agreement will become fully vested and exercisable, subject to
specified exceptions and limitations, in the event of a change in control or
other corporate transactions. "Change in control" and "corporate transactions"
are defined in the plan to include, among other things, the acquisition by
another person of more than fifty percent of the total combined voting power of
the Company's outstanding common stock; a change in the composition of a
majority of the Board of Directors within a specified period of time; a merger
or consolidation in which the Company is not the surviving entity; the sale,
transfer or other disposition of substantially all of the Company's assets in
connection with a liquidation of the Company; and specified other transactions.
The option agreements under which Messrs. Newton and Sanford were granted
options contain these acceleration provisions. See "Stock Option Grants and
Related Information."
DIRECTOR COMPENSATION
The same individuals who served as directors of the Company also served
as directors of Gilmer County Bank during the fiscal year ended December 31,
1998. In 1998, the Chairman of the Company's Board of Directors was paid an
aggregate of $17,736, Mr. Newton was paid an aggregate of $7,200, and each of
the other members of the Board of Directors was paid an aggregate of $13,736 for
their service on the Board. In addition, the Company reimbursed directors for
travel and expenses incurred by them in connection with their service on the
Board.
CERTAIN TRANSACTIONS
Several of the directors and executive officers of the Company, members
of their families and companies or firms with which they are associated, were
customers of and had banking transactions with Gilmer County Bank in the
ordinary course of business during fiscal years 1998 and 1997, and these
transactions are expected to continue in the future. All loans and commitments
to loan included in these transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and, in the opinion of
management, did not involve more than a normal risk of collectibility or present
other unfavorable features. None of the loans outstanding to directors or
officers of the Company, members of their families or companies or firms with
which they are associated were non-performing as of December 31, 1998 or 1997.
Total loans outstanding to all directors and executive officers of the Company
59
<PAGE> 62
and the Banks, or affiliates of such persons (including members of the immediate
families of such persons or companies in which such persons had a 10% or more
beneficial interest), amounted to an aggregate of $5,463,030 at December 31,
1998. The chart below contains a description of the current loans outstanding
which have been made by the Company or the Banks to its directors or executive
officers, members of their families and companies or firms with which they are
associated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Maximum
Principal
Amount
Name Type of Borrowing During 1998 Remaining Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan S. Dover Letters of Credit and Installment $ 435,309 $ 263,451 8.25%
Loans
- -----------------------------------------------------------------------------------------------------------------------
Charles A Edmundson Letters of Credit and Term Loans $ 152,790 $ 149,680 8.25%
- -----------------------------------------------------------------------------------------------------------------------
Roger E. Futch Letters of Credit $ 320,549 $ 281,001 8.25%
- -----------------------------------------------------------------------------------------------------------------------
Joseph C. Hensley Letters of Credit, Term and $ 712,237 $ 694,542 8.25%
Installment Loans
- -----------------------------------------------------------------------------------------------------------------------
Frank E. Jones Installment Loans $ 20,172 $ 16,739 8.25%
- -----------------------------------------------------------------------------------------------------------------------
J. Ronald Knight Letters of Credit and Installment $ 893,325 $ 762,052 8.25%
Loans
- -----------------------------------------------------------------------------------------------------------------------
Kent W. Sanford Installment and Term Loans $ 64,619 $ 61,315 8.25%(1)
- -----------------------------------------------------------------------------------------------------------------------
P. Joe Sisson Letters of Credit, Term and $3,741,949 $3,047,703 8.25%
Installment Loans
- -----------------------------------------------------------------------------------------------------------------------
Kenneth D. Warren Term and Installment Loans $ 404,631 $ 311,918 8.25%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in the maximum principal amount for the loans to Mr. Sanford is a
term loan for the principal amount of $20,000 which bears interest at a rate of
7.75%. The remaining principal balance of the loans to Mr. Sanford bears
interest at the rate of 8.25%.
The Company employs the accounting firm of Hensley, Land & Associates,
P.C. to provide accounting and internal auditing services to the Company and the
Banks. Mr. Hensley, a director and officer of the Company and Gilmer County
Bank, is a senior partner in the accounting firm. The Company believes that the
services obtained from the accounting firm are on terms as favorable to the
Company as could have been obtained from unaffiliated parties.
On March 29, 1999, we sold a 1,250 square foot brick building near
Gilmer County Bank's existing facility to J. Ronald Knight, a director of the
Company, and his partner for $150,000. We had purchased the building in May 1998
for $150,000 in an effort to alleviate drive-in traffic problems experienced at
Gilmer County Bank. After we purchased the property, the adjacent road was
widened leaving the property unusable for our intended purpose. Mr. Knight and
his partner own the only other property adjacent to the building and purchased
the property to use with their existing business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership, as of November 15, 1999, of shares of Common Stock by (a)
each person known by the Company to be the beneficial owner of more than five
percent of the outstanding Company's Common Stock, (b) each of the Company's
directors, (c) the Company's named executive officers, as defined herein, and
(d) all directors and executive officers of the Company as a group, and the
percentage of the outstanding
60
<PAGE> 63
shares of Common Stock represented thereby. Except as noted below, the Company
believes that each of the persons listed has sole investment and voting power
with respect to the shares included in the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) PERCENT OF CLASS(1)
- ------------------------ ----------------- --------------------
<S> <C> <C>
Appalachian Bancshares, Inc. Section 401(k) Profit Sharing Plan............ 77,924(3) 5.8%
Alan S. Dover.............................................................. 31,250 2.3%
Charles A. Edmondson....................................................... 41,250 3.1%
Roger E. Futch............................................................. 35,750(4) 2.7%
Joseph C. Hensley.......................................................... 113,724(3) 8.5%
Frank E. Jones............................................................. 21,250 1.6%
J. Ronald Knight........................................................... 51,630(5) 3.9%
Alan R. May................................................................ 3,550 *
Tracy R. Newton............................................................ 125,660(3) 9.2%
Kent W. Sanford............................................................ 114,670(3)(6) 8.5%
P. Joe Sisson.............................................................. 37,000(7) 2.8%
Kenneth D. Warren.......................................................... 52,750 3.9%
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (11 PERSONS)............... 472,636 33.4%
</TABLE>
- ---------
* Less than 1%
(1) The information contained in this table with respect to Common Stock
ownership reflects "beneficial ownership" as determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(2) With respect to the 5% or greater beneficial owner and each of the
individual directors and named executive officers listed in the table
and the aggregate number of shares held by the directors and executive
officers as a group, the number of shares indicated includes shares of
Common Stock that the individual has the right to acquire on or before
January 14, 2000 (60 days from November 15, 1999), through the exercise
of options granted under the Directors' Non-Qualified Stock Option Plan
or the Employee Stock Incentive Plan approved by the Company's
shareholders at the 1997 Annual Meeting of Shareholders. See "Stock
Option Grants and Related Information." The number of shares underlying
options that may be exercised as of November 15, 1999 is as follows:
(i) Mr. Newton - 26,400 shares; (ii) Mr. Sanford - 17,600 shares; (iii)
Mr. Hensley - 8,800 shares; (iv) each of the Company's directors (with
the exception of Messrs. Newton, Hensley and Sanford) - 4,400 shares;
and (v) all directors and executive officers as a group (eleven
persons) - 83,600 shares.
(3) The address of the Appalachian Bancshares, Inc. Section 401(k) Profit
Sharing Plan (the "401(k) Plan") is Box G, 829 Industrial Boulevard,
Ellijay, Georgia 30540. Pursuant to the Georgia Bankers' Association
Master Section 401(k) Profit Sharing Plan, which governs the 401(k)
Plan, shares of Common Stock owned by the 401(k) Plan are voted by the
Company as Company Stock Trustee in accordance with the directions of
the 401(k) Plan's administrative committee. Accordingly, the power to
vote or direct the vote of shares owned by the 401(k) Plan resides with
the administrative committee, which consists of Messrs. Hensley, Newton
and Sanford. The Company Stock Trustee has sole power to dispose of the
shares owned by the 401(k) Plan. As a result Messrs. Hensley, Newton
and Sanford may
61
<PAGE> 64
be considered beneficial owners of these securities. The shares held by
the 401(k) Plan are thus included in the ownership of each member of
the administrative committee.
(4) Includes 3,700 shares held by Mr. Futch's spouse, as to which Mr. Futch
disclaims beneficial ownership, and 1,000 shares held by Mr. Futch and
his spouse as custodians for this minor child granddaughter, as to
which Mr. Futch disclaims beneficial ownership.
(5) Includes 2,830 shares held by Mr. Knight's spouse, as to which Mr.
Knight disclaims beneficial ownership.
(6) Includes 2,420 shares held by Mr. Sanford's spouse, as to which Mr.
Sanford disclaims beneficial ownership, and 72 shares held by Mr.
Sanford as custodian for his minor children.
(7) Includes 4,325 shares held by Mr. Sisson's spouse as to which Mr.
Sisson disclaims beneficial ownership.
APAB CAPITAL TRUST I
The Trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a declaration of trust executed by us, as sponsor for
the Trust, and the trustees, and a certificate of trust filed with the Delaware
Secretary of State. The trust agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. The trust agreement
will be qualified under the Trust Indenture Act of 1939.
Upon issuance of the common and preferred securities, the Company will
own all of the issued and outstanding common securities and purchasers in this
offering will own all of the issued and outstanding preferred securities. The
Company will acquire common securities in an amount equal to at least 3% of the
total capital of the Trust and will own, directly or indirectly, all of the
issued and outstanding common securities (together with the preferred
securities, the "trust securities"). The Trust exists for the purposes of:
- issuing the preferred securities to the public for cash;
- issuing its common securities to the Company in exchange for
our capitalization of the Trust;
- investing the proceeds in an equivalent amount of the
Company's % junior subordinated debentures; and
- engaging in other activities that are necessary, convenient or
incidental to those listed above.
The rights of the holders of the trust securities are as set forth in
the trust agreement, the Delaware Business Trust Act and the Trust Indenture
Act. The trust agreement does not permit the incurrence by the Trust of any
indebtedness for borrowed money or the making of any investment other than in
the % junior subordinated debentures. Other than with respect to the trust
securities, we have agreed to pay for all debts and obligations and all costs
and expenses of the Trust, including the fees and expenses of the trustees and
any income taxes, duties and other governmental charges, and all costs and
expenses related to these charges, to which the Trust may become subject, except
for United States withholding taxes that are properly withheld.
Pursuant to the trust agreement, there will initially be three trustees
of the Trust. Two of the trustees will be persons who are employees or officers
of or who are affiliated with us (the "administrative trustees"). One of the
trustees will be Wilmington Trust Company, a Delaware banking corporation that
is unaffiliated with us, maintains its principal place of business in the State
of Delaware, and will serve as institutional trustee under the Trust Agreement
and as indenture trustee for the purposes of compliance with the provisions of
the Trust Indenture Act (the "property trustee"). For the purpose of compliance
with the provisions of the Trust Indenture Act, Wilmington will also act as
guarantee trustee under the guarantee agreement. As holder of all of the common
securities, the Company will have the right to appoint, remove or replace any
trustee unless an event of default under the indenture shall have occurred and
be continuing, in which case only the holders of the preferred securities may
remove the property trustee. The Trust has a term of approximately 30 years but
may terminate earlier as provided in the trust agreement.
The property trustee will hold the % junior subordinated debentures
for the benefit of the holders of the trust securities and will have the power
to exercise all rights, powers and privileges under the indenture as the holder
of these
62
<PAGE> 65
debentures. In addition, the property trustee will maintain exclusive control of
a segregated noninterest-bearing "property account" to hold all payments made in
respect of the debentures for the benefit of the holders of the trust
securities. The property trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the trust
securities out of funds from the property account. The guarantee trustee will
hold the guarantee for the benefit of the holders of the capital securities. We
will pay all fees and expenses related to the Trust and the offering of the
common and preferred securities, including the fees and expenses of the
trustees.
DESCRIPTION OF PREFERRED SECURITIES
The following is a summary of all of the material terms and provisions
of the preferred securities. This summary is not complete and is subject to, and
qualified in its entirety by reference to the agreement among Appalachian
Bancshares, Inc., as depositor, Wilmington Trust Company, as property trustee,
and administrative trustees of the Trust, and the Trust Indenture Act. We have
filed the form of the trust agreement as an exhibit to the registration
statement of which this prospectus is a part.
DISTRIBUTIONS
The preferred securities represent preferred undivided beneficial
interests in the assets of the Trust. The Trust will pay preferential cumulative
cash distributions on the preferred securities at the annual rate of % of the
stated liquidation amount of $10. The Trust will pay the dividends quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year, to the
holders of the preferred securities on the relevant record dates. The record
date will be the 15th day of the month in which the relevant distribution
payment date occurs. Distributions will accumulate from the date of the initial
issuance of the preferred securities and are cumulative. The first distribution
payment date for the preferred securities will be March 31, 2000. The Trust will
compute the amount of distributions payable for any period on the basis of a
360-day year of twelve thirty-day months. If distributions on the preferred
securities are payable on a date that is not a business day, the Trust will pay
such distributions on the next day that is a business day. The Trust will not
pay any additional distributions or other payment as a result of the delay. If,
however, that business day is in the next calendar year, the trust will make
such payment on the immediately preceding business day. That payment will have
the same force and effect as if it were made on the date the payment was
originally payable (each date on which distributions are payable in accordance
with the foregoing, a "distribution date"). A "business day" means any day other
than a Saturday or a Sunday, or a day on which banking institutions in the
cities of New York or Atlanta are authorized or required by law or executive
order to remain closed or a day on which the principal corporate trust office of
the property trustee or the trustee under the indenture between us and
Wilmington Trust Company, as trustee, is closed for business.
If we are not in default, we may, under the indenture, 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 quarters with respect to
each deferral period (each, an "extension period"). No extension period may
extend beyond the stated maturity date of the junior subordinated debentures. As
a result of any deferral of interest, the Trust will defer quarterly
distributions on the preferred securities during the extension period.
Distributions to which holders of the preferred securities are entitled will
accumulate additional distributions at the rate per annum of %, compounded
quarterly from the relevant payment date for such distributions. The term
"distributions" as used in this prospectus includes any such additional
distributions.
The terms of the indenture limit our ability to make certain payments
during any extension period. During an extension period, we may not make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem, any debt securities that rank equal in priority with or junior in right
of payment to the junior subordinated debentures. We also may not make any
guarantee payments under any guarantee by us of the debt securities of any of
our subsidiaries if such guarantee ranks equal in priority with or junior in
right of payment to the junior subordinated debentures other than payments
pursuant to the preferred securities guarantee agreement. Finally, we may not
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment relating to, any of our capital stock other than:
- the reclassification of any class of our capital
stock into another class of capital stock;
- dividends or distributions payable in shares of our
common stock;
63
<PAGE> 66
- any declaration of a stock dividend in connection
with the implementation of a shareholders' rights
plan, or the issuance of shares under any such plan
in the future or the redemption or repurchase of any
such rights pursuant thereto;
- payments under the guarantee; and
- purchases of shares of common stock related to the
issuance of shares of common stock or rights under
any of our benefit plans for our directors, officers
or employees.
Additionally, during any extension period, we may not redeem, purchase
or acquire less than all the outstanding junior subordinated debentures or any
of the preferred securities.
During any extension period, interest would continue to accrue and
holders of the preferred securities would be required to accrue interest income
for United States federal income tax purposes, even though such holders would
not receive current cash distributions with which to pay tax, if any, arising
with respect to such accrued interest income. See "Federal Income Tax
Consequences - Interest Income and Original Issue Discount."
Before the termination of any extension period, we may further defer
the payment of interest on the junior subordinated debentures if no extension
period together with all previous and further extensions exceeds 20 consecutive
quarters or extends beyond the stated maturity date of the junior subordinated
debentures. Upon the termination of any such extension period and the payment of
all accrued and unpaid interest (together with interest thereon at the rate of
%, compounded quarterly, to the extent permitted by law), we may begin a new
extension period. There is no limitation on the number of times that we may
begin an extension period. See "Description of the Junior Subordinated
Debentures - Right to Defer Interest Payment Obligation" and "Federal Income Tax
Consequences - Interest Income and Original Issue Discount."
The Trust will invest the proceeds from the issuance and sale of its
common securities and the preferred securities in the junior subordinated
debentures. The revenue available for distribution to holders of the trust's
preferred securities will be limited to payments under the junior subordinated
debentures. See "Description of the Junior Subordinated Debentures." If we do
not make interest payments on the junior subordinated debentures, the property
trustee will not have funds available to pay distributions on the preferred
securities. We will guarantee the payment of distributions on a limited basis as
described in this prospectus under "Description of the Guarantee."
We have no current intention of deferring payments of interest on the
junior subordinated debentures.
SUBORDINATION OF THE TRUST'S COMMON SECURITIES
The Trust will pay distributions on, and the redemption price of, its
common securities and preferred securities, as applicable, pro rata based on
their liquidation amount. However, in general, if we are in default under the
indenture on any distribution date or redemption date, the Trust will not make
any distribution on, or pay the redemption price of, any of its common
securities, or make any other payment on account of the redemption, liquidation
or other acquisition of its common securities. In the event of such a default,
the Trust may make such payments only under limited circumstances. In the case
of payment of distributions, the Trust must make payment in full in cash of all
accumulated and unpaid distributions on all of the outstanding preferred
securities for all distribution periods terminating on or prior to the relevant
date. In the case of payment of the redemption price, the Trust must pay the
full amount of the redemption price on all of the outstanding preferred
securities then called for redemption. In addition, the property trustee must
first apply all available funds to the payment in full in cash of all
distributions on, or redemption price of, the preferred securities then due and
payable.
If an event of default occurs under the trust agreement as a result of
an event of default under the indenture, we, as holder of the Trust's 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 effect of all such
defaults with respect to the preferred securities are cured, waived or otherwise
eliminated. Until all such events of default under the trust agreement are
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 us as
holder of the Trust's common securities, and only the holders of the preferred
securities will be able to direct the property trustee to act on their behalf.
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REDEMPTION
The preferred securities are subject to mandatory redemption, in whole
or in part, upon repayment of the junior subordinated debentures at their stated
maturity date or earlier redemption as provided in the indenture. The property
trustee will apply the proceeds from the repayment or redemption to redeem
preferred securities and common securities with a liquidation value equal to the
principal amount of the junior subordinated debentures so redeemed. The property
trustee will give not less than 30 nor more than 60 days' notice before the date
fixed for repayment or redemption. The property trustee will redeem the
preferred securities at a redemption price equal to the aggregate liquidation
amount of the preferred securities plus accumulated and unpaid distributions
thereon (the "redemption price") to the date of redemption (the "redemption
date"). For a description of the stated maturity and redemption provisions of
the junior subordinated debentures see "Description of the Junior Subordinated
Debentures - General" and "- Redemption or Exchange."
We may redeem the junior subordinated debentures before maturity on or
after , 2005, in whole at any time, or in part from time to time. As a
result, we can cause a mandatory redemption of an equivalent liquidation value
of the preferred securities. In addition, at any time that a tax event, an
investment company event or a capital treatment event occurs and continues, we
may redeem the junior subordinated debentures in whole but not in part. As a
result, under those circumstances, we can cause a mandatory redemption of the
preferred securities in whole but not in part prior to , 2005. Any
redemption before the stated maturity date of the junior subordinated debentures
will be subject to prior regulatory approval, if then required, under applicable
capital guidelines or regulatory policies. See "Description of the Junior
Subordinated Debentures - Redemption or Exchange."
REDEMPTION PROCEDURES
The Trust will redeem preferred securities at the redemption price by
using proceeds from the contemporaneous redemption of a liquidation value equal
to the principal amount of the junior subordinated debentures. The Trust will
redeem the preferred securities and pay the redemption price on each redemption
date only to the extent that the Trust has funds on hand available for the
payment of the redemption price.
If the Trust gives a notice of redemption relating to the preferred
securities, then, by 10:00 a.m., New York City time, on the redemption date, the
property trustee will deposit irrevocably with Depository Trust Company (the
"DTC") funds sufficient to pay the applicable redemption price. The property
trustee will also give DTC irrevocable instructions and authority to pay the
redemption price to holders when the holders surrender their certificates
evidencing the preferred securities. Despite any redemption, the Trust will make
distributions payable on or before the redemption date for the preferred
securities being redeemed to recordholders of the preferred securities on the
relevant record dates. If the Trust has given a notice of redemption and
deposited funds, then, upon the date of such deposit, all rights of the holders
of preferred securities being redeemed will terminate, except for their right to
receive the redemption price without interest. In addition, upon the date of
such deposit, such preferred securities will cease to be outstanding.
If any date fixed for redemption of the preferred securities is not a
business day, the Trust will pay the redemption price on the next day which is a
business day. The Trust will not pay any interest or other payment as a result
of such delay. If that business day falls in the next calendar year, the Trust
will make the payment on the immediately preceding business day. If either we or
the Trust improperly withholds or refuses to pay the redemption price on the
preferred securities being redeemed, under the guarantee, the distributions on
the preferred securities will continue to accrue. These distributions will
accrue at the then applicable rate, from the redemption date originally
established by the Trust for such preferred securities to the date such
redemption price is actually paid. See "Description of the Guarantee." Under
such circumstances, the actual payment date will be the date fixed for
redemption for purposes of calculating the redemption price.
Subject to applicable law, we or our subsidiaries may at any time and
from time to time purchase outstanding preferred securities by private
agreement, tender offer or in the open market.
Payment of the redemption price on the preferred securities and any
distribution of the junior subordinated debentures to holders of the preferred
securities will be made to the recordholders as they appear on the register for
the preferred securities on the relevant record date. The relevant record date
will be one business day before the relevant redemption date. However, in
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the event the preferred securities do not remain in book entry form, the
relevant record date will be the date at least 15 days before the redemption
date or liquidation date, as applicable.
If the Trust redeems less than all of its common securities and
preferred securities on a redemption date, then the aggregate liquidation amount
of the trust's common securities and preferred securities to be redeemed will be
allocated pro rata to its common securities and preferred securities based upon
the relative liquidation amounts of such classes. The property trustee will
select, on a pro rata basis in accordance with the trust agreement, the
particular preferred securities to be redeemed within 60 days of the redemption
date, or, if the preferred securities are then held in the form of a global
preferred security, in accordance with DTC's customary procedures. The property
trustee will promptly notify the trust registrar in writing of the preferred
securities selected for redemption and, in the case of any preferred securities
selected for partial redemption, the liquidation amount to be redeemed. For all
purposes of the trust agreement, unless the context otherwise requires, all
provisions relating to the redemption of the preferred securities will relate,
in the case of the preferred securities redeemed or to be redeemed only in part,
to the portion of the aggregate liquidation amount of the preferred securities
which has been or is to be redeemed.
The trustee will mail notice of any redemption at least 30 but not more
than 60 days before the redemption date to each holder of the preferred
securities to be redeemed at its registered address. Unless we default in
payment of the redemption price on the junior subordinated debentures, interest
will cease to accrue on and after the redemption date, on the junior
subordinated debentures or portions of those debentures called for redemption.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES
TO HOLDERS
We may at any time dissolve the Trust. After satisfaction of the
liabilities of creditors of the Trust as provided by law, we may cause junior
subordinated debentures to be distributed to the holders of the preferred
securities and common securities in exchange for those securities upon
liquidation of the Trust.
After the liquidation date for any distribution of the junior
subordinated debentures for preferred securities, those preferred securities
will no longer be deemed to be outstanding. 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 the distribution with respect to preferred securities held by
DTC or its nominee. Any certificates representing the preferred securities not
held by DTC or its nominee will be deemed to represent 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 such series of the
preferred securities until such certificates are presented to the administrative
trustees or their agent for transfer or reissuance.
Under United States federal income tax law and interpretations, a
distribution of the junior subordinated debentures should not be a taxable event
to holders of the preferred securities. However, if there is a change in law, a
change in legal interpretation, a tax event or other circumstances, the
distribution could be a taxable event to holders of the preferred securities.
See "Federal Income Tax Consequences - Distribution of the Junior
Subordinated Debentures to Holders of the Preferred Securities."
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the trust agreement, the Trust will automatically dissolve
at the end of its term. The Trust will also dissolve if any of the following
events occurs:
- the entry of an order for the dissolution of the
Trust by a court of competent jurisdiction;
- certain events of bankruptcy, dissolution or
liquidation of the Company, subject in certain
instances to certain such events remaining in effect
for a period of 90 consecutive days;
- the distribution of the junior subordinated
debentures to the holders of its preferred
securities, if we, as depositor, have given written
direction to the property trustee to
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dissolve the trust (which direction is optional and
wholly within our discretion, as depositor); and
- redemption of all of the preferred securities as
described under "- Redemption."
If an early dissolution occurs as described in one of the first three
clauses listed above, the trustees will liquidate the Trust as quickly as
possible by first satisfying the liabilities to creditors of the Trust, if any,
as provided by law, and then by distributing to the holders of the preferred
securities an equivalent liquidation value of the junior subordinated
debentures. If the administrative trustees determine this distribution is not
practical, after satisfaction of liabilities to creditors of the Trust, if any,
as provided by law, holders of the preferred securities will receive out of the
assets of the Trust available for distribution to holders, an amount equal to
the liquidation amount plus accrued and unpaid distributions to the date of
payment (such amount being the "liquidation distribution"). If the liquidation
distribution can be paid only in part because the Trust has insufficient assets
available to pay the liquidation distribution in full, then the Trust will pay
the amounts due on a pro rata basis. In no event shall the property trustee be
liable for any deficit in a liquidation distribution. We, as the holder of the
Trust's common securities, will receive distributions upon any such liquidation
pro rata with the holders of the preferred securities. However, if we are in
default under the indenture, the preferred securities will have a priority over
the Trust's common securities with respect to any such distributions.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "event of default" under
the trust agreement with respect to the preferred securities and the Trust's
common securities issued under the trust agreement. Each event constitutes an
event of default regardless of the reason for the event of default and whether
it is voluntary or involuntary or 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:
- the occurrence of an event of default under the indenture (see
"Description of the Junior Subordinated Debentures - Debenture
Events of Default");
- default in the payment of any distribution when it becomes due
and payable, and the continuation of the default for a period
of 30 days;
- default in the payment of any redemption price when it becomes
due and payable;
- default in the performance, or breach, in any material
respect, of any covenant or warranty of any trustee under 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 the clauses listed above), and continuation of such
default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the defaulting
trustee or trustees 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
- the occurrence of certain events of bankruptcy or insolvency
with respect to the property trustee and the failure by us to
appoint a successor property trustee within 60 days of such
event of bankruptcy or insolvency.
Within 90 days after the occurrence of any event of default actually
known to the property trustee, the property trustee will send notice of the
event of default to the holders of the preferred securities, the administrative
trustees and us, as depositor, unless the event of default has been cured or
waived. We, as depositor, and the administrative trustees are required to file
annually with the property trustee a certificate stating whether or not they are
in compliance with all the conditions and covenants applicable to them under the
trust agreement.
If an event of default under the indenture has occurred and is
continuing, the preferred securities will have a preference over the Trust's
common securities as described above. See "- Subordination of the Trust's Common
Securities." The holders of
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the preferred securities cannot accelerate the payment of the preferred
securities due to an event of default. If the event of default is due to an
event of default under the indenture, a holder of preferred securities may
institute a legal proceeding directly against us.
REMOVAL OF THE TRUST TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, the holder of the Trust's common securities may remove any trustee
under the trust agreement at any time. If an event of default under the
indenture has occurred and is continuing, the holders of a majority in
liquidation amount of the outstanding preferred securities may remove the
property trustee at such time. The holders of the preferred securities will not
have the right to vote to appoint, remove or replace the administrative
trustees. No resignation or removal of any trustee under the trust agreement and
no appointment of a successor trustee will be effective until the successor
trustee accepts its appointment in accordance with the provisions of the trust
agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default has occurred and is continuing, for the
purpose of meeting the legal requirements of the Trust Indenture Act, if
applicable, or of any jurisdiction where part of the property and assets of the
trust are located, we, as the holder of the Trust's common securities, may
appoint one or more persons either to act as a co-trustee, jointly with the
property trustee, of all or any part of that trust property, or to act as
separate trustee of any of that property. The co-trustee or separate trustee
will have the powers described in the instrument of appointment. We may vest in
the person or persons in such capacity any property, title, right or power
deemed necessary or desirable, subject to the provisions of the trust agreement.
If an event of default under the indenture has occurred and is continuing, the
property trustee alone may make the appointment.
MERGER OR CONSOLIDATION OF THE PROPERTY TRUSTEE
Provided such entity shall be otherwise qualified and eligible, the
successor of the property trustee under the trust agreement will be:
- Any entity into which the trustee that is not a natural person
may be merged or converted;
- Any entity with which the trustee may be consolidated;
- Any entity resulting from any merger, conversion or
consolidation to which the trustee will be a party; or
- Any entity succeeding to all or substantially all the
corporate trust business of the trustee.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, be
replaced by, convey, transfer or lease its properties and assets substantially
as an entirety to any entity or other person, except as described below or as
otherwise described in the trust agreement. The Trust may, at our request, with
the consent of the administrative trustees and without the consent of the
holders of the preferred securities or the property trustee, merge with or into,
consolidate, amalgamate, be replaced by, convey, transfer or lease its
properties and assets substantially as an entirety to, a trust organized as such
under the laws of any state if certain conditions are met.
These conditions are:
- the successor entity either (a) expressly assumes all of the
obligations of the 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 rank the same as the preferred
securities in priority with respect to distributions and
payments upon liquidation, redemption and otherwise;
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- we expressly appoint a trustee of the successor entity
possessing the same powers and duties as the property trustee
as the holder of the junior subordinated debentures;
- the successor securities are registered or listed, or any
successor securities will be registered or listed upon
notification of issuance, on any national securities exchange
or other organization on which the preferred securities are
then registered or listed, if any;
- 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;
- the 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;
- the successor entity has a purpose substantially identical to
that of the trust;
- before the transaction, we receive an opinion from independent
counsel experienced in such matters to the effect that (a) the
transaction does not adversely affect the rights, preferences
and privileges of the holders of the preferred securities
(including any successor securities) in any material respect
(b) following the transaction, neither the trust nor such
successor entity will be required to register as an investment
company under the Investment Company Act of 1940, and (c)
following the transaction, the Trust will continue to be
treated as a grantor Trust for United States federal income
tax purposes; and
- we or any permitted successor or assignee owns all of the
common securities or its equivalent of the successor entity
and guarantees the obligations of the successor entity under
the successor securities at least to the extent provided by
the guarantee.
Even if these conditions are met, if the consolidation, amalgamation,
merger, replacement, conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes, the Trust will not enter into such
transaction without the consent of holders of 100% in liquidation amount of the
preferred securities.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the 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 us, the
property trustee and the administrative trustees, without the consent of the
holders of the preferred securities:
- with respect to the acceptance of appointment of a successor
trustee;
- 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, which
will not be inconsistent with the other provisions of the
trust agreement; or
- to modify, eliminate or add to any provisions of the trust
agreement to the extent necessary to ensure that the trust
will be classified for United States federal income tax
purposes as a grantor trust at all times that the preferred
securities are outstanding or to ensure that the trust will
not be required to register as an "investment company" under
the Investment Company Act.
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If we, the property trustee and the administrative trustees amend the
trust agreement, except with respect to the acceptance of appointment of a
successor trustee, the action may not adversely affect in any material respect
the interests of any holder of the preferred securities. Any amendments of the
trust agreement described above will become effective when notice of the
amendment is given to the holders of the preferred securities.
The trust agreement may be amended by the trustees and the Company
with:
- the consent of holders representing not less than a majority
(based upon liquidation amounts) of the outstanding preferred
securities; and
- receipt by the trust trustees of an opinion of counsel to the
effect that such amendment or the exercise of any power
granted to the trust trustees in accordance with such
amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the
trust's exemption from status as an "investment company" under
the Investment Company Act.
Some of the provisions in the trust agreement may not be amended
without the consent of each affected holder of the preferred securities. Consent
is required to amend the trust agreement to:
- change the amount or timing of any distribution on the
preferred securities or otherwise adversely affect the amount
of any distribution required to be made in respect of the
preferred securities as of a specified date; and
- restrict the right of a holder of the preferred securities to
institute suit for the enforcement of any such payment on or
after such date.
If the junior subordinated debentures are held by the property trustee,
the trustees will not take any of the following actions without obtaining the
prior approval of the holders of a majority in aggregate liquidation amount of
all outstanding preferred securities:
- direct the time, method and place of conducting any proceeding
for any remedy available to the trustee under the indenture or
executing any trust or power conferred on the property trustee
with respect to the junior subordinated debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures will be
due and payable; or
- consent to any amendment, modification or termination of the
indenture or the junior subordinated debentures, where such
consent is required.
If a consent under the indenture would require the consent of each
holder of the junior subordinated debentures affected by the actions described
above, the property trustee will not give that consent without the prior consent
of each holder of the preferred securities. The trustees will 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 the preferred
securities of any notice of default with respect to the junior subordinated
debentures. In addition to obtaining the approval of the holders of the
preferred securities, before taking any of the foregoing actions, the trustees
will obtain an opinion of counsel experienced in such matters to the effect that
the Trust will not be classified as an association taxable as a corporation for
United States federal income tax purposes on account of such action.
Any required approval of holders of the preferred securities may be
given at a meeting of holders of the preferred securities called for such
purpose or by written consent. The property trustee will cause a notice of any
meeting at which holders of the preferred securities are entitled to vote to be
given to each holder of record of the preferred securities in the manner set
forth in the trust agreement.
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No vote or consent of the holders of the preferred securities will be
required for the Trust to redeem and cancel the preferred securities in
accordance with the trust agreement.
Notwithstanding that holders of the preferred securities are entitled
to vote or consent under any of the circumstances described above, any of the
preferred securities that are owned by us, the trustees or any affiliate of us
or the trustees will, for purposes of such vote or consent, be treated as if
they were not outstanding.
LIQUIDATION VALUE
The amount payable on the preferred securities in the event of any
liquidation of the Trust is $10 per preferred security plus accumulated and
unpaid distributions. This amount may be paid in the form of a distribution in
junior subordinated debentures, subject to certain exceptions. See "-Liquidation
Distribution Upon Dissolution."
EXPENSES AND TAXES
In the indenture, we, as borrower, have agreed to pay all debts and
other obligations (other than with respect to the preferred securities) and all
costs and expenses of the Trust including costs and expenses relating to the
organization of the Trust, the fees and expenses of the trustees under the trust
agreement and the costs and expenses relating to the operation of the Trust. We
have also agreed to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Trust
might become subject. These obligations of the Company under the indenture are
for the benefit of, and will be enforceable by, any person to whom any such
debts, obligations, costs, expenses and taxes are owed (a "creditor") whether or
not that creditor has received notice thereof. Any creditor may enforce our
obligations directly against us. We have irrevocably waived any right or remedy
to require that a creditor take any action against the Trust or any other person
before proceeding against us. We have also agreed in the indenture to execute
any additional agreements necessary or desirable to give full effect to the
foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Trust will issue the preferred securities in the form of one or
more fully registered global securities. The global securities will be deposited
with, or on behalf of, DTC and registered in the name of DTC's nominee. Unless
and until a global security is exchangeable in whole or in part for the
preferred securities in definitive form, the global security may not be
transferred except as a whole by:
- DTC to a nominee of DTC;
- a nominee of DTC to DTC or another nominee of DTC; or
- 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. We expect that, when a
global security is issued, 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 the global security.
Ownership of beneficial interests in the 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. However, we expect the beneficial owner 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 the global security
for all purposes under the indenture. Except as provided below, owners of
beneficial interests in a global security will not be entitled to receive
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physical delivery of the preferred securities in certificated form and will not
be considered the owners or holders of the preferred securities under the
indenture. Accordingly, to exercise any rights of a holder of preferred
securities under the indenture, 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. We understand that, under DTC's existing practices, if we
request 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 indenture, DTC would authorize the participants holding the relevant
beneficial interests to take such action. In turn, those participants would
authorize beneficial owners owning through the participants to take the 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, we understand that it is DTC's existing
practice to determine by lot the amount of the interest of each participant to
be redeemed.
The Trust will make distributions on the preferred securities
registered in the name of DTC or its nominee to DTC or its nominee, as the case
may be, as the registered owner of the global security representing such
preferred securities. We nor the trustees, any paying agent or any other of our
agents 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. DTC will
be responsible for the disbursements of distributions to participants. 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 believes that
it will not receive payment on the payable date. Standing instructions and
customary practices will govern payments by participants to beneficial owners,
as is the case with securities held for the accounts of customers in bearer form
or registered in "street name." The participants will be responsible for such
payments, not DTC, us, the trustees, the paying agent or any other of our
agents, 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 us or the trustees. If DTC notifies us or the trustees that it is unwilling
to continue as depository, or if it is unable to continue or ceases to be a
clearing agency registered under the Securities Exchange Act of 1934 and a
successor depository is not appointed by us within 90 days after receiving such
notice or becoming aware that DTC is no longer so registered, we will issue the
preferred securities in definitive form upon registration of transfer of, or in
exchange for, a global security. In addition, the Trust may, at any time and in
its sole discretion, determine not to have the preferred securities represented
by one or more global securities. Under these and certain other circumstances,
we will issue preferred securities in definitive form in exchange for all of the
global securities representing such preferred securities.
DTC has advised us and the Trust of the following information. 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 Securities and Exchange Act of
1934. 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. The use
of electronic book entry changes eliminates the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include other organizations. Some of
the 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.
The information in this section concerning DTC and book-entry systems
has been obtained from sources that we and the Trust believe to be reliable.
However, neither we nor the Trust take responsibility for the accuracy of this
information.
PAYMENT AND PAYING AGENCY
DTC will credit payments in respect of the preferred securities to the
relevant accounts at DTC on the applicable distribution dates. If the preferred
securities are not held by DTC, the paying agent will make such payments by
check mailed to the address of the holder entitled to such payments at the
address appearing on the securities register for the preferred securities and
the Trust's common securities. The initial paying agent will be the property
trustee and any co-paying agent chosen by the property trustee and acceptable to
the administrative trustees. The paying agent may resign as paying agent upon 30
days'
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written notice to the trust trustees. If the property trustee is no longer the
paying agent, the property trustee will appoint a successor to act as paying
agent. The successor must be a bank or trust company reasonably acceptable to
the administrative trustees.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as the registrar and the transfer agent
for the preferred securities. Registration of transfers of preferred securities
will be effected without charge by or on behalf of the Trust, except for the
payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. Upon any redemption, the Trust will
not be required to issue, register the transfer of, or exchange any preferred
securities during a period beginning at the opening of business 15 days before
the date of mailing of a notice of redemption of any preferred securities called
for redemption and ending at the close of business on the day of such mailing.
The Trust will also not be required to register the transfer of or exchange any
preferred securities selected for redemption, in whole or in part, except the
unredeemed portion of any such preferred securities being redeemed in part.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
Other than upon the occurrence and during the continuance of an event
of default, the property trustee undertakes to perform only such duties as are
specifically set forth in the trust agreement. After an event of default, the
property trustee 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. If no event of
default has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the trust agreement, or is unsure of the application of any provision of the
trust agreement, and the matter is not one on which holders of preferred
securities are entitled under the trust agreement to vote, then the property
trustee will take such action as it deems advisable and in the best interests of
the holders of the preferred securities. The property trustee will have no
liability for such action except for its own negligence or willful misconduct.
MISCELLANEOUS
The administrative trustees are to conduct the affairs of and to
operate the Trust in such a way that the Trust will not be deemed to be an
"investment company" required to be registered under the Investment Company Act
or classified as an association 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. We and the administrative trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Trust or
the trust agreement, that we and the administrative trustees determine in their
discretion to be necessary or desirable for such purposes.
Holders of the preferred securities have no preemptive or similar
rights.
The trust agreement and the preferred securities will be governed by,
and construed in accordance with, the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
We are to issue the junior subordinated debentures under the indenture.
The indenture will be qualified as an indenture under the Trust Indenture Act.
The following is a summary of all of the material terms and provisions of the
junior subordinated debentures and the indenture. The summary is not complete
and is subject to, and is qualified in its entirety by reference to, the
indenture and the Trust Indenture Act. We have filed the form of the indenture
as an exhibit to the registration statement of which this prospectus forms a
part.
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GENERAL
At the same time the Trust issues the preferred securities, the Trust
will invest the proceeds from its sale, along with the consideration paid by us
for the Trust's common securities, in the junior subordinated debentures. The
junior subordinated debentures will bear interest at the annual rate of %,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, an "interest payment date"), commencing March 31, 2000. We
will pay interest to the person in whose name each junior subordinated debenture
is registered, subject to certain exceptions, at the close of business on the
business day immediately prior to the interest payment date. It is anticipated
that, until the liquidation, if any, of the Trust, the property trustee will
hold the junior subordinated debentures in Trust for the benefit of the holders
of the preferred securities. We will compute the amount of interest payable for
any period on the basis of a 360-day year of twelve thirty-day months. If
interest on the junior subordinated debentures is payable on a date that is not
a business day, we will pay that interest on next day that is a business day. We
will not pay any additional interest or other payment as a result of the delay.
If that business day is in the next calendar year, we will make that payment on
the immediately preceding business day. This payment will have the same force
and effect as if it were made on the date the payment was originally payable.
Accrued interest that is not paid on the applicable interest payment date will
bear additional interest at the rate per annum of % thereof, compounded
quarterly from the relevant interest payment date. The term "interest" as used
in this section includes quarterly interest payments, interest on quarterly
interest payments not paid on the applicable interest payment date and
additional interest, as applicable.
The junior subordinated debentures have a stated maturity date of
, 2030. The junior subordinated debentures will not be subject to any
sinking fund.
The junior subordinated debentures will be unsecured and will rank
junior and be subordinate in right of payment to all of our indebtedness senior
in right of payment to them. Because we are a holding company, our right to
participate in any distribution of assets of any subsidiary, including Gilmer
Bank and Appalachian Community Bank, upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of that
subsidiary, except to the extent that we may be recognized as a creditor of that
subsidiary. Accordingly, the junior subordinated debentures will be effectively
subordinated to all existing and future liabilities of our subsidiaries, and
holders of the junior subordinated debentures should look only to our assets for
payments on the junior subordinated debentures. The indenture does not limit our
ability to incur or issue other secured or unsecured debt, including
indebtedness senior in right of payment to the junior subordinated debentures,
whether under the indenture or any existing or other indenture that we may enter
into in the future or otherwise.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION
If we are not in default under the indenture, we may, under the
indenture at any time or from time to time during the term of the junior
subordinated debentures, defer the payment of interest on the junior
subordinated debentures for a period not exceeding 20 consecutive quarters with
respect to each extension period. No extension period may extend beyond the
stated maturity date of the junior subordinated debentures. At the end of each
extension period, we must pay all interest then accrued and unpaid on the junior
subordinated debentures (together with interest on such unpaid interest at the
annual rate of %, compounded quarterly from the relevant interest payment
date, to the extent permitted by applicable law, referred to herein as
"compounded interest"). During an extension period, interest would continue to
accrue and holders of the junior subordinated debentures would be required to
accrue interest income for United States federal income tax purposes even though
such holders would not receive current cash distributions with which to pay tax,
if any, arising with respect to such accrued interest income. See "Federal
Income Tax Consequences - Interest Income and Original Issue Discount."
During any extension period, we may not taken certain actions. We may
not make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any of our debt securities that rank equal in priority with
or junior in right of payment to the junior subordinated debentures. We may not
make any guarantee payments with respect to any guarantee by us of the debt
securities of any of such subsidiaries if such guarantee ranks equal in priority
with or junior in right of payment to the junior subordinated debentures other
than payments pursuant to the guarantee. We may not declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of our capital stock other than:
- the reclassification of any class of our capital stock into
another class of capital stock;
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- dividends or distributions in shares of our common stock;
- any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the issuance
of shares under any such plan in the future or the redemption
or repurchase of any such rights pursuant thereto;
- payments under the guarantee; and
- purchases of common shares related to the issuance of common
shares or rights under any of our benefit plans for our
directors, officers or employees.
Additionally, during any extension period, we will not redeem, purchase
or acquire less than all the outstanding junior subordinated debentures or any
of the preferred securities.
Before the termination of any extension period, we may further defer
the payment of interest on the junior subordinated debentures if no extension
period exceeds 20 consecutive quarters or extends beyond the stated maturity
date of the junior subordinated debentures. Upon the termination of any such
extension period and the payment of all compounded interest, we may begin a new
extension period subject to the above requirements. No interest will be due and
payable during an extension period, except at the end of such extension period.
We must give the property trustee, the administrative trustees and the
trustee under the indenture notice of our election to begin an extension period
at least one business day before the earlier of:
- the date interest on the junior subordinated debentures would
have been payable except for the election to begin such
extension period; or
- the date the administrative trustees are required to give
notice of the record date, or the date such distributions are
payable, to the Nasdaq Stock exchange or other applicable
self-regulatory organization or to holders of the preferred
securities as of the record date or the date such
distributions are payable, but in any event not less than one
business day before such record date.
The trustee under the indenture will give notice of our election to
begin a new extension period to the holders of the preferred securities. There
is no limitation on the number of times that we may begin an extension period.
ADDITIONAL INTEREST
If the Trust or the property trustee is required to pay any additional
taxes, duties or other governmental charges as a result of a tax event, we will
pay such additional amounts on the junior subordinated debentures as required.
The Trust will not reduce the distributions payable by it as a result of any
such additional taxes, duties or other governmental charges.
REDEMPTION OR EXCHANGE
We may redeem the junior subordinated debentures before maturity on or
after , 2005, in whole at any time or in part from time to time, or at
any time in whole (but not in part) within 90 days following the occurrence and
continuation of a tax event, an investment company event or a capital treatment
event. In each case, the redemption price shall equal the accrued and unpaid
interest on the redeemed junior subordinated debentures to the date fixed for
redemption, plus 100% of the principal amount of such junior subordinated
debentures. Any redemption before the stated maturity date of the junior
subordinated debentures will be subject to prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies.
We will mail notice of any redemption at least 30 but not more than 60
days before the redemption date to each holder of the junior subordinated
debentures to be redeemed. We will mail notice to such holder's registered
address. Unless we default in payment of the redemption price, on and after the
redemption date interest ceases to accrue on the junior subordinated debentures
or portions thereof called for redemption.
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"Additional interest" means the additional amounts necessary so that
the amount of distributions then due and payable by the Trust on its outstanding
preferred securities and common securities shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which the Trust
has become subject as a result of a tax event.
"Investment company event" means the receipt by the Trust of an opinion
of counsel to the effect that, as a result of a change in law or regulation or a
change in interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority, the Trust is or will
be considered an "investment company" that is required to be registered under
the Investment Company Act and that the change becomes effective on or after the
date of original issuance of the preferred securities.
"Capital treatment event" means the receipt by the Trust of an opinion
of counsel to the effect that as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change, pronouncement, action or decision
is announced on or after the date of original issuance of the preferred
securities, there is more than an insubstantial risk that the preferred
securities would not constitute Tier 1 capital (or the then equivalent thereof)
for purposes of the capital adequacy guidelines of the Federal Reserve (or any
successor regulatory authority with jurisdiction over bank holding companies),
or any capital adequacy guidelines as then in effect and applicable to us.
"Tax event" means the receipt by the Trust of an opinion of counsel to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
the date of issuance of the preferred securities under the trust agreement,
there is more than an insubstantial risk that:
- the Trust is, or will be within 90 days of
the date of such opinion, subject to United
Stated federal income tax with respect to
income received or accrued on the junior
subordinated debentures;
- interest payable by us on the junior
subordinated debentures is not, or within 90
days of the date of such opinion will not
be, deductible by us, in whole or in part,
for United States federal income tax
purposes; or
- the Trust is, or will be within 90 days of
the date of such opinion, subject to more
than a de minimis amount of other taxes,
duties or other governmental charges.
"Opinion of counsel" means an opinion in writing of independent legal
counsel experienced in matters being opined upon, that is delivered to the trust
trustees.
AUTHENTICATION
A junior subordinated debenture will not be valid until authenticated
manually by an authorized signatory of the trustee under the indenture, or by an
authenticating agent. That signature will be conclusive evidence that the junior
subordinated debenture has been duly authenticated and delivered under the
indenture and that the holder is entitled to the benefits of the indenture. Each
junior subordinated debenture will be dated the date of its authentication by
the trustee under the indenture.
REGISTRATION, DENOMINATION AND TRANSFER
The junior subordinated debentures will initially be registered in the
name of the property trustee, on behalf of the Trust. If the junior subordinated
debentures are distributed to holders of preferred securities, we anticipate
that the depository arrangements for the junior subordinated debentures will be
substantially identical to those in effect for the preferred securities.
See "Description of the Preferred Securities - Book Entry, Delivery and Form."
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Although DTC has agreed to the procedures described above, DTC is under
no obligation to perform or continue to perform such procedures. DTC may
discontinue such procedures at any time. If DTC is at any time unwilling or
unable to continue as depository and a successor depository is not appointed by
us within 90 days of receipt of notice from DTC, and in other circumstances,
including at our option, we will cause the junior subordinated debentures to be
issued in certificated form.
We will make payments on junior subordinated debentures represented by
a global security to Cede & Co., the nominee for DTC, as the registered holder
of the junior subordinated debentures, as described under "Description of the
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 Wilmington Trust Company, the trustee
under the indenture, in Wilmington, Delaware or at the offices of any paying
agent or transfer agent appointed by us. However, at our option, payment of any
interest may be made:
- by check mailed to the address of the person
entitled to such payment that appears in the
securities register for the junior
subordinated debentures; or
- to transfer or exchange any junior
subordinated debentures 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 trustee under the indenture or any paying
agent, and any monies held by us in trust, for the payment of the principal of
(and premium, if any) or interest on any junior subordinated debenture that
remains unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable will, at our request, be repaid to us. After
that repayment, the holder of the junior subordinated debenture will look, as a
general unsecured creditor, only to us for payment of principal or interest.
RESTRICTIONS ON CERTAIN PAYMENTS
We will also covenant, as to the junior subordinated debentures, that
we will not take certain actions during any extension period or if we are in
default under the indenture or guarantee. We will not make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities that rank equal in priority with or junior in right of payment
to the junior subordinated debentures. We will not make any guarantee payments
with respect to any guarantee by us of the debt securities of any subsidiary of
ours if such guarantee ranks equal in priority with or junior in right of
payment to the junior subordinated debentures other than payments pursuant to
the guarantee. We will not declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
our capital stock other than:
- the reclassification of any class of our
capital stock into another class of capital
stock;
- dividends or distributions payable in shares
of our common stock;
- any declaration of a dividend in connection
with the implementation of a shareholders'
rights plan, or the issuance of shares under
any such plan in the future or the
redemption or repurchase of any such rights
pursuant thereto;
- payments under the guarantee; and
- purchases of common shares related to the
issuance of common shares or rights under
any of our benefit plans for our directors,
officers or employees.
Additionally, we will not redeem, purchase or acquire less than all the
outstanding junior subordinated debentures or any of the preferred securities if
at such time:
- there shall have occurred an event of
default under the indenture;
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- we shall be in default with respect to its
obligations under the guarantee relating to
such preferred securities; or
- we shall have given notice of its selection
of an extension period as provided in the
indenture with respect to the junior
subordinated debentures and shall not have
rescinded such notice, or such extension
period, or any extension thereof, shall be
continuing.
MODIFICATION OF INDENTURE
From time to time we and the trustee under the indenture may, without
the consent of the holders of the junior subordinated debentures, amend, waive
or supplement the indenture for specified purposes. These purposes include,
among other things, curing ambiguities, defects or inconsistencies, changes that
do not materially adversely affect the interest of the holders of the junior
subordinated debentures and changes to qualify, or maintain the qualification
of, the indenture under the Trust Indenture Act. The indenture contains
provisions permitting us and the trustee under the indenture, with the consent
of the holders of not less than a majority in principal amount of the junior
subordinated debentures affected, to modify the indenture in a manner affecting
the rights of the holders of the junior subordinated debentures. However, no
such modification may, without the consent of the holder of each outstanding
junior subordinated debenture so affected,
- extend the stated maturity date of the
junior subordinated debentures, reduce the
principal amount thereof or reduce the rate
or extend the time of payment of interest
thereon; or
- reduce the percentage of principal amount of
the junior subordinated debentures, the
holders of which are required to consent to
any such modification of the indenture.
DEBENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following events
with respect to the junior subordinated debentures that has occurred and is
continuing constitutes a "debenture event of default":
- failure for 30 days to pay interest
(including additional interest or compounded
interest, if any) on the junior subordinated
debentures when due (subject to the deferral
of certain due dates in the case of an
extension period);
- failure to pay any principal on the junior
subordinated debentures when due, whether at
stated maturity, upon declaration of
acceleration of maturity or otherwise;
- failure to observe or perform certain other
covenants contained in the indenture for 90
days after written notice to us from the
trustee under the indenture or the holders
of at least 25% in aggregate outstanding
principal amount of the outstanding junior
subordinated debentures; or
- certain events in bankruptcy, insolvency or
reorganization of us, subject in certain
instances to any such event remaining in
effect for a period of 60 consecutive days.
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee under the
indenture. The trustee under the indenture or the holders of not less than 25%
in aggregate outstanding principal amount of the junior subordinated debentures
may declare the principal due and payable immediately upon a debenture event of
default. The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of the
junior subordinated debentures which has become due solely by such acceleration)
and all other debenture events of default have been cured and we have deposited
with the trustee under the indenture a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration.
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We are required to file annually with the trustee under the indenture a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a debenture event of default has occurred and is continuing due to
our failure to pay interest or principal on the junior subordinated debentures
when payable, a holder of the preferred securities may institute a legal
proceeding directly against us. That holder may institute such a proceeding to
enforce payment to the holder of the principal of or interest on such junior
subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the preferred securities of such holder. We may not amend
the indenture to remove the right to bring such a legal proceeding without the
prior written consent of the holders of all of the preferred securities. We may
under the indenture set-off any payment made to such holder of the preferred
securities by us in connection with such a legal proceeding.
The holders of the preferred securities will not be able to exercise
directly any remedies other than those described in the above paragraph
available to the holders of the junior subordinated debentures. See "Description
of the Preferred Securities - Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The indenture provides that we will not consolidate with or merge into
any other entity or convey, transfer or lease our properties and assets
substantially as an entirety to any entity, and no entity will consolidate with
or merge into us or convey, transfer or lease its properties and assets
substantially as an entirety to us unless certain conditions prescribed in the
indenture are met. In the event we consolidate with or merge into another entity
or convey or transfer properties and assets substantially as an entirety to any
entity, these conditions include that the successor entity is organized under
the laws of the United States or any state or the District of Columbia, and that
the successor entity expressly assumes our obligations on the junior
subordinated debentures issued under the indenture. In addition, immediately
after giving effect to the transaction, no debenture event of default, and no
event which, after notice or lapse of time or both, would become a debenture
event of default, shall have occurred and be continuing.
The general provisions of the indenture do not afford holders of the
junior subordinated debentures protection in the event of a highly leveraged or
other change in control transaction involving us that may adversely affect
holders of the junior subordinated debentures.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect (except as to our
obligations to pay all other sums due pursuant to the indenture and to provide
the officers' certificates and opinions of counsel described therein), and we
will be deemed to have satisfied and discharged the indenture when certain
events occur. These events include when all of the junior subordinated
debentures not previously delivered to the trustee under the indenture for
cancellation
- have become due and payable; or
- will become due and payable at their stated
maturity date or will be called for
redemption within one year, and we deposit
or cause to be deposited with the trustee
under the indenture funds, in trust.
The deposited funds are for the purpose and in an amount in the
currency or currencies in which the junior subordinated debentures are payable
sufficient to pay and discharge the entire indebtedness on the junior
subordinated debentures not previously delivered to the trustee under the
indenture for cancellation, for the principal and interest to the date of the
deposit or to the stated maturity date or redemption, as the case may be.
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SUBORDINATION
In the indenture, we have covenanted and agreed that the junior
subordinated debentures issued under the indenture will be subordinate and
junior in right of payment to all of our senior debt and subordinated debt to
the extent provided in the indenture. Upon any payment or distribution of assets
to creditors upon the liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt restructuring or similar proceedings in connection with any
insolvency or bankruptcy proceeding of ours, the holders of our indebtedness
senior in right of payment to the junior subordinated debentures will first
receive payment in full of principal of (and premium, if any) and interest, if
any, on such senior indebtedness. The holders of our senior debt will receive
such payment before the holders of the junior subordinated debentures, or the
property trustee on behalf of the holders, receive or retain any payment in
respect of the principal of or interest, if any, on the junior subordinated
debentures.
In the event of the acceleration of the maturity of any of the junior
subordinated debentures, the holders of all indebtedness senior in right of
payment to them outstanding at the time of such acceleration will receive
payment in full of all amounts due (including any amounts due upon acceleration)
before the holders of the junior subordinated debentures receive or retain any
payment in respect of the principal of or interest, if any, on the junior
subordinated debentures.
No payments on account of principal or interest, if any, in respect of
the junior subordinated debentures may be made if there shall have occurred and
be continuing a default in any payment with respect to indebtedness senior in
right of payment to the junior subordinated debentures, or an event of default
with respect to any such senior indebtedness resulting in the acceleration of
the maturity of the senior indebtedness, and any payments so received may be
required to be paid over to the holders of the senior indebtedness.
The indenture places no limitation on the amount of indebtedness senior
in right of payment to the junior subordinated debentures that may be incurred
by us. We may from time to time incur indebtedness constituting such senior
indebtedness.
"Debt" means with respect to any person, whether recourse is to all or
a portion of the assets of such person and whether or not contingent:
- every obligation of such person for money
borrowed;
- every obligation of such person evidenced by
bonds, debentures, notes or other similar
instruments, including obligations incurred
in connection with the acquisition of
property, assets or businesses;
- every reimbursement obligation of such
person with respect to letters of credit,
bankers' acceptances or similar facilities
issued for the account of such person;
- every obligation of such person issued or
assumed as the deferred purchase price of
property or services (but excluding trade
accounts payable or accrued liabilities
arising in the ordinary course of business);
- every capital lease obligation of such
person;
- all indebtedness of such person whether
incurred on or before the date of the
indenture or thereafter incurred, for claims
in respect of derivative products, including
interest rate, foreign exchange rate and
commodity forward contracts, options and
swaps and similar arrangements; and
- every obligation of the type referred to in
the clauses above of another person and all
dividends of another person the payment of
which, in either case, such person has
guaranteed or is responsible or liable,
directly or indirectly, as obligor or
otherwise.
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"Senior debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not such
claim for post-petition interest is allowed in such proceeding), on debt,
whether incurred on or before the date of the indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the junior subordinated debentures or to other debt which
is equal in priority with, or subordinated to, the junior subordinated
debentures. However, senior debt does not include:
- any of our debt 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 us;
- any of our debt to any of our subsidiaries;
and
- any debt to any of our employees.
"Subordinated debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not such
claim for post-petition interest is allowed in such proceeding), on debt,
whether incurred on or before the date of the indenture or thereafter incurred,
which is by its terms expressly provided to be junior and subordinate to other
debt of ours (other than the junior subordinated debentures), except that
subordinated debt shall not include the junior subordinated debentures.
GOVERNING LAW
The indenture and the junior subordinated debentures will be governed
by and construed in accordance with the laws of the State of Delaware, without
regard to conflicts of laws principles thereof.
INFORMATION CONCERNING THE TRUSTEE UNDER THE INDENTURE
The trustee under the indenture will have and be subject to all the
duties and responsibilities specified with respect to an indenture trustee under
the Trust Indenture Act. Subject to such provisions, the trustee under the
indenture is under no obligation to exercise any of the powers vested in it by
the indenture at the request of any holder of the junior subordinated
debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The trustee
under the indenture is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if it
reasonably believes that repayment or adequate indemnity is not reasonably
assured to it.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES
Under certain circumstances involving the dissolution of the Trust,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, junior subordinated debentures may be distributed to the holders
of the preferred securities in exchange for their preferred securities upon
liquidation of the Trust. See "Description of the Preferred Securities -
Liquidation of the Trust and Distribution of the Junior Subordinated Debentures
to Holders." Any distribution will be subject to receipt of prior regulatory
approval if then required. If the junior subordinated debentures are distributed
to the holders of preferred securities upon the liquidation of the Trust, we
will use our best efforts to list the junior subordinated debentures on the
Nasdaq SmallCap Market or such stock exchanges, if any, on which the preferred
securities are then listed. We can make no assurance as to the market price of
any junior subordinated debentures that may be distributed to the holders of the
preferred securities.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the junior subordinated
debentures will be made at the offices of Wilmington Trust Company, trustee
under the indenture in the city of Wilmington, Delaware or at the offices of
such paying agent or paying agents as we may designate from time to time.
However, at our option, payment of any interest may be made
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- by check mailed to the address of the person
entitled to such payment that appears in the
securities register for the junior
subordinated debentures, or
- by wire transfer of immediately available
funds upon written request to the trustee
under the indenture no later than 15
calendar days before the date on which the
interest is payable by a holder of $1
million or more in aggregate principal
amount of the junior subordinated
debentures.
Payment of any interest on the junior subordinated debentures will be
made to the person in whose name the junior subordinated debenture is registered
at the close of business on the regular record date for such interest, except in
the case of interest due and payable, but not timely paid. We may at any time
designate additional paying agents or rescind the designation of any paying
agent.
Any monies deposited with the trustee under the indenture or any paying
agent, or any monies held by us in trust, for the payment of the principal of or
interest on the junior subordinated debentures and remaining unclaimed for two
years after such principal or interest has become due and payable will be repaid
to us upon our written request on May 31 of each year or (if then held in trust
by us) will be discharged from such trust. After that repayment, the holders of
the junior subordinated debentures will look, as general unsecured creditors,
only to us for payment of such principal and interest.
REGISTRAR AND TRANSFER AGENT
The trustee under the indenture will act as the registrar and the
transfer agent for the junior subordinated debentures. Junior subordinated
debentures 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 registrar. We may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts if we maintain a transfer agent in
the place of payment. We may at any time designate additional transfer agents
with respect to the junior subordinated debentures. In the event of any
redemption, neither us nor the trustee under the indenture will be required to
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
mailing of notice of redemption of junior subordinated debentures (if less than
all are to be redeemed) and ending at the close of business on the day of
mailing of the relevant notice of redemption. In addition, neither us nor the
trustee under the indenture will be required to transfer or exchange any junior
subordinated debentures selected for redemption, except, in the case of any
junior subordinated debentures being redeemed in part, any portion thereof not
to be redeemed.
DESCRIPTION OF GUARANTEE
We will execute and deliver the guarantee at the same time the Trust
issues the preferred securities. Wilmington Trust Company will hold the
guarantee as the trustee under the guarantee for the benefit of the holders of
the preferred securities. The guarantee will be qualified under the Trust
Indenture Act. The following is a summary of all of the material provisions of
the guarantee. The summary is not complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the guarantee and the
Trust Indenture Act. We have filed the form of the guarantee as an exhibit to
the registration statement of which this prospectus forms a part.
GENERAL
To the extent described below, we will irrevocably agree to pay in
full, on a subordinated basis, the guarantee payments to the holders of the
preferred securities, as and when due, regardless of any defense, right of
set-off or counterclaim that the trust may have or assert other than the defense
of payment. If not paid by or on behalf of the Trust, the following payments
that relate to the preferred securities (the "guarantee payments") will be
subject to the guarantee:
- any accrued and unpaid distributions
required to be paid on the preferred
securities, to the extent that the Trust has
funds on hand available for such
distributions at such time;
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- the redemption price, including unpaid
distributions to the date of redemption,
with respect to any preferred securities
called for redemption, to the extent that
the Trust has funds on hand available to pay
such redemption price at such time; or
- upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust
(unless the junior subordinated debentures
are distributed to holders of the preferred
securities or all preferred securities are
redeemed), the lesser of:
- the liquidation amount and all accrued and
unpaid distributions on the preferred
securities, to the extent that the Trust has
funds available for such a payment at such
time; and
- the amount of assets of the trust remaining
available for distribution to holders of the
preferred securities after satisfaction of
liabilities to creditors of the Trust as
required by applicable law.
We may satisfy our obligation to make a guarantee payment by directly
paying the required amounts to the holders of the preferred securities or by
causing the Trust to pay such amounts to such holders.
If we do not make interest payments on the junior subordinated
debentures held by the Trust, the Trust will not be able to pay distributions on
the preferred securities and will not have funds available for such
distributions. See "Status of the Guarantee." Because we are a holding company,
our right to participate in any distribution of assets of any subsidiary upon
that subsidiary's liquidation or reorganization or otherwise is subject to the
prior claims of creditors of that subsidiary, except to the extent we may be
recognized as a creditor of that subsidiary. Accordingly, our obligations under
the guarantee will be effectively subordinated to all existing and future
liabilities of our subsidiaries, and claimants should look only to our assets
for payments under the guarantee. The guarantee does not limit our ability to
incur or issue other secured or unsecured debt, including indebtedness senior in
right of repayment to the junior subordinated debentures, whether under the
indenture, any other indenture that we may enter into in the future, or
otherwise. We may from time to time incur indebtedness constituting such senior
indebtedness.
We and the Trust believe that, taken together, our obligations under
the guarantee, the trust agreement, the junior subordinated debentures, the
indenture and the expense agreement, constitute, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of all of the
Trust's obligations under the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Trust's obligations under the preferred securities. See "Relationship
Among the Preferred Securities, the Junior Subordinated Debentures, the Expense
Agreement and the Guarantee."
STATUS OF THE GUARANTEE
The guarantee will constitute an unsecured obligation of us and will
rank subordinate and junior in right of payment to all of our indebtedness
senior in right of repayment to the junior subordinated debentures.
The guarantee will constitute a guarantee of payment and not of
collection. As a result, the guaranteed party may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against any other person or entity. The trustee
under the guarantee will hold the guarantee for the benefit of the holders of
the preferred securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that 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 such outstanding preferred securities. The manner of obtaining any such
approval will be as set forth under "Description of the Preferred Securities -
Voting Rights; Amendment of the Trust
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Agreement." All guarantees and agreements contained in the guarantee will bind
our successors, assigns, receivers, trustees and representatives and will 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 our failure to
perform any of our payments or other obligations thereunder. The holders of not
less than a majority in aggregate 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 trustee under the guarantee in respect of such
guarantee or to direct the exercise of any trust or power conferred upon the
trustee under the guarantee. We will not take certain actions in the event we
are in default under the guarantee. See "Description of the Junior Subordinated
Debentures - Restrictions on Certain Payments."
We, as guarantor, are required to file annually with the trustee under
the guarantee a certificate as to whether or not we are in compliance with all
the conditions and covenants applicable to us under the guarantee.
INFORMATION CONCERNING THE TRUSTEE UNDER THE GUARANTEE
The trustee under the guarantee, other than during an event of default
by us in the performance of the guarantee, undertakes to perform only such
duties as are specifically set forth in the guarantee. After an event of default
under the guarantee, the trustee 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 trustee under the guarantee 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 by such holder against the costs, expenses and liabilities
that might be incurred thereby. The trustee under the guarantee is not required
to expend or risk its own funds or otherwise incur personal financial liability
in the performance of its duties if it reasonably believes repayment or adequate
indemnity is not reasonably assured to it.
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;
- full payment of the amounts payable upon liquidation
of the Trust; or
- distribution of the junior subordinated debentures to
the holders of the preferred securities in exchange
for their 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 Delaware, without regard to conflicts of laws principles
thereof.
THE EXPENSE AGREEMENT
Pursuant to the expense agreement entered into by us under the trust
agreement, we will irrevocably and unconditionally guarantee to each person or
entity to whom the Trust becomes indebted or liable, the full payment of any
costs, expenses or liabilities of the Trust, other than obligations of the trust
to pay to the holders of the preferred securities the amounts due such holders
pursuant to the terms of the preferred securities. Third party creditors of the
Trust may proceed directly against us under the expense agreement, regardless of
whether such creditors had notice of the expense agreement.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, THE EXPENSE AGREEMENT
AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of distributions and other amounts due on the preferred
securities (to the extent the Trust has funds available for the payment of such
distributions) are irrevocably guaranteed by us as and to the extent set forth
under "Description of the Guarantee." Taken together, our obligations under the
guarantee, the trust agreement, the junior subordinated debentures, the
indenture and the expense agreement, constitute, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of all of the
Trust's obligations under the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Trust's obligations under the preferred securities. If and to the extent
that we do not make payments on the junior subordinated debentures, the Trust
will not pay distributions or other amounts due on its preferred securities. The
guarantee does not cover payment of distributions when the Trust does not have
sufficient funds to pay such distributions. In such event, the remedy of a
holder of the preferred securities is to institute a legal proceeding against us
for enforcement of payment of such distributions to such holder. Our obligations
under the guarantee are subordinate and junior in right of payment to all
indebtedness senior in right of payment to the junior subordinated debentures.
SUFFICIENCY OF PAYMENTS
If payments of interest and other payments are made when due on the
junior subordinated debentures, such payments will be sufficient to cover
distributions and other payments due on the preferred securities. Such payments
are sufficient primarily because:
- 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 the
Trust's common securities;
- the interest rate and interest and other
payment dates on the junior subordinated
debentures will match the distribution rate
and distribution and other payment dates for
the preferred securities;
- we will pay for all and any costs, expenses
and liabilities of the Trust except the
Trust's obligations to holders of its
preferred securities; and
- the Trust agreement further provides that
the Trust will not engage in any activity
that is not consistent with the limited
purposes of the Trust.
Notwithstanding anything to the contrary contained in the indenture, we
have the right to set-off any payment we are otherwise required to make under
the indenture if, and to the extent, we have made, or are concurrently making, a
payment under the guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES
A holder of a preferred security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the trustee under the guarantee, the
trust or any other person or entity.
A default or event of default under any of our indebtedness senior to
the junior subordinated debentures would not constitute a default or event of
default under the indenture. However, in the event of payment defaults under, or
acceleration of, any such senior indebtedness, the subordination provisions of
the indenture provide that no payments may be made in respect of
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the junior subordinated debentures until such senior indebtedness has been paid
in full or any payment default thereunder has been cured or waived. Failure to
make required payments on the junior subordinated debentures would constitute an
event of default under the indenture.
LIMITED PURPOSE OF THE TRUST
The preferred securities evidence preferred undivided beneficial
interests in the assets of the Trust. The Trust exists for the sole purpose of
issuing its preferred securities and common securities and investing the
proceeds of such issuance 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 us the principal amount of and interest
accrued on junior subordinated debentures held, while a holder of the preferred
securities is entitled to receive distributions from the Trust (or from us under
the guarantee) if, and to the extent, the Trust has funds available for the
payment of such distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or
liquidation of the Trust involving the liquidation of the junior subordinated
debentures, after satisfaction of liabilities to creditors of the Trust, if any,
as provided by applicable law, the holders of the preferred securities will
receive, out of assets held by the Trust, the liquidation distribution in cash.
See "Description of the Preferred Securities - Liquidation Distribution Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of us,
the property trustee, as holder of the junior subordinated debentures, would be
a subordinated creditor of ours. As a result, the property trustee would be
subordinated in right of payment to all of our indebtedness senior in right of
payment to the junior subordinated debentures as set forth in the indenture, but
entitled to receive payment in full of principal and interest before any of our
shareholders receive payments or distributions. Since we are the guarantor under
the guarantee and have agreed to pay for all costs, expenses and liabilities of
the trust (other than the trust's obligations to the holders of its preferred
securities), the positions of a holder of such preferred securities and a holder
of the junior subordinated debentures relative to other creditors and to our
shareholders in the event of our liquidation or bankruptcy are expected to be
substantially the same.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion constitutes the opinion of Paul, Hastings,
Janofsky & Walker LLP, special tax counsel to us and the Trust, of the material
United States federal income tax consequences of the purchase, ownership and
disposition of the preferred securities. This discussion addresses only the tax
consequences to a person that acquires preferred securities on their original
issue at the stated offering price. It does not address the tax consequences to
persons that may be subject to special treatment under United States federal
income tax law, such as banks, financial institutions, insurance companies,
thrift institutions, regulated investment companies, real estate investment
trusts, employee benefit plans, tax-exempt organizations, dealers in securities
or currencies, persons that will hold preferred securities as part of a position
in a "straddle" or as part of a "synthetic security," "hedging", "conversion" or
other integrated investment transaction for federal income tax purposes, persons
whose functional currency is not the United States dollar, or persons that do
not hold preferred securities as capital assets. This discussion also does not
address tax consequences to shareholders, partners or beneficiaries of a holder
of the preferred securities. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the preferred
securities.
This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service 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 the
preferred securities. The authorities on which this discussion is based are
subject to various interpretations, and it is therefore possible that the United
States federal income tax treatment of the purchase, ownership and disposition
of the preferred securities may differ from the treatment described below. An
opinion of counsel is not binding on the Internal Revenue Service ("IRS") or the
courts. No rulings have been or are expected to be sought from the IRS with
respect to any of the transactions described herein and no
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assurance can be given that the IRS will not take contrary positions. Moreover,
no assurance can be given that the opinions expressed herein will not be
challenged by the IRS or, if challenged, that a challenge would not be
successful.
As used herein, a "U.S. person" is:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or
organized in or under the laws of the United States or any
political subdivision thereof;
- an estate the income of which is subject to United States
federal income taxation regardless of its source;
- a trust if (a) a U.S. court is able to exercise primary
supervision over the administration of the trust and (b) one
or more U.S. persons have the authority to control all
substantial decisions of the trust;
- a certain type of trust in existence on August 20, 1996, which
was treated as a U.S. person under the Code in effect
immediately prior to such date and which has made a valid
election to be treated as a U.S. person under the Code; and
- any person otherwise subject to U.S. federal income tax on a
net income basis in respect of its worldwide taxable income.
A "U.S. Holder" is a beneficial owner of the preferred securities who
is a U.S. person. A "Non-U.S. Holder is a beneficial owner of the preferred
securities who is not a U.S. Holder.
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 the
preferred securities, as well as the effect of any state, local or foreign tax
laws.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
Classification of the Trust and the Junior Subordinated Debentures. The Company,
the Trust and the holders of the trust preferred securities (by acceptance of a
beneficial interest in a trust preferred security) agree to treat the junior
subordinated debentures as our indebtedness for all United States federal income
tax purposes. Based in part upon factual assumptions and upon factual
representations made by us, which representations Paul, Hastings has relied upon
and assumed to be true, correct and complete, for United States federal income
tax purposes under current law, the trust will not be classified as an
association taxable as a corporation, and the junior subordinated debentures
will be classified as indebtedness. As a result, each beneficial owner of
preferred securities (a "securityholder") will be required to include in its
gross income its pro rata share of the interest (or accrued original issue
discount) in addition to any interest and other income (if any) with respect to
the junior subordinated debentures. See "- Interest Income and Original Issue
Discount." No amount included in income with respect to the preferred securities
will be eligible for the dividends-received deduction. If our representations
are inaccurate, this opinion could be adversely affected.
Interest Income and Original Issue Discount. Under applicable Treasury
regulations, currently Section 1.1275-2(h) (the "regulations"), if the terms and
conditions of a debt instrument make the likelihood that stated interest will
not be timely paid a "remote" contingency, such contingency will be ignored in
determining whether the debt instrument is issued with original issue discount
("OID"). We believe that the likelihood of exercising our option to defer
payments of interest on the junior subordinated debentures is remote, because
exercising that option would (a) prevent us from making distributions on our
common stock, which would adversely affect its directors who are major
shareholders and who rely upon such distributions to pay their income taxes on
our taxable income attributable to them, and (b) adversely impact our ability to
raise additional capital or obtain additional borrowings from unaffiliated third
parties. Based on the foregoing, we intend to take the position that the junior
subordinated debentures were not issued with OID. Accordingly, a securityholder
purchasing the preferred securities at
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the stated price should be required to include in gross income only such
securityholder's pro rata share of stated interest on the junior subordinated
debentures in accordance with such securityholder's method of tax accounting.
Under the regulations, if we were to exercise our option to defer
payments of interest after treating the junior subordinated debentures as issued
without OID, or if the likelihood of us exercising our option to defer payments
of interest on the junior subordinated debentures is determined not to be remote
by the Internal Revenue Service, the junior subordinated debentures would be
treated as re-issued with OID at that time. In addition, all stated interest
(and de minimis OID, if any) on the junior subordinated debentures would
thereafter be treated as OID if the junior subordinated debentures remained
outstanding. In such event, all of a securityholder's 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 related thereto would
not be includable in gross income. Consequently, a securityholder would be
required to include OID in gross income even though we would not make and the
securityholder would not receive any actual cash payments during an extension
period.
The regulations have not yet been addressed in any rulings or other
published interpretations by the IRS. In the event that we do not make a
deferral election, and based upon our representations, the IRS should treat the
deferral election as a remote contingency. However, it is possible the IRS could
take the position that the likelihood of deferral was not a remote contingency
within the meaning of the regulations.
A securityholder that disposed of preferred securities before the
record date for the payment of distributions following an extension period would
include OID in gross income but would not receive any cash related thereto from
the trust. Any amount of OID included in a securityholder's gross income
(whether or not during an extension period) would increase such securityholder's
tax basis in its preferred securities, and the amount of distributions not
includable in gross income would reduce such securityholder's tax basis in its
preferred securities.
Distribution of the Junior Subordinated Debentures to Holders of the Preferred
Securities. Under current United States federal income tax law and provided that
the Trust is not subsequently treated as an association taxable as a
corporation, a distribution by the Trust of the junior subordinated debentures
as described under the caption "Description of the Preferred Securities
Liquidation of the Trust and Distribution of the Junior Subordinated Debentures
to Holders" will be nontaxable to the securityholders. Such distribution will
also result in a securityholder receiving its pro rata share of the junior
subordinated debentures previously held indirectly through the 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. A securityholder will account for interest in respect of the
junior subordinated debentures received from the Trust in the manner described
above under " Interest Income and Original Issue Discount," including any
accrual of OID (if any) attributed to the junior subordinated debentures upon
the distribution.
Sales or Redemption of the Preferred Securities. Gain or loss will be recognized
by a securityholder on the sale of preferred securities (including a redemption
for cash or other consideration) in an amount equal to the difference between
the amount realized on the sale (or redemption) and the securityholder's
adjusted tax basis in the preferred securities sold or so redeemed. Gain or loss
recognized by a securityholder on preferred securities held for more than one
year will generally be taxable as long-term capital gain or loss. Preferred
securities constituting a capital asset which are acquired by an individual and
held for more than one year are accorded a maximum United States federal capital
gains tax rate of 20% (or a rate of 10%, if the individual taxpayer is in the
15% tax bracket). Effective in 2001, the 20% rate drops to 18% (and the 10% rate
drops to 8%) for capital assets acquired after the year 2000 and held more than
five years. However, the requirement that the capital asset be acquired after
the year 2000 does not apply to the 8% rate.
If we were to exercise our option to defer payments of interest on the
junior subordinated debentures, or if the likelihood of us exercising our option
to defer payments of interest on the junior subordinated debentures was
determined not to be remote by the IRS, the preferred securities might trade at
a price that did not fully reflect the value of accrued but unpaid interest with
respect to the underlying junior subordinated debentures. A securityholder that
disposed of its preferred securities between record dates for payments of
distributions (and consequently did not receive a distribution from the Trust
for the period before such disposition) would nevertheless be required to
include in income as ordinary income accrued but unpaid interest on the junior
subordinated debentures through the date of disposition. In addition, such
securityholder would be required to add
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such amount to its adjusted tax basis in its disposed of preferred securities.
Such securityholder would recognize a capital loss on the disposition of its
preferred securities to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) was less than the
securityholder's adjusted tax basis in the preferred securities (which would
include accrued but unpaid interest). In the case of individual taxpayers,
capital losses can be applied to offset capital gains plus up to $3,000 ($1,500
for married individuals filing separate returns) of ordinary income for United
States federal income tax purposes.
UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Payments by the Trust or any of its paying agents to any securityholder
who or which is a non-U.S. holder will not be subject to United States federal
withholding tax pursuant to the "portfolio interest exception" provided that the
following three conditions are met. First, the non-U.S. holder does not actually
or constructively own 10% or more of the total combined voting power of our
common stock entitled to vote. Second, the non-U.S. holder is not a controlled
foreign corporation that is related to us through share ownership. Third,
neither the non-U.S. holder certifies to the Trust or its agent, under penalties
of perjury, that it is not a U.S. holder and provides its name and address on
U.S. Treasury Form W-8 (or suitable substitution form) or a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") certifies to the Trust or its agent, under penalties of perjury
that such Form W-8 (or suitable substitution form) has been received from the
non-U.S. holder by it or by a financial institution holding such security for
the non-U.S. holder and furnishes the Trust or its agent with a copy thereof.
Recently adopted U.S. Treasury regulations (the "withholding tax
regulations") that will be effective for January 1, 2001 provide alternative
methods for satisfying the certification requirements described in the third
condition above. The withholding tax regulations generally require, in the case
of preferred securities held by a foreign partnership, that the certificate
described in the third condition above be provided by the partners rather than
by the foreign partnership and that the partnership provide certain information
including a U.S. tax identification number. A look-through rule would apply in
the case of tiered partnerships. Prospective investors are urged to consult
their tax advisors with respect to the effect of the withholding tax
regulations. The Trust will issue a Form 1042 or 1042-S, where appropriate.
If a non-U.S. holder cannot satisfy the portfolio interest exception
described above, distributions on the preferred securities made to such non-U.S.
holder will be subject to a 30% withholding tax, unless the beneficial owner of
preferred securities provides us or our paying agent, as the case may be, with a
properly executed (i) Internal Revenue Service Form 1001 (or successor form)
claiming an exemption from or reduction in the rate of withholding under the
benefit of a tax treaty or (ii) Internal Revenue Service Form 4224 (or successor
form) stating that a distribution paid on such preferred securities are not
subject to withholding tax because it is effectively connected with the
beneficial owner's conduct of a trade or business in the United States.
If a non-U.S. holder of preferred securities is engaged in a trade or
business in the United States and a distribution on such preferred securities is
effectively connected with the conduct of such trade or business, such non-U.S.
holder, although exempt from U.S. federal withholding tax (provided the non-U.S.
holder files the appropriate certification with us or our U.S. agent) will be
subject to U.S. federal income tax on such distribution in the same manner as if
it were a U.S. holder. In addition, if such non-U.S. holder is a foreign
corporation, it may be subject to branch profits tax equal to 30% of its
effectively connected earnings and profits (subject to adjustment) for that
taxable year unless it qualifies for a lower rate under an applicable income tax
treaty.
Any capital gain realized upon the sale or other disposition of a
preferred security by a person other than a U.S. holder generally will not be
subject to U.S. federal income tax provided (i) such gain is not effectively
connected with the conduct by such holder of a trade or business in the United
States, (ii) in the case of gains derived by an individual, such individual is
not present in the United States for 183 days or more in the taxable year of the
disposition and certain other conditions are met and (iii) the non-U.S. holder
is not subject to tax pursuant to the provisions of U.S. federal income tax law
applicable to certain expatriates.
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<PAGE> 92
PROPOSED TAX LAW CHANGES
Legislation has been introduced in the United States Congress in the
past that, if enacted, would have denied an interest deduction to issuers of
instruments such as the junior subordinated debentures that were issued after
the date such legislation was proposed. No such legislation is currently
pending. We and our tax counsel cannot assure you, however, that similar
legislation will not ultimately be enacted into law, possibly with retroactive
effect, or that there will not be other developments that would adversely affect
the tax treatment of the junior subordinated debentures and could result in the
occurrence of tax event, possibly leading to the redemption of the junior
subordinated debentures. See "Description of the Junior Subordinated
Debentures - Redemption or Exchange."
We and our tax counsel are aware of at least one case, involving Enron
Corporation, where the IRS initially sought to disallow the deduction for
interest expense on securities that are similar to, although different in a
number of respects from, the junior subordinated debentures. Such securities
were issued in 1993 and 1994 to partnerships that, in turn, issued "monthly
income preferred securities." In a recently filed stipulation in the United
States Tax Court, the IRS decided not to challenge Enron's deduction of its
interest expense on the securities. Although the IRS has apparently conceded the
interest deductibility issue in the Enron case, there can be no assurance that
the IRS will not challenge the interest deductions of other taxpayers (such as
CB&T) which issue similar types of preferred securities.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding and information reporting requirements may apply to
certain payments made on, and proceeds from the sale of, preferred securities.
We, our agent, a broker, or the paying agent, as the case may be, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of such payment if a U.S. holder fails to furnish his taxpayer
identification number, certify that such number is correct, certify that such
holder is not subject to backup withholding or otherwise comply with the
applicable backup withholding rules. Certain U.S. holders, including all
corporations, are not subject to backup withholding and information reporting
requirements.
Non-U.S. holders other than corporations may be subject to backup
withholding and information reporting requirements. However, backup withholding
and information reporting requirements do not apply to payments of portfolio
interest (including OID) made by us or a paying agent to non-U.S. holders if the
certification described above under "--United States Federal Income Taxation of
non-U.S. holders" is received, provided that the payor does not have actual
knowledge that the holder is a U.S. Holder. If any payments of principal and
interest are made to the beneficial owner of preferred securities by or through
the foreign office of a foreign custodian, foreign nominee or other foreign
agent of such beneficial owner, or if the foreign office of a foreign "broker"
(as defined in the applicable Treasury Regulations) pays the proceeds of the
sale or other disposition of preferred securities, backup withholding and
information reporting requirements will not apply. Information reporting
requirements (but not backup withholding) will apply, however, to a payment by a
foreign office of a broker that is a U.S. person or is a foreign person that
derives 50% of more of its gross income for certain period from the conduct of a
trade or business in the United States, or that is a "controlled foreign
corporation" (generally, a foreign corporation controlled by certain U.S.
shareholders) with respect to the United States unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met or the holder otherwise establishes an
exemption. Payment by a U.S. office of a broker is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a non-U.S. holder or otherwise
establishes an exemption.
In October 1997, Treasury regulations were issued which alter the
foregoing rules in certain respects and which generally will apply to any
payments in respect of preferred securities or proceeds from the sale of
preferred securities that are made after December 31, 2000. Among other things,
such regulations expand the number of foreign intermediaries that are
potentially subject to information reporting and address certain documentary
evidence requirements relating to exemption from the backup withholding
requirements. Holders of preferred securities should consult their tax advisers
concerning the possible application of such regulations to any payments made on
or with respect to the preferred securities.
Any amounts withheld under the backup withholding rules from a payment
to a holder of the preferred securities will be allowed as a refund or a credit
against such holder's U.S. federal income tax liability, provided that the
required information is furnished to the IRS.
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<PAGE> 93
We must report annually to the IRS and to each non-U.S. holder any
income that is subject to withholding, or that is exempt from U.S. federal
withholding tax pursuant to a tax treaty, or income that is exempt from U.S.
federal withholding tax under the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
non-U.S. holder resides.
ERISA CONSIDERATIONS
The purchase of the preferred securities by an employee benefit plan
that is subject to the fiduciary responsibility provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") or the prohibited transaction
provisions of Section 4975(e)(1) of the Internal Revenue Code may constitute or
result in a prohibited transaction under ERISA or Section 4975 of the Internal
Revenue 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. These restrictions need to be considered with respect to employee
benefit plans for which we, any of our affiliates, or the property trustee are a
service provider (or otherwise is a party in interest or a disqualified person).
We, certain of our affiliates and the property trustee may each be considered a
"party in interest" within the meaning of ERISA or a "disqualified person"
within the meaning of Section 4975 of the Internal Revenue Code with respect to
many employee benefit plans that are subject to ERISA and/or certain employee
benefit-related provisions of the Internal Revenue Code.
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<PAGE> 94
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the Trust has agreed to sell to the underwriter, Wachovia Securities,
Inc., and the underwriter has agreed to purchase, 1,000,000 preferred
securities. The underwriting commission will equal 4% of the public offering
price. The underwriter is required to purchase and pay for the preferred
securities offered by this prospectus other than those covered by the
over-allotment option described below.
The underwriter proposes to offer the preferred securities in part
directly to the public at the public offering price, as set forth on the cover
page of this prospectus, and in part to certain securities dealers at such price
less a concession of $ per preferred security. The underwriter may allow, and
such dealers may reallow, a concession not in excess of $ per preferred security
to certain brokers and dealers. After the preferred securities are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the underwriter.
We have granted to the underwriter an option exercisable not later than
30 days after the date of this prospectus, to purchase up to an additional
150,000 preferred securities at the public offering price plus accrued
distributions, if any. To the extent that the underwriter exercises this option,
we will be obligated, pursuant to the option, to sell those preferred securities
to the underwriter. The underwriter may exercise this option only to cover
over-allotments made in connection with the sale of the preferred securities
offered by this prospectus. If purchased, the underwriter will offer the
additional preferred securities on the same terms as the other preferred
securities are being offered.
During a period beginning on the date of the pricing and ending __ days
from the date of original issuance of the preferred securities, neither the
Trust nor we will, without the prior written consent of the underwriter,
directly or indirectly, sell, offer to sell, contract to sell, grant any option
for the sale of, or otherwise dispose of, any preferred securities, any security
convertible into or exchangeable into or exercisable for preferred securities or
the junior subordinated debentures or any debentures substantially similar to
the junior subordinated debentures or any equity securities substantially
similar to the preferred securities, except for the junior subordinated
debentures and the preferred securities offered hereby.
Application will be made to list the preferred securities on the Nasdaq
SmallCap Market. The underwriter has advised the Trust that the underwriter
intends to make a market in the preferred securities prior to the commencement
of trading on the Nasdaq SmallCap Market. The underwriter will have no
obligation to make a market in the preferred securities, however, and may
terminate market making activities, if commenced, at any time. Prior to this
offering, there has been no public market for the preferred securities.
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
underwriting agreement provides that we will agree to pay as compensation to the
underwriter for the underwriter's arranging the investment therein of such
proceeds, an amount in immediately available funds of $0.40 per preferred
security (or $400,000 ($460,000 if the over-allotment option is exercised in
full) in the aggregate) for the account of the underwriter. We have also agreed
to pay the underwriter an additional fee of $25,000 upon the successful
completion of this offering.
The Company expects to incur expenses of approximately $ __ in
connection with this offering.
Until the distribution of the preferred securities is completed, rules
of the SEC may limit the ability of the underwriter and certain selling group
members to bid for and purchase the preferred securities. As an exception to
these rules, the underwriter is permitted to engage in certain transactions that
stabilize, maintain or otherwise affect the price of the preferred securities.
If the underwriter creates a short position in the preferred securities
in connection with the offering, i.e., if it sells a greater aggregate number of
preferred securities than is set forth on the cover page of this prospectus, the
underwriter may reduce the short position by purchasing preferred securities in
the open market. The underwriter may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
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<PAGE> 95
The underwriter may also impose a penalty bid on certain selling group
members. This means that if the underwriter purchases preferred securities in
the open market to reduce the selling group members' short position or to
stabilize the price of the preferred securities, it may reclaim the amount of
the selling concession from the selling group members who sold those preferred
securities as part of the offering.
In general, purchase of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither we, the Trust nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the preferred securities. In addition,
neither we, the Trust nor the underwriter makes any representation that the
underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
We, and the Trust, have agreed to indemnify the underwriter against
liabilities, including liabilities under the Securities Act of 1933, as
currently in effect, or to contribute to payments that the underwriter may be
required to make in connection with these liabilities.
LEGAL AND TAX MATTERS
Matters under Delaware law regarding the validity of the preferred
securities, the enforceability of the trust agreement and the formation of the
Trust will be passed upon by Richards, Layton & Finger, P.A., special Delaware
counsel to us and the Trust. The validity of the guarantee and the junior
subordinated debentures and various tax matters will be passed upon by Paul,
Hastings, Janofsky & Walker, LLP, counsel to Appalachian Bancshares, Inc. Legal
matters in connection with this offering will be passed upon for the
underwriters by Smith Helms Mulliss & Moore, LLP, Charlotte, North Carolina.
Paul, Hastings, Janofsky & Walker LLP and Smith Helms Mulliss & Moore, LLP will
rely as to matters of Delaware law on the opinion of Richards, Layton & Finger,
P.A.
EXPERTS
The consolidated financial statements of Appalachian Bancshares, Inc.
at December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, appearing in this prospectus and registration statement
have been audited by Schauer, Taylor, Cox & Vise, P.C., independent auditors,
and are included in reliance upon such reports given upon the authority of this
firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company and the Trusts have filed with the Securities and Exchange
Commission a registration statement on form SB-2 that relates to the preferred
securities, the junior subordinated debentures and the guarantee. This
prospectus is only part of the registration statement. It does not contain all
of the information in the registration statement. The rules and regulations of
the Securities and Exchange Commission permit us to omit certain portions of the
registration statement from the prospectus. For more information regarding the
Company, the Trust, the preferred securities, the junior subordinated debentures
and the guarantee, you should refer to the registration statement, including the
exhibits.
This prospectus contains a description of all the material terms and
features of all material contracts, reports or exhibits to the registration
statement required to be disclosed. The descriptions of such documents are brief
and are not necessarily complete. As a result, we urge you to refer to the copy
of each material contract, report and exhibit attached to the registration
statement for a more complete description of such document. Each statement in
this prospectus is qualified in its entirety by reference to the complete
document. You can examine and obtain copies of the registration statement at the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington D.C. 20549. You may obtain
93
<PAGE> 96
information on the operations of the Public Reference Section by calling the
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains an internet worldwide website that contains registration statements
and other information about issuers like us who file electronically with the
securities and exchange commission. The address of this site is
http://www.sec.gov. We also file periodic reports on Forms 10-KSB and 10-QSB,
current reports on Form 8-K and our proxy materials with the Securities and
Exchange Commission pursuant to the requirements of the Securities and Exchange
Act of 1934. These reports may be obtained from the Securities and Exchange
Commission in the manner described above.
No separate financial statements of the Trust have been included
herein. We do not believe that such financial statements would be material to
holders of preferred securities because:
- All of the voting securities of the Trust will be owned by us;
- The Trust has no independent operations and exists for the
sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust and investing
the proceeds thereof in junior subordinated debentures issued
by us; and
- Taken together, our obligations under the guarantee, the trust
agreement, the junior subordinated debentures, the indenture
and the expense agreement constitute, in the aggregate, a
full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of the trust obligations under the
preferred securities.
We expect that the Trust will not file separate reports, proxy
statements and other information with the Securities and Exchange Commission.
However, our annual and other periodic reports provided to our common
shareholders will also be provided to holders of preferred securities of the
Trust.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Sections 14-2-850 through 14-2-859 of the Georgia Business Corporation
Code provide for the indemnification of officers and directors against liability
and expenses that may be incurred by them in the event of an action against them
as a result of their service for us or on our behalf. The Company's bylaws
contain specific provisions with regard to indemnification of our directors and
officers, in compliance with the general provisions of this statute. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act. We will be governed by the final
adjudication of such issue.
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<PAGE> 97
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Independent Auditors' Report ............................................................. F-2
Independent Accountants' Compilation Report .............................................. F-3
Consolidated Statements of Financial Condition as of September 30, 1999
(unaudited) and December 31, 1998 and 1997 ............................................... F-4
Consolidated Statements of Income for the nine months ended September 30, 1999
and 1998 (unaudited) and the years ended December 31, 1998, 1997 and 1996 ................ F-6
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1998, 1997 and 1996 ...................................................................... F-8
Consolidated Statements of Cash Flows for the nine months ended September 30,
1999 and 1998 (unaudited) ................................................................ F-9
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 ...................................................................... F-10
Consolidated Statement of Comprehensive Income for the nine months ended
September 30, 1999 and 1998 (unaudited) and the years ended December 31, 1998,
1997 and 1996 ............................................................................ F-12
Notes to Consolidated Financial Statements ............................................... F-13
</TABLE>
F-1
<PAGE> 98
SCHAUER, TAYLOR, COX & VISE, P.C.
SCHAUER, TAYLOR, COX & VISE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
150 OLDE TOWNE ROAD
BIRMINGHAM, ALABAMA 35216
<TABLE>
<S> <C> <C>
DOUGLAS B. SCHAUER, CPA TELEPHONE (205) 822-3488 STEVEN W. BROWN, CPA
EDWARD R. TAYLOR, CPA WATS (800) 466-3488 M. BRYANT KING, CPA
W. ERNEST COX, CPA FAX (205) 822-3541 RAYMOND A. PATTON, CPA
DONALD G. VISE, CPA RUSSELL D. PAYNE, CPA
MICHAEL WHITEHURST, CBA
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
of Appalachian Bancshares, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of financial condition
of Appalachian Bancshares, Inc. and Subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholders' equity,
cash flows and comprehensive income for each of the three years in the period
ended December 31, 1998. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the consolidated financial position of
Appalachian Bancshares, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Birmingham, Alabama
February 5, 1999
/s/ Schauer, Taylor, Cox & Vise, P.C.
SCHAUER, TAYLOR, COX & VISE, P.C.
American Institute of CPAS Alabama Society of CPAS
F-2
<PAGE> 99
SCHAUER, TAYLOR, COX & VISE, P.C.
SCHAUER, TAYLOR, COX & VISE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
150 OLDE TOWNE ROAD
BIRMINGHAM, ALABAMA 35216
<TABLE>
<S> <C> <C>
DOUGLAS B. SCHAUER, CPA TELEPHONE (205) 822-3488 STEVEN W. BROWN, CPA
EDWARD R. TAYLOR, CPA WATS (800) 466-3488 M. BRYANT KING, CPA
W. ERNEST COX, CPA FAX (205) 822-3541 RAYMOND A. PATTON, CPA
DONALD G. VISE, CPA RUSSELL D. PAYNE, CPA
MICHAEL WHITEHURST, CBA
</TABLE>
To the Board of Directors and Shareholders
Appalachian Bancshares, Inc.
Ellijay, Georgia
We have compiled the accompanying consolidated statements of financial
condition of Appalachian Bancshares, Inc. and subsidiaries as of September 30,
1999, and the related consolidated statements of income, comprehensive income
and cash flows for the nine months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying September 30, 1999, consolidated financial statements
and, accordingly, do not express an opinion or any other form of assurance on
them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the September 30, 1999, consolidated financial statements, they
might influence the user's conclusions about the company's consolidated
financial position, results of operations, and cash flows. Accordingly, these
September 30, 1999, consolidated financial statements are not designed for
those who are not informed about such matters.
The consolidated financial statements for the years ended December 31, 1988 and
1997, were audited by us, and we expressed an unqualified opinion on them in
our report dated February 5, 1999, but we have not performed any auditing
procedures since that date.
Birmingham, Alabama
October 26, 1999
Schauer, Taylor, Cox & Vise, P.C.
AMERICAN INSTITUTE OF CPAS ALABAMA SOCIETY OF CPAS
F-3
<PAGE> 100
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------------
1999 1998 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks ......................................... $ 4,976,922 $ 5,481,853 $ 3,383,533
Interest-bearing deposits with other banks ...................... 207,730 407,229 -0-
Federal funds sold .............................................. 1,493,557 18,392,213 1,828,000
Securities available for sale ................................... 27,814,766 21,940,281 15,544,585
Securities held-to-maturity, estimated fair value of
$5,687,828, $6,457,522 and $4,308,947, respectively ............. 5,800,810 6,218,354 4,181,021
Loans, net of unearned income ................................... 159,746,144 129,831,095 84,583,853
Allowance for loan losses ....................................... (1,933,510) (1,686,395) (929,590)
------------- ------------- -------------
Net Loans .............................................. 157,812,634 128,144,700 83,654,263
Premises and equipment, net ..................................... 3,774,309 3,940,032 1,653,043
Accrued interest ................................................ 637,639 1,319,601 971,550
Cash surrender value on life insurance .......................... 1,617,361 615,438 585,615
Intangible, net ................................................. 2,256,822 2,345,055 -0-
Other assets .................................................... 845,362 940,194 379,180
------------- ------------- -------------
TOTAL ASSETS ........................................... $ 207,237,912 $ 189,744,950 $ 112,180,790
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing ......................................... $ 10,473,734 $ 9,287,933 $ 3,800,911
Interest-bearing ............................................ 169,415,763 154,573,545 91,547,035
------------- ------------- -------------
TOTAL DEPOSITS ......................................... 179,889,497 163,861,478 95,347,946
Securities sold under agreements to repurchase .................. 1,026,030 2,478,344 4,228,129
Accrued interest .............................................. 876,616 665,883 188,230
Long-term debt ................................................ 13,335,714 11,007,143 5,320,000
Other liabilities ............................................. 239,663 252,408 116,432
TOTAL LIABILITIES ...................................... $ 195,367,521 $ 178,265,256 $ 105,200,737
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 101
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------------
1999 1998 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, par value $5 per share, 20,000,000 shares
authorized, 1,377,224, 1,367,188 and 1,184,574 shares
issued, respectively .......................................... 6,886,120 6,835,940 5,922,870
Treasury stock, 44,000 and 30,000 shares at cost .............. (428,000) (428,000) (274,000)
Capital surplus ............................................... 2,727,388 2,576,849 135,051
Retained earnings ............................................. 3,245,919 2,394,590 1,186,359
Accumulated comprehensive income: net unrealized holding
gains on securities available-for-sale, net of deferred
income tax .................................................... (561,036) 100,315 9,773
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY .................................. 11,870,391 11,479,694 6,980,053
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................... $ 207,237,912 $ 189,744,950 $ 112,180,790
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 102
CONSOLIDATED STATEMENTS OF INCOME
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------- ------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ............ $ 10,090,189 $ 6,764,262 $ 9,614,165 $ 7,652,481 $ 5,205,131
Interest on investment securities:
Taxable securities ................ 1,017,369 723,380 1,009,595 1,160,497 977,917
Nontaxable securities ............. 398,564 313,838 376,157 170,274 24,228
Interest on deposits in banks ......... 13,285 -0- 1,963 -0- -0-
Interest on federal funds sold ........ 316,654 151,248 269,112 159,716 104,021
------------ ----------- ------------ ----------- -----------
TOTAL INTEREST INCOME ............. 11,836,061 7,952,728 11,270,992 9,142,968 6,311,297
------------ ----------- ------------ ----------- -----------
INTEREST EXPENSE
Interest on deposits .................. 5,989,106 4,240,734 5,891,798 4,911,266 3,436,060
Interest on federal funds purchased and
securities sold under agreements to
repurchase ............................ 94,683 136,928 178,437 201,407 219,500
Interest on long-term debt ............ 571,265 288,134 427,984 149,580 4,667
------------ ----------- ------------ ----------- -----------
TOTAL INTEREST EXPENSE ............ 6,655,054 4,665,796 6,498,219 5,262,253 3,660,227
------------ ----------- ------------ ----------- -----------
NET INTEREST INCOME ........................ 5,181,007 3,286,932 4,772,773 3,880,715 2,651,070
Provision for loan losses .............. 640,000 240,000 300,000 480,000 368,000
------------ ----------- ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES ................................ 4,541,007 3,046,932 4,472,773 3,400,715 2,283,070
NONINTEREST INCOME
Service charges on deposits ............ 304,227 165,583 238,921 197,333 134,642
Insurance commissions .................. 47,308 16,822 22,333 20,655 24,355
Other operating income ................. 290,768 178,477 251,717 161,086 85,055
Investment securities gains (losses) ... 8,056 15,950 15,950 (78) 8,894
------------ ----------- ------------ ----------- -----------
TOTAL NONINTEREST INCOME .......... 650,359 376,832 528,921 378,996 252,946
------------ ----------- ------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 103
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------- ------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
NONINTEREST EXPENSES
Salaries and employee benefits ......... 1,749,649 1,037,601 1,496,743 1,154,456 892,992
Occupancy expense ...................... 241,245 100,719 173,034 97,267 96,165
Furniture and equipment expense ........ 253,443 133,214 252,806 150,358 126,439
Other operating expenses ............... 1,692,096 913,625 1,298,630 977,277 599,776
------------ ----------- ------------ ----------- -----------
TOTAL NONINTEREST EXPENSES ........ 3,936,433 2,815,159 3,221,213 2,379,358 1,715,372
------------ ----------- ------------ ----------- -----------
Income (Loss) before income taxes ...... 1,254,935 1,238,605 1,780,481 1,400,353 820,644
Income tax (provision) benefit ......... (403,603) (400,000) (572,250) (382,587) (303,908)
------------ ----------- ------------ ----------- -----------
NET INCOME (LOSS) .......................... $ 851,335 $ 838,605 $ 1,208,231 $ 1,017,766 $ 516,736
============ =========== ============ =========== ===========
EARNINGS (LOSS) PER COMMON SHARE - BASIC
AND DILUTIVE
Net income (loss) per common share -
Basic earnings per share .......... $ .64 $ .73 $ 1.04 $ .88 $ .45
Basic weighted average shares
outstanding ....................... 1,323,335 1,150,050 1,166,425 1,154,990 1,136,000
Diluted earnings per share ........ $ .60 $ .70 $ .99 $ .88 $ .45
Diluted weighted average shares
outstanding ....................... 1,419,025 1,194,275 1,220,976 1,162,206 1,136,000
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 104
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON TREASURY CAPITAL RETAINED COMPREHENSIVE
STOCK STOCK SURPLUS EARNINGS INCOME TOTAL
----- ----- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 .... $ 2,840,000 $ -0- $ 2,829,314 $ (348,143) $ 42,159 $ 5,363,330
Two-for-one stock split ....... 2,840,000 (2,840,000) -- -- -0-
------------ ------------ ------------ ------------ ------------ ------------
Restated beginning balance .... 5,680,000 (10,686) (348,143) 42,159 5,363,330
Net Change in Unrealized
Gains (Losses) on Securities .. -0- -0- -0- -0- (75,130) (75,130)
Net Income 1996 ............... -0- -0- -0- 516,736 -0- 516,736
------------ ------------- ------------ ------------ ------------ ------------
Balance at December 31, 1996 .. 5,680,000 -0- (10,686) 168,593 (32,971) 5,804,936
Proceeds from sale of common
stock to 401(k) plan .......... 242,870 -0- 145,737 -0- -0- 388,607
Purchase of Treasury Stock .... -0- (274,000) -0- -0- -0- (274,000)
Net Change in Unrealized
Gaines on Securities .......... -0- -0- -0- -0- 42,744 42,744
Net Income 1997 ............... -0- -0- -0- 1,017,766 -0- 1,017,766
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 .. 5,922,870 (274,000) 135,051 1,186,359 9,773 6,980,053
Proceeds from sale of common
stock to 401(k) plan .......... 96,570 -0- 214,058 -0- -0- 310,628
Purchase of Treasury Stock .... -0- (154,000) -0- -0- -0- (154,000)
Net Change in Unrealized Gains
on Securities ................. -0- -0- -0- -0- 71,614 71,614
Proceeds from exercise
of options .................... 154,000 -0- 240,240 -0- -0- 394,240
Private placement sale of stock 662,500 -0- 1,987,500 -0- -0- 2,650,000
Effect of business combination -0- -0- -0- -0- 18,928 18,928
Net Income 1998 ............... -0- -0- -0- 1,208,231 -0- 1,208,231
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 .. $ 6,835,940 $ (428,000) $ 2,576,849 $ 2,394,590 $ 100,315 $ 11,479,694
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 105
CONSOLIDATED STATEMENT OF CASH FLOWS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30
--------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................................... $ 851,329 $ 838,605
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ...................................... 640,000 240,000
Depreciation, amortization, and accretion ...................... 322,075 143,598
Realized investment security (gains) ........................... (8,056) (15,950)
Increase in accrued interest receivable ........................ (297,761) (79,479)
Increase in accrued interest payable ........................... 210,733 12,175
Other .......................................................... 443,744 250,944
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 2,162,064 1,389,893
INVESTING ACTIVITIES:
Net increase in securities available for sale ........................ (6,884,207) (2,641,545)
Net decrease (increase) in securities held to maturity ............... 417,544 (1,629,570)
Net increase in loans to customers ................................... (30,307,934) (9,998,434)
Capital (expenditures) sales, net .................................... (68,118) (436,401)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ..................... (36,842,715) (14,705,950)
FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts, and savings
accounts ............................................................. (554,044) 13,592,968
Net increase in certificates of deposit .............................. 16,582,064 4,945,941
Net (decrease) increase in short term borrowing ...................... (1,479,746) (419,078)
Proceeds from issuance of common stock ............................... 200,720 132,469
Purchase of treasury stock ........................................... -- (154,000)
Proceeds from notes payable .......................................... -- 1,278,571
Proceeds from long term debt ......................................... 2,328,571 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 17,077,565 19,376,871
------------ ------------
Net increase (decrease) in cash and cash equivalents .................... (17,603,086) 6,060,814
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 24,281,295 9,707,049
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 6,678,209 $ 15,767,863
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ........................................................... $ 6,444,321 $ 4,653,621
Income taxes ....................................................... 270,603 452,000
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 106
CONSOLIDATED STATEMENTS OF CASH FLOWS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income .................................................... $ 1,208,231 $ 1,017,766 $ 516,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization, and
accretion, net .............................................. 188,653 165,242 127,620
Provision for loan losses ................................... 300,000 480,000 368,000
Deferred tax (benefit) ...................................... (63,000) (73,426) (8,622)
Realized security (gains) losses, net ....................... (15,950) 78 (8,894)
Losses on disposition of foreclosed real estate ............. -0- 3,927 -0-
Increase in cash surrender value on life insurance .......... (29,823) (17,215) -0-
Increase in accrued interest receivable ..................... (122,861) (164,739) (414,018)
Increase in accrued interest payable ........................ 46,854 33,769 59,109
Other ....................................................... (238,959) 19,186 (28,100)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ......................................... $ 1,273,145 $ 1,464,588 $ 611,831
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale ........ 9,515,761 9,982,814 4,497,500
Proceeds from maturity of securities available for
sale ........................................................ 11,597,023 8,513,974 4,531,902
Proceeds from maturity of securities held-to-
maturity .................................................... 594 145,000 -0-
Purchase of securities available for sale ................... (23,834,942) (13,991,323) (15,208,797)
Purchase of securities held-to-maturity ..................... (1,091,138) (1,939,327) (2,247,479)
Net increase in loans to customers .......................... (21,786,395) (19,827,817) (32,830,349)
Capital expenditures, net ................................... (548,857) (121,199) (118,918)
Proceeds from disposition of foreclosed real estate ......... 113,500 -0- -0-
Purchase of life insurance plan ............................. -0- (568,400) -0-
Cash received in bank acquisition, net ...................... 10,721,749 -0- -0-
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES .............. (15,312,705 (17,806,278) (41,376,141)
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 107
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts ....................................... 19,557,448 11,384,300 16,452,274
Net increase in certificates of deposit .................... 6,413,648 2,815,766 22,554,275
Net increase (decrease) in securities sold under
agreement to repurchase .................................... (1,749,785) (1,055,843) 972,056
Issuance of long-term debt ................................. 7,007,143 4,620,000 700,000
Repayment of long-term debt ................................ (1,320,000) -0- -0-
Issuance of common stock ................................... 3,354,868 388,607 -0-
Purchase of treasury stock ................................. (154,000) (274,000) -0-
------------- ------------- -------------
NET CASH PROVIDED BY FINANCIAL ACTIVITIES ............... 33,109,322 17,878,830 40,678,605
------------- ------------- -------------
Net increase in cash and cash equivalents ....................... 19,069,762 1,537,140 (85,705)
Cash and cash equivalents at beginning of year .................. 5,211,533 3,674,393 3,760,098
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 24,281,295 $ 5,211,533 $ 3,674,393
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash Paid during the year for:
Interest ............................................... $ 6,451,365 $ 5,228,484 $ 3,601,118
Income taxes ........................................... 632,799 435,511 301,983
Loans transferred to foreclose real estate ................. 223,056 109,209 59,275
Net increase (decrease) in unrealized gains and
losses on securities available for sale .................... 108,620 64,762 (114,114)
Proceeds from sales of foreclosed real estate
financed through loans ..................................... 109,556 105,282 54,170
Assets acquired in business combination .................... 29,977,439 -0- -0-
Liabilities assumed in business combination ................ 43,035,046 -0- -0-
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 108
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months ended
September 31, Year Ended December 31,
---------------------------- --------------------------------------------
1999 1998 1998 1997 1996
------------ ----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
NET INCOME .................................. $ 851,329 $ 838,605 $ 1,208,231 $ 1,017,766 $ 516,736
Other comprehensive income, net of tax:
Unrealized gains on securities
Unrealized holding gains (losses)
arising during period ................... (1,009,723) 183,184 155,080 64,684 (104,939)
Reclassified adjustments for (gains)
losses included in net income ........... (8,056) (15,950) (15,950) 78 (8,894)
------------ ----------- ------------ ----------- -----------
Net unrealized gains (losses) ........... (1,017,779) 167,234 139,130 64,762 (113,833)
Income tax related to items of other
comprehensive income .................... 356,427 (56,860) (48,588) (22,018) 38,703
------------ ----------- ------------ ----------- -----------
Other comprehensive income ................ (661,352) 110,374 90,542 42,744 (75,130)
------------ ----------- ------------ ----------- -----------
Comprehensive Income ........................ $ 189,977 $ 948,979 $ 1,298,773 $ 1,060,510 $ 441,606
============ =========== ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Appalachian Bancshares, Inc. and its wholly owned subsidiaries: Gilmer County
Bank ("GCB") and Appalachian Community Bank ("ACB") (referred to herein
collectively as the "Banks"). Prior to August 1996, Gilmer County Bank operated
as an independent bank. Prior to November 1998, Appalachian Community Bank,
formerly named First National Bank of Union County, operated as a wholly-owned
subsidiary bank of Century South Banks, Inc. The Company was formed in May 1996
for the purpose of acquiring all the outstanding stock of Gilmer County Bank,
and operating as a bank holding company. The acquisition of GCB was accounted
for as a pooling of interests . The acquisition of ACB was accounted for as a
purchase. These entities are collectively referred to herein as the Company.
All significant intercompany transactions and balances have been eliminated in
consolidation. Unless otherwise indicated herein, the financial results of the
Company refer to the Company and the Banks on a consolidated basis. The Banks
provide a full range of banking services to individual and corporate customers
in North Georgia and the surrounding areas.
Consolidated Statements of Comprehensive Income
The company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, on December 31, 1998. This statement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
statement requires that an enterprise classify items of other comprehensive
income by their nature in the financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the equity section of a statement of financial
condition. Comprehensive income is generally defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during
a period except those resulting from investments by owners and distributions to
owners.
Use of Estimates
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities
Securities are classified as either held-to-maturity, available-for-sale, or
trading.
Held-to-maturity securities are securities for which management has the ability
and intent to hold on a long-term basis or until maturity. These securities are
carried at amortized cost, adjusted for amortization of premiums, and accretion
of discount to the earlier of the maturity or call date.
F-13
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Securities available-for-sale represent those securities intended to be held
for an indefinite period of time, including securities that management intends
to use as part of its asset/liability strategy, or that may be sold in response
to changes in interest rates, changes in prepayment risk, the need to increase
regulatory capital, or other similar factors. Securities available-for-sale are
recorded at market value with unrealized gains and losses net of any tax
effect, added or deducted directly from shareholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
Realized and unrealized gains and losses are based on the specific
identification method.
Declines in the fair value of individual held-to maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses.
The Company has no trading securities.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses, net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain origination costs,
when material, are deferred and amortized as a yield adjustment over the lives
of the related loans using the interest method.
Allowance for Possible Loan Losses
A loan is considered impaired, based on current information and events, if it
is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the
loan agreement. Uncollateralized loans are measured for impairment based on the
present value of expected future cash flows discounted at the historical
effective interest rate, while all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. Smaller balance
homogeneous loans which consist of residential mortgages and consumer loans are
evaluated collectively and reserves are established based on historical loss
experience.
The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the allowance
due to changes in the measurement of the impaired loans are included in the
provision for loan losses. Loans continue to be classified as impaired unless
they are brought fully current and the collection of scheduled interest and
principal is considered probable. When a loan or portion of a loan is
determined
F-14
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
to be uncollectable, the portion deemed uncollectable is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Banks' past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
estimated value of any underlying collateral, and an analysis of current
economic conditions. While management believes that it has established the
allowance in accordance with generally accepted accounting principles and has
taken into account the views of its regulators and the current economic
environment there can be no assurance that in the future the Banks' regulators
or its economic environment will not require further increases in the
allowance.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well collateralized and in the process
of collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is
in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due are reasonably assured of repayment within an acceptable
period of time, and there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectability of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case
of loans with scheduled amortizations where the payment is generally applied to
the oldest payment due. When the future collectability of the recorded loan
balance is expected, interest income may be recognized on a cash basis. In the
case where a nonaccrual loan has been partially charged off, recognition of
interest on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses
until prior charge offs have been fully recovered. Interest income recognized
on a cash basis was immaterial for the years ended December 31, 1998, 1997, and
1996.
Premises and Equipment
Land is carried at cost. Other premises and equipment are carried at cost net
of accumulated depreciation. Depreciation is computed using the straight-line
and the declining balance methods based principally on the estimated useful
lives of the assets. Maintenance and repairs are expended as incurred while
major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
F-15
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Foreclosed Real Estate
Foreclosed real estate includes both formally foreclosed property and
in-substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the carrying amount or fair value less cost to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date
of acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value
less cost to sell.
Costs incurred in maintaining foreclosed real estate and subsequent adjustments
to the carrying amount of the property are included in income (loss) on
foreclosed real estate.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of the allowance for loan
losses and accumulated depreciation. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered
or settled. Deferred tax assets and liabilities are reflected at income tax
rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes. The Company files consolidated income tax returns with its
subsidiaries.
Earnings per Common Share
The Company adopted SFAS No. 128, Earnings Per Share, on December 31, 1997.
This statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary EPS
with a presentation of basic EPS and requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. All prior year earnings per share data have been
restated to reflect the presentation required under SFAS No. 128.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average of common shares outstanding ............................ 1,166,425 1,154,990 1,136,000
Effect of dilutive options ............................................... 54,551 7,216 -0-
--------- --------- ---------
Weighted average of common shares outstanding effected for dilution ...... 1,220,976 1,162,206 1,136,000
========= ========= =========
</TABLE>
F-16
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In May 1998, the Company issued a 2-for-1 stock split. All per share amounts
included in these financial statements have been retroactively adjusted to give
effect to this split.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, Accounting for Stock-Based Compensation, which defines a fair value
based method of accounting for an employee stock option plan. This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans and stock-based non-employee compensation. These
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Under the fair value based method, compensation is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, SFAS No. 123
allows an entity to continue to measure compensation costs for those plans
using the intrinsic value based method of accounting prescribed by APB Opinion
No, 25, Accounting for Stock Issued to Employees. The adoption of this
statement did not have a material effect on the Company's consolidated
financial statements.
Employee Benefit Plan
The Company has a 401(k) profit-sharing plan covering substantially all of its
employees. Eligible participating employees may elect to contribute
tax-deferred contributions. Company contributions to the plan are determined by
the board of directors.
Intangibles
Intangibles consist primarily of legal, organizational costs, and goodwill.
Organizational costs are generally amortized over 5 years using the
straight-line method. The goodwill intangible represents a premium paid on the
purchase of assets and deposit liabilities. The asset is stated at cost, net of
accumulated amortization, which is provided using the straight-line method over
the estimated useful life of 20 years.
Off Balance Sheet Financial Instruments
In the ordinary course of business the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit and standby letters of credit. Such financial instruments are recorded
in the financial statements when they become payable.
The Company also has available as a source of short-term financing the purchase
of federal funds from other commercial banks from an available line of up to
$4.5 million and a line of credit with the Federal Home Loan Bank of up to $12
million.
F-17
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Cash Flow Information
For purposes of the statements of cash flows, the Company considers cash, due
from banks and federal funds sold as cash and cash equivalents.
Reclassifications
Certain amounts in 1997 and 1996 have been reclassified to conform with the
1998 presentation.
Recently Issued Accounting Standards
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments. This statement is effective for
financial statements for periods beginning after December 15, 1997. All of the
Company's offices offer similar products and services, are located in the same
geographic region, and serve the same customer segments of the market. As a
result, management considers all units as one operating segment and therefore
feels that the basic financial statements and related footnotes provide details
related to segment reporting.
Effective for years beginning after December 15, 1997, SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, was issued by
FASB which standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain other
disclosures previously required. The adoption of this statement did not have a
material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board also issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative is to be determined based upon the
intended use of the derivative. For certain hedge designations (cash flow and
foreign currency exposure) the derivative's gain or loss is reported as a
component of other comprehensive income. Other designations require the gain or
loss to be recognized in earnings in the period of change. This statement is
effective for financial statements for periods beginning after June 15, 1999.
Management does not believe that the adoption of SFAS No. 133 will have a
material impact on the Company's consolidated financial statements.
F-18
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2- BUSINESS COMBINATION
On December 1, 1998 the Company purchased Appalachian Community Bank, a
wholly-owned subsidiary of Century South Banks, Inc., for $6,100,000. Assets of
approximately $46,789,991 were acquired with approximately $43,035,046 in
liabilities, resulting in a goodwill intangible of approximately $2,345,055.
Amortization of this goodwill is provided on the straight-line basis over a
period of 20 years.
The following is summary operating information for Appalachian Bancshares, Inc.
showing the effect of the business combination described in the preceding
paragraph for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Effect of Pro Forma
As Reported Purchase Results
------------- ------------- -------------
<S> <C> <C> <C>
As of December 31, 1998:
Interest Income ............................................... $ 11,270,992 $ 3,430,926 $ 14,701,918
Interest expense .............................................. 6,498,219 1,800,728 8,298,947
Net interest income ........................................... 4,772,773 1,630,198 6,402,971
Provision for loan losses ..................................... 30,000 31,331 331,331
Noninterest income ............................................ 528,921 309,282 838,203
Noninterest expense ........................................... 3,221,213 1,628,913 4,850,126
Provision (benefit) for income taxes .......................... 572,250 69,000 641,250
Net income (loss) ............................................. 1,208,231 210,236 1,418,467
<CAPTION>
Effect of Pro Forma
As Reported Purchase Results
------------- ------------- -------------
<S> <C> <C> <C>
As of December 31, 1997:
Interest Income ................................................. $ 9,142,968 $ 4,160,221 $ 13,303,189
Interest expense ................................................ 5,262,253 2,002,085 7,264,338
Net interest income ............................................. 3,880,715 2,158,136 6,038,851
Provision for loan losses ....................................... 480,000 952,801 1,432,801
Noninterest income .............................................. 378,996 360,713 739,709
Noninterest expense ............................................. 2,379,358 1,853,716 4,233,074
Provision (benefit) for income taxes ............................ 382,587 (149,000) 233,587
Net income (loss) ............................................... 1,017,766 (138,668) 879,098
</TABLE>
F-19
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2 - BUSINESS COMBINATION - CONTINUED
<TABLE>
<CAPTION>
Effect of Pro Forma
As Reported Purchase Results
------------- ------------- -------------
<S> <C> <C> <C>
As of December 31, 1996:
Interest Income ............................................... $ 6,311,297 $ 4,397,843 $ 10,709,140
Interest expense .............................................. 3,660,227 2,216,646 5,876,873
Net interest income ........................................... 2,651,070 2,181,197 4,832,267
Provision for loan losses ..................................... 368,000 66,000 434,000
Noninterest income ............................................ 252,946 389,867 642,813
Noninterest expense ........................................... 1,715,372 1,561,153 3,276,525
Provision (benefit) for income taxes .......................... 303,908 315,500 619,408
Net income (loss) ............................................. 516,736 628,411 1,145,147
</TABLE>
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Company is required to maintain average service balances either in vault
cash or on deposit with the Federal Reserve Bank. At December 31, 1998 and
1997, the average amount of the required reserves was $1,155,000 and $635,000,
respectively.
F-20
<PAGE> 117
NOTE 4 - SECURITIES
The carrying amounts of securities as shown in the consolidated statement of
financial their approximate fair values at December 31, 1998 and 1997 are
presented below.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
December 31, 1998
U.S. government and agency securities ............... $ 13,581,536 $ 72,564 $ 11,942 $ 13,642,158
State and municipal securities ...................... 5,677,978 98,856 1,020 5,775,814
Mortgage backed securities .......................... 1,912,831 9,559 14,081 1,908,309
Equity securities ................................... 614,000 -0- -0- 614,000
------------ ------------ ------------ ------------
$ 21,786,345 $ 180,979 $ 27,043 $ 21,940,281
============ ============ ============ ============
December 31, 1997
U.S. government and agency securities ............... $ 13,960,630 $ 43,613 24,892 13,979,351
Mortgage backed securities .......................... 1,169,148 -0- 3,914 1,165,234
Equity securities ................................... 400,000 -0- -0- 400,000
------------ ------------ ------------ ------------
$ 15,529,778 $ 43,613 $ 28,806 $ 15,544,585
============ ============ ============ ============
SECURITIES HELD-TO-MATURITY
December 31, 1998
State and municipal securities ...................... $ 6,218,354 $ 242,199 $ 3,031 $ 6,457,522
============ ============ ============ ============
December 31, 1997
State and municipal securities ...................... $ 4,181,021 $ 128,210 $ 284 $ 4,308,947
============ ============ ============ ============
</TABLE>
At December 31, 1998, the Company's available-for-sale securities reflected net
unrealized gains of $153,936, which resulted in an increase in stockholders'
equity of $100,315, net of deferred tax liability. At December 31, 1997, the
Company's available-for-sale securities reflected net unrealized gains of
$14,807 which resulted in an increase in stockholders' equity of $9,773, net of
deferred tax liability.
F-21
<PAGE> 118
NOTE 4 - SECURITIES - CONTINUED
The contractual maturities of securities available-for-sale at December 31,
1998 are shown as follows. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Cost Estimated Fair
Value
-------------- --------------
<S> <C> <C>
As of December 31, 1998:
Securities Available-for-Sale:
Due in one year or less ............................................... $ 1,794,684 $ 1,801,575
Due after one year through five years ................................. 7,397,640 7,467,540
Due after five years through ten years ................................ 9,327,219 9,381,651
Due after ten years ................................................... 2,652,802 2,675,515
Equity securities ..................................................... 614,000 614,000
------------ ------------
$ 21,786,345 $ 21,940,281
============ ============
Securities Held-in-Maturity:
Due in one year or less; .............................................. $ 250,000 $ 250,290
Due after one year through five years ................................. 1,109,321 1,137,175
Due after five through ten years ...................................... 669,140 715,980
Due after ten years ................................................... 4,189,893 4,354,077
------------ ------------
$ 6,218,354 $ 6,457,522
============ ============
</TABLE>
Mortgage-backed securities have been included in the maturity tables based upon
guaranteed payoff date of each security.
Gross realized gains and losses on the sale of securities available-for-sale
for each of the three years in the period ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Gross realized gains $ 15,956 $ 5,757 $ 5,626
Gross realized losses 6 5,835 825
</TABLE>
There were no net gains on the maturities of securities for 1998 and 1997. Net
gains on the maturities of securities for 1996 amounted to $4,093.
F-22
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 4 - SECURITIES - CONTINUED
Other securities include a restricted investment in Federal Home Loan Bank
stock, which must be maintained to secure the available lines of credit. The
amount of investment in this stock amounted to $554,000 and $400,000 at
December 31, 1998 and 1997, respectively.
The carrying value of investment securities pledged to secure public funds on
deposit, securities sold under agreements to repurchase, and for other purposes
as required by law amounted to approximately $12,552,000 and $6,606,000 at
December 31, 1998 and 1997.
NOTE 5 - LOANS
The Company grants loans to customers primarily in the North Georgia area. The
major classifications of loans as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Commercial, financial and agricultural......................................... $ 26,883,464 $ 16,535,602
Real estate - construction..................................................... 8,542,640 5,118,961
Real estate - mortgage......................................................... 78,965,161 50,928,334
Consumer....................................................................... 13,742,818 10,835,331
Other loans.................................................................... 1,697,012 1,165,625
------------- ------------
129,831,095 84,583,853
Allowance for loan losses...................................................... (1,686,395) (929,590)
------------- ------------
Net loans...................................................................... $ 128,144,700 $ 83,654,263
============= ============
</TABLE>
Total loans which the Company considered to be impaired at December 31, 1998
and 1997, were $4,000 and $15,000, respectively. All of these loans were on
nonaccrual status and had related allowances of $1,000 and $4,000,
respectively. Impaired loans consisted primarily of unsecured consumer loans as
of December 31, 1998 and 1997. The average recorded investment in impaired
loans for the years ended December 31, 1998 and 1997 was approximately $10,000
and $36,000, respectively. No material amount of interest income was recognized
on impaired loans for the years ended December 31, 1998 and 1997. For the years
ended December 31, 1998 and 1997, the difference between gross interest income
that would have been recorded in such period if the nonaccruing loans had been
current in accordance with their original terms and the amount of interest
income on those loans that was included in such period's net income was
negligible.
The Company has no commitments to loan additional funds to the borrowers of
nonaccrual loans.
F-23
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for each of the three years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year.................................. $ 929,590 $ 655,296 $ 324,599
Charge-offs................................................... (136,222) (228,087) (38,225)
Recoveries.................................................... 34,947 22,381 922
------------ ------------ -----------
Net charge-offs............................................ (101,275) (205,706) (37,303)
Addition due to acquisition................................... 558,080 -0- -0-
Provision for loan losses..................................... 300,000 480,000 368,000
------------ ------------ -----------
Balance at end of year........................................ $ 1,686,395 $ 929,590 $ 655,296
============ ============ ===========
</TABLE>
NOTE 7 - PREMISES AND EQUIPMENT
Premises and equipment were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Land........................................................................... $ 851,546 $ 329,900
Buildings and improvements..................................................... 2,396,161 964,398
Furniture and Equipment........................................................ 1,766,961 671,303
------------ -----------
5,014,668 1,965,601
Less allowance for depreciation................................................ 1,074,636 312,558
------------ -----------
$ 3,940,032 $ 1,653,043
============ ===========
</TABLE>
The provisions for depreciation charged to occupancy and furniture and
equipment expense for the years ended December 31, 1998, 1997 and 1996, were
$177,407, $137,432, and $118,219, respectively.
F-24
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 8 - DEPOSITS
The major classifications of deposits as of December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Noninterest-bearing demand..................................................... $ 9,287,933 $ 3,800,911
Interest-bearing demand........................................................ 48,039,917 24,431,854
Savings........................................................................ 29,008,638 20,743,964
Time........................................................................... 51,576,805 31,635,604
Certificates of deposit of $100,000 or more.................................... 25,948,185 14,735,613
-------------- -------------
$ 163,861,478 $ 95,347,946
============== =============
</TABLE>
The aggregate amounts of time deposits of $100,000 or more, including
certificates of deposit of $100,000 or more at December 31, 1998 and 1997 were
$25,948,185 and $14,735,613, respectively.
The maturities of time certificates of deposit and other time deposits issued by
the Company at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Time
Certificates
Year-ending December 31, of Deposit
------------------------ ------------
<S> <C>
1999 ........................................................................... $ 59,935,110
2000 ........................................................................... 10,726,476
2001 ........................................................................... 5,485,078
2002 ........................................................................... 978,565
2003 ........................................................................... 399,761
Thereafter ..................................................................... -0-
-------------
$ 77,524,990
=============
</TABLE>
NOTE 9 - LONG-TERM DEBT
At December 31, 1998 and 1997, the Company had notes payable totaling
$11,007,143 and $5,320,000, respectively.
F-25
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 9 - LONG-TERM DEBT - CONTINUED
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Note payable to another financial institution, interest at prime less 3/4 of a percentage
point; principal is due in five equal annual installments beginning January 1, 1999,
unsecured................................................................................ $ -0- $ 1,320,000
Note payable on $8 million line of credit at FHLB, with varying maturities; $1
million due October 2002, $1 million due December 2004, $2 million due June and
September 2007, $4 million due January, September and October 2008, interest rate
varies from 5.27% to 6.77%, secured by residential mortgages............................. 7,407,143 4,000,000
Note payable to another financial institution, interest at prime less 3/4 of a percentage
point; 2 years interest only paid quarterly with principal paid in 8 annual installments,
secured by stock of Gilmer County Bank and Appalachian Community Bank.................... 3,600,000 -0-
------------- ------------
$ 11,007,143 $ 5,320,000
============= ============
</TABLE>
Maturities of long-term debt following December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year-ending December 31,
------------------------
<S> <C>
1999.......................................................................... $ -0-
2000.......................................................................... -0-
2001.......................................................................... 450,000
2002.......................................................................... 1,250,000
2003.......................................................................... 450,000
Thereafter.................................................................... 8,857,143
-------------
$ 11,007,143
=============
</TABLE>
NOTE 10 - SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Securities sold under agreements to repurchase are reflected at the amount of
cash received in connection with the transaction.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
F-26
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 10 - SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE - CONTINUED
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Average balance during the year................................................ $ 4,095,716 $ 4,471,499
Average interest rate during the year.......................................... 4.26% 4.50%
Maximum month-end balance during the year...................................... $ 4,468,355 $ 4,693,265
</TABLE>
NOTE 11 - OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Professional fees............................................. $ 220,515 $ 194,513 $ 121,102
Advertising................................................... 203,021 122,358 93,020
Stationery and supplies....................................... 166,137 116,537 105,949
Data processing............................................... 136,256 87,095 46,843
Director and committee fees................................... 125,686 119,322 18,900
Postage....................................................... 89,354 69,806 51,511
Insurance..................................................... 53,554 55,524 26,468
Taxes and licenses............................................ 46,788 25,608 22,231
Checking account expense...................................... 40,921 32,830 29,751
Correspondent bank charges.................................... 35,458 34,648 27,953
Other......................................................... 180,940 119,036 56,048
------------ ----------- -----------
Total other operating expenses............................. $ 1,298,630 $ 977,277 $ 599,776
============ =========== ===========
</TABLE>
F-27
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12 - INCOME TAXES
Federal and state income taxes receivable (payable) as of December 31, 1998 and
1997 included in other assets and other liabilities, respectively, were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
Current
Federal..................................................................... $ 95,605 $ (25,049)
State....................................................................... -0- (3,000)
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax asset:
Federal..................................................................... $ 448,671 $ 266,289
Deferred tax liability:
Federal..................................................................... (53,622) (62,323)
Net deferred tax asset......................................................... $ 395,049 $ 203,966
=========== ==========
</TABLE>
The tax effects of each type of income and expense item that gave rise to
deferred taxes are:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net unrealized gains on securities available for sale.......................... $ (53,622) $ (5,034)
Depreciation................................................................... (54,514) (57,289)
Allowance for loan losses...................................................... 497,302 253,064
Other.......................................................................... 5,883 13,225
---------- ----------
$ 395,049 $ 203,966
========== ==========
</TABLE>
The components of income tax expense for the years 1998, 1997, and 1996 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Current
Federal.................................................... $ 597,500 $ 456,013 $ 312,530
State...................................................... 37,750 -0- -0-
Deferred
Federal.................................................... (63,000) (73,426) (8,622)
---------- ----------- ----------
$ 572,250 $ 382,587 $ 303,908
========== =========== ==========
</TABLE>
Tax effects of securities transactions resulted in an increase (decrease) in
income taxes for 1998, 1997, and 1996 of $5,423, ($27), and $3,024,
respectively.
The principal reasons for the difference in the effective tax rate and the
federal statutory rate are as follows for the years ended December 3l,
1998,1997 and 1996.
F-28
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12 - INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Statutory federal income tax rate
34.0% 34.0% 34.0%
Effect on rate of:
Tax-exempt securities...................................... (7.2) (4.1) (1.0)
Tax-exempt loans........................................... (1.1) (1.0) (1.1)
Interest expense disallowance.............................. 1.7 1.0 .4
State income tax, net and federal tax benefit.............. 1.4 -0- -0-
Other...................................................... 3.3 (2.6) 4.7
---------- --------- --------
Effective income tax rate..................................... 32.1% 27.3% 37.0%
========== ========= ========
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company offers a variety of financial
products to its customers to aid them in meeting their requirements for
liquidity, credit enhancement, and interest rate protection. Generally accepted
accounting principles recognize these transactions as contingent liabilities
and, accordingly, they are not reflected in the accompanying financial
statements. Commitments to extend credit, credit card arrangements, commercial
letters of credit, and standby letters of credit all include exposure to some
credit loss in the event of nonperformance of the customer. The Company's
credit policies and procedures for credit commitments and financial guarantees
are the same as those for extension of credit that are recorded on the
statement of financial condition. Because these instruments have fixed maturity
dates, and because many of them expire without being drawn upon, they do not
generally present any significant liquidity risk to the Company. Management
conducts regular reviews of these instruments on an individual customer basis,
and the results are considered in assessing the adequacy of the Company's
allowance for loan losses. Management does not anticipate any material losses
as a result of these commitments.
Following is a discussion of these commitments:
Standby Letters of Credit: These agreements are used by the Company's customers
as a means of improving their credit standings in their dealings with others.
Under these agreements, the Company agrees to honor certain financial
commitments in the event that its customers are unable to do so. As of December
31, 1998 and 1997, the Company has issued standby letters of credit of
approximately $643,000 and $385,000.
Loan Commitments: As of December 31, 1998 and 1997, the Company had commitments
outstanding to extend credit totaling approximately $16,290,000 and $11,049,000
respectively. These commitments generally require the customers to maintain
certain credit standards. Management does not anticipate any material losses as
a result of these commitments.
Litigation: The Company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes
that the liabilities, if any, arising from such litigation and claims are not
material to the financial statements.
F-29
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 14 - CONCENTRATIONS OF CREDIT
All of the Company's loans, commitments and standby letters of credit have been
granted to customers in the Company's market area. Substantially all such
customers are depositors of the Company. The concentrations of credit by type
of loan are set forth in Note 4. The commitments to extend credit relate
primarily to unused real estate draw lines. Commercial and standby letters of
credit were granted primarily to commercial borrowers.
The Company maintains its cash accounts at various commercial banks in Georgia.
The total cash balances are insured by the FDIC up to $100,000. Total uninsured
balances held at other commercial banks amounted to $31,000 and $929,000 at
December 31, 1998 and 1997, respectively.
NOTE 15 - STOCK OPTION PLAN
On June 1, 1997 the Company issued a total of 286,000 options, restated for the
2-for-1 stock split, to purchase its common shares to its directors and
executive officers. Each director received 22,000 shares, the Chief Financial
Officer received 44,000 shares and the President received 66,000 shares. Each
of the stock option agreements contained an option price of $8.00 per share,
the market value of the shares at the time of issuance as adjusted for the
stock split. The options vest on an equal incremental basis over a period of
five years beginning June 1, 1998.
The following sets forth certain information regarding stock options for the
year ended December 31, 1998.
<TABLE>
<CAPTION>
Fixed Options 1998 1997
- ------------- ---------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ......................... 286,000 $ 8.00 -0- $ -0-
Granted .................................................. -0- 0.00 286,000 8.00
Exercised ................................................ 30,800 8.00 -0- -0-
Forfeited ................................................ -0- 0.00 -0- 8.00
--------
Outstanding at end of year ............................... 255,200 $ 8.00 286,000 $ 8.00
======== ======== ======= ========
Exercisable at end of year ............................... 26,400 $ 8.00 -0- $ -0-
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Number Expiration Date Options Exercisable
-------------- -------------------- -------------------
<S> <C> <C> <C>
Options with Exercise Price of $8.00............ 255,200 06-01-07 26,400
</TABLE>
In October 1995, FASB issued Financial Accounting Standards No. 123, Accounting
and Disclosure of Stock-Based Compensation ("SFAS 123") SFAS 123 is effective
for years beginning after December 15, 1995, and allows for the option of
continuing to follow Accounting Principles Board Opinion No. 25, Accounting for
Stocks Issued to Employees, and the related
F-30
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
Interpretations or selecting the minimum value method of expense recognition as
described in SFAS 123. The Company has elected to apply APB Opinion No.
NOTE 15 - STOCK OPTION PLAN - CONTINUED
25 in accounting for its incentive stock options, accordingly, no compensation
cost has been recognized by the Company. The Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below had
compensation cost for the Company's stock option plan been determined based on
the fair value method at the grant date for options under the plan.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net Income
As reported................................................................. $ 1,208,231 $ 1,017,766
Pro forma................................................................... 1,125,073 870,834
Basic Earnings Per Share
As reported................................................................. $ 1.04 $ 0.88
Pro forma................................................................... 0.96 0.75
Diluted Earnings Per Share
As reported................................................................. $ 0.99 $ 0.88
Pro forma................................................................... 0.92 0.75
</TABLE>
These options are assumed to be exercised in the calculation of diluted average
common shares outstanding, causing the equivalent number of shares outstanding
on a diluted basis to be 54,551 greater than that used to calculate basic
earnings per share for 1998 and 7,216 greater than that used to calculate basic
earnings per share for 1997. The dilutive effects on earnings per share for the
years ended December 31, 1998 and 1997 were 5.05 and 5.01, respectively.
The Company's options outstanding have a weighted average contractual life of
nine years. The weighted average fair value of options granted was $1.89 in
1997. The fair value of each grant is estimated using a fair value method with
the following assumptions used for grants in 1997: expected option life of 10
years; no expected volatility; expected dividend yield of 2.05% and a risk free
interest rate of 7.00%.
The effects of applying FAS 123 for providing proforma disclosures are not
likely to be representative of the effects on reported earnings for future
years, nor are the dividend estimates representative of commitments on the part
of the Company's Board.
On June 22, 1999, the Company issued 43,000 options on its shares of common
stock to staff members at an exercise price of $12.00 per share. The options
vest over a period of five years.
NOTE 16 - SHAREHOLDERS' EQUITY
The board of directors of any state-chartered bank in Georgia may declare and
pay cash dividends on its outstanding capital stock without any request for
approval of the Company's regulatory agency if the following conditions are
met:
1. Total classified assets at the most recent examination of the Company do not
exceed 80% of equity capital.
F-31
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
2. The aggregate amount of dividends declared in the calendar year does not
exceed 50% of the prior year's net income.
3. The ratio of equity capital to adjusted assets shall not be less than 6%.
NOTE 16 - SHAREHOLDERS' EQUITY - CONTINUED
As of December 31, 1998, the Banks could declare dividends of approximately
$707,000 without regulatory consent, subject to the Banks' compliance with
regulatory capital restrictions. It is anticipated that any such dividends will
be used for the payment of long term debt service.
In May 1998, the Company issued a 2-for-1 stock split. All per share amounts
included in these financial statements have been retroactively adjusted to give
effect to this split.
In 1998, the Company sold 19,314 shares of stock to its ESOP plan for $310,628.
Of this amount $96,570 was allocated to common stock and $214,058 to capital
surplus. The Company also purchased 14,000 shares of common stock for $154,000,
which is reflected as treasury stock, at cost, in shareholder's equity. During
1998, the Company sold 132,500 shares of stock in a private placement sale for
$2,650,000, of which $662,500 was allocated to common stock and $1,987,500 to
capital surplus. In addition, 30,800 options were exercised for an amount
equaling $394,240, including tax benefit of $147,840, allocated among common
stock, $154,000 and capital surplus, $240,240.
In 1997, the Company sold 24,287 shares of stock to its ESOP plan for $388,607.
Of this amount, $242,870 was allocated to common stock and $145,737 to capital
surplus. The Company also purchased 30,000 shares of common stock for $274,000,
which is reflected as treasury stock, at cost, in shareholder's equity.
The Company is also required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by the banking regulators. The Company's
ratios as of December 31,1998 and December 31,1997 are disclosed in note 16
following.
NOTE 17 - REGULATORY MATTERS
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company and its subsidiary banks and the
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework from prompt corrective action, the Company and its
subsidiary banks must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary banks to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 Capital (as defined
in the regulations) to risk weighted assets (as defined), and of Tier I Capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1998, that the Banks meet all capital adequacy requirements to
which they are subject.
F-32
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 17 - REGULATORY MATTERS - CONTINUED
As of December 31, 1998, the most recent notification from the appropriate
regulatory agencies categorized the subsidiary banks as well capitalized under
the regulatory framework for prompt corrective action. To remain well
capitalized the Company and its subsidiary banks will have to maintain minimum
Total Capital, Tier I Capital, and Tier I Leverage ratios as set forth in the
table below. There are no conditions or events since that notification or
events since the most recent notification that management believes have changed
the Banks' prompt corrective action category.
The Company's and Banks actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
Actual For Capital To Be Well Capitalized Under
Adequacy Purposes Prompt Corrective Action
Provisions
------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total Capital $ 10,721 7.88% $ 10,890 8.0% $ 13.612 10.0%
Consolidated
Gilmer County Bank 10,248 9.92 8,266 8.0 10,332 10.0
Appalachian Community Bank 4,147 12.70 2,612 8.0 3,265 10.0
Tier 1 Capital 9,035 6.64 5,445 4.0 8,167 6.0
Consolidated
Gilmer County Bank 9,120 8.83 4,133 4.0 6,199 6.0
Appalachian Community Bank 3,737 11.44 1,306 4.0 1,959 6.0
Tier 1 Leverage 9,035 4.99 7,242 4.0 9,053 5.0
Consolidated
Gilmer County Bank 9,120 6.70 5,445 4.0 6,806 5.0
Appalachian Community Bank 3,737 8.32 1,798 4.0 2,247 5.0
AS OF DECEMBER 31, 1997:
Total Capital $ 7,846 9.33% $ 6,726 8.0% $ 8,407 10.0%
Consolidated
Gilmer County Bank 9,103 10.83 6,726 8.0 8,407 10.0%
Tier 1 Capital 6,916 8.23 3,363 4.0 5,044 6.0
Consolidated
Gilmer County Bank 8,173 9.72 3,363 4.0 5,044 6.0
Tier 1 Leverage 6,916 6.40 4,321 4.0 5,402 5.0
Consolidated
Gilmer County Bank 8,173 7.56 4,322 4.0 5,403 5.0
</TABLE>
F-33
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 18 - EMPLOYEE BENEFIT PLAN
The Company adopted a defined contribution plan covering substantially all
employees; the plan is qualified under Section 401(k) of the Internal Revenue
Code. Under the provisions of the plan, eligible participating employees may
elect to contribute up to the maximum amount of tax deferred contribution
allowed by the Internal Revenue Code. The Company's contribution to the plan is
determined by the board of directors. In 1996, the plan was amended to allow
employer and employee contributions to be made in the form of cash or Company
stock. The Company made a discretionary cash contributions to the plan of
approximately $145,000 in 1998, $102,000 in 1997, and $28,000 in 1996.
NOTE 19 - LEASES
The Company has a number of operating lease agreements, involving land,
buildings, and equipment These leases are noncancellable and expire on various
dates through the year 2028. The leases provide for renewal options and
generally require the Company to pay maintenance, insurance, and property
taxes. For the year ended December 31, 1998, rental expense for operating
leases was approximately $3,000. Rental expense for the years ended December
31, 1997 and 1996 was negligible.
<TABLE>
<CAPTION>
Year-ending December 31,
------------------------
<S> <C>
1999............................................................................. $ 32,988
2000............................................................................. 32,890
2001............................................................................. 31,800
2002............................................................................. 32,400
2003............................................................................. 33,024
Thereafter....................................................................... 1,023,716
-----------
Total minimum lease payments..................................................... $ 1,186,818
===========
</TABLE>
NOTE 20 - RELATED PARTY TRANSACTIONS
Loans: Certain directors, executive officers and principal shareholders,
including their immediate families and associates were loan customers
of the Company during 1998 and 1997. Such loans are made in the
ordinary course of business at normal credit terms, including interest
rates and collateral and do not represent more than a normal risk of
collection. A summary of activity and amounts outstanding are as
follows:
<TABLE>
<S> <C>
Balance at December 31, 1997............................................................ $ 4,133,302
New loans............................................................................... 2,757,808
Repayments.............................................................................. (2,122,202)
Adjustments/changes in structure........................................................ 694,122
-------------
Adjustments/changes in structure........................................................ $ 5,463,030
=============
</TABLE>
Deposits: Deposits held from related parties were $1,208,198 and $918,848 at
December 31, 1998 and 1997, respectively.
F-34
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 20 - RELATED PARTY TRANSACTIONS - CONTINUED
Other: The Company utilized the services of an accounting firm, of which a
director is a partner, for internal review and various other accounting and tax
services. Amounts paid were at a rate comparable to that which could have been
obtained from unrelated parties.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments: For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Securities: For securities and marketable equity securities held for investment
purposes, fair values are based on quoted market prices or dealer quotes. For
other securities held as investments, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans: For certain homogeneous categories of loans, such as some residential
mortgages, credit card receivables, and other consumer loans, fair value is
estimated using the quoted market prices for securities backed by similar
loans, adjusted for differences in loan characteristics. The fair value of
other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Accrued Interest Receivable: The carrying amount of accrued interest receivable
approximates its fair value.
Deposits: The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposit of similar remaining maturities.
Accrued Interest Payable: The carrying amount of accrued interest payable
approximates its fair value.
Short-term Borrowings: The fair value of short-term borrowings, including
securities sold under agreements to repurchase, is estimated to be
approximately the same as the carrying amount
Long-Term Debt: Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing debt
Commitments to Extend Credit Standby Letters of Credit and Financial Guarantees
Written: The fair value of commitments and letters of credit is estimated to be
approximately the same as the notional amount of the related commitment
The estimated fair values of the Company's financial instruments as of December
31 are as follows:
F-35
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments................ $ 24,281 $ 24,281 $ 5,211 $ 5,211
Securities..................................... 28,159 28,398 19,726 19,854
Loans.......................................... 129,831 129,685 84,584 84,683
Accrued interest receivable.................... 1,320 1,320 972 972
---------- ---------- ---------- ----------
TOTAL FINANCIAL ASSETS.................... $ 183,591 $ 183,684 $ 110,493 $ 110,720
========== ========== ========== ==========
FINANCIAL LIABILITIES
Deposits....................................... $ 163,861 $ 164,921 $ 95,348 $ 95,479
Securities sold under agreements to repurchase. 2,478 2,478 4,228 4,228
Accrued interest payable....................... 666 666 188 188
Long-term debt................................. 11,007 11,192 5,320 5,376
---------- ---------- ---------- ----------
TOTAL FINANCIAL LIABILITIES............... $ 178,012 $ 179,257 $ 105,084 $ 105,271
========== ========== ========== ==========
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit................... $ 16,290 $ 16,290 $ 11,049 $ 11,049
Standby letters of credit...................... 643 643 385 385
---------- ---------- ---------- ----------
TOTAL UNRECOGNIZED FINANCIAL
INSTRUMENTS............................... $ 16,933 $ 16,933 $ 11,434 $ 11,434
========== ========== ========== ==========
</TABLE>
NOTE 22 - YEAR 2000 ISSUES
The Year 2000 issue is the result of shortcomings in many electronic data
processing systems and other electronic equipment that may adversely affect the
Company's operations as early as fiscal year 1999.
The Company has completed an inventory of computer systems and other electronic
equipment that may be affected by the Year 2000 issue and that are necessary to
conducting the Company's operations. Based on this inventory, the Company has
upgraded or replaced various software and hardware items. Testing and
validation of the system for the Year 2000 compliance is currently being
performed.
Because of the unprecedented nature of the Year 2000 issue, its effects and the
success of related remediation efforts will not be fully determinable until the
Year 2000 and thereafter.
F-36
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 23 - CONDENSED PARENT INFORMATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks.................................................... $ 28,222 $ 63,487
Investment in Subsidiaries (equity method) eliminated upon consolidation... 15,301,472 8,215,672
Intangibles, net........................................................... -0- 20,894
Other assets............................................................... -0- -0-
------------- ------------
TOTAL ASSETS.......................................................... $ 15,329,694 $ 8,300,053
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable............................................................... $ 3,600,000 $ 1,320,000
Other liabilities.......................................................... 250,000 -0-
------------- ------------
Total Liabilities.......................................................... 3,850,000 1,320,000
Total Shareholders' Equity................................................. 11,479,694 6,980,053
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $ 15,329,694 $ 8,300,053
============= ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries - eliminated upon consolidation.... $ 500,000 $ -0- 30,000
EXPENSES
Interest....................................................... 93,406 78,517 4,667
Other expenses................................................. 135,701 15,525 2,430
----------- ----------- ----------
229,107 94,042 7,097
----------- ----------- ----------
Income before income taxes and equity in undistributed
earnings of subsidiaries....................................... 270,893 (94,042) 22,903
Income tax benefits................................................ (42,101) (30,913) (2,413)
----------- ----------- ----------
Income before equity in undistributed earnings of subsidiaries..... 312,994 (63,129) 25,316
Equity in undistributed earnings of subsidiaries................... 895,237 1,080,895 491,420
----------- ----------- ----------
Net Income..................................................... $ 1,208,231 $ 1,017,766 $ 516,736
=========== =========== ==========
</TABLE>
F-37
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 23 - CONDENSED PARENT INFORMATION - CONTINUED
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Income ................................................ $ 1,208,231 $ 1,017,766 $ 516,736
Adjustments to reconcile net income to net cash provided by
operating activities Equity in undistributed income of
subsidiaries .............................................. (895,237) (1,080,895) (491,420)
Provision for amortization ................................ -0- 5,832 2,430
Other ..................................................... 270,873 (4,667) (26,902)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .. 583,867 (61,964) 844
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of bank ....................................... (6,100,000) -0- -0-
Capital injection in subsidiaries ......................... -0- (610,000) (700,000)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES ................ (6,100,000) (610,000) (700,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................. 3,600,000 620,000 700,000
Repayment of long-term debt ............................... (1,320,000) -0- -0-
Proceeds from issuance of common stock .................... 3,354,868 388,607 -0-
Purchases of treasury stock ............................... (154,000) (274,000) -0-
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 5,480,868 734,607 700,000
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..................... (35,265) 62,643 844
------------ ------------ ------------
Cash and cash equivalents at beginning of year ................ 63,487 844 -0-
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................... $ 28,222 $ 63,487 $ 844
============ ============ ============
Cash paid during the year for:
Interest .................................................. $ 93,406 $ 83,184 $ -0-
</TABLE>
F-38
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
DECEMBER 31, 1998, 1997 AND 1996
NOTE 24 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected quarterly results of operations for the four quarters ended December
31 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
1998:
Total interest income................................... $ 2,514 $ 2,677 $ 2,761 $ 3,318
Total interest expense.................................. 1,464 1,581 1,620 1,832
Provision for loan losses............................... 110 70 60 60
Net interest income after provision for loan losses..... 940 1,026 1,081 1,426
Securities gains (losses)............................... -0- 14 1 -0-
Total noninterest income................................ 109 125 128 152
Total noninterest expense............................... 660 742 783 1,036
Income tax expense...................................... 150 130 120 172
Net income.............................................. 239 293 307 370
Per Common Share:
Basic earnings...................................... 0.21 0.25 0.27 0.31
Diluted earnings.................................... 0.20 0.24 0.25 0.30
1997:
Total interest income................................... $ 2,170 $ 2,175 $ 2,298 $ 2,499
Total interest expense.................................. 1,211 1,277 1,347 1,427
Provision for loan losses............................... 140 75 85 180
Net income after provision for loan losses.............. 819 823 866 892
Securities gains (losses)............................... 5 (5) 1 -0-
Total noninterest income................................ 81 105 98 94
Total noninterest expense............................... 549 600 606 624
Income tax expense ..................................... 115 100 120 48
Net income.............................................. 241 223 239 314
Per Common Share:
Basic earnings...................................... 0.21 0.20 0.21 0.26
Diluted earnings.................................... 0.21 0.20 0.20 0.26
</TABLE>
F-39
<PAGE> 136
==============================================================================
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...........................................................
Cautionary Notice Regarding Forward-Looking
Statements..........................................................
Risk Factors.................................................................
Use of Proceeds..............................................................
Market for Our Common Equity and Related
Shareholder Matters.................................................
Market for the Preferred Securities..........................................
Accounting and Regulatory Treatment..........................................
Capitalization...............................................................
Selected Consolidated Financial Data and
Statistical Information.............................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................
Our Business.................................................................
Supervision and Regulation...................................................
Management...................................................................
Compensation of Executive Officers...........................................
Certain Transactions.........................................................
Security Ownership of Certain Beneficial
Owners Management...................................................
APAB Capital Trust I.........................................................
Description of Preferred Securities..........................................
Description of Junior Subordinated Debentures................................
Description of Guarantee.....................................................
Relationship Among the Preferred Securities, the
Junior Subordinated Debentures, the Expense
Agreement and the Guarantee.........................................
Federal Income Tax Consequences..............................................
ERISA Considerations.........................................................
Underwriting.................................................................
Legal and Tax Matters........................................................
Experts......................................................................
Where You Can Find Additional Information....................................
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................................
Index to Financial Statements................................................
---------------
You may rely only on the information contained in this prospectus. We have not
authorized anyone to give any information that is different. This prospectus is
not an offer to sell these securities and is not soliciting an offer to buy the
securities in any state where our offer or sale is not permitted. The
information in this prospectus is complete and accurate as of the date on the
cover but the information may change in the future.
==============================================================================
APPALACHIAN
BANCSHARES, INC.
APAB CAPITAL TRUST I
-----------------------------
PROSPECTUS
-----------------------------
WACHOVIA SECURITIES, INC.
, 2000
==============================================================================
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the Georgia Business Corporation Code of the State
of Georgia, Article VI of Appalachian Bancshares, Inc. (the "Corporation")
Articles of Incorporation provide as follows:
Article VI
To the fullest extent permitted by the Georgia Business Corporation
Code as the same exists or may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director:
(A) For any appropriation, in violation of his duties, of any
business opportunity of the Corporation;
(B) For acts or omissions which involve intentional misconduct or
a knowing violation of law;
(C) For the types of liability set forth in Section 14-2-832 of
the Georgia Business Corporation Code; or
(D) For any transaction from which the director received an
improper personal benefit.
Any repeal, amendment, or modification of this Article VI by the
shareholders of the Corporation shall not adversely affect any right, benefit,
or protection of a director of the Corporation existing at the time of such
repeal, amendment, or modification.
Article Nine of the Corporation's Bylaws provides as follows:
Article IX
Indemnification and Interested Parties
9.1 Indemnification. Any person, his heirs, executors, or
administrators, may be indemnified or reimbursed by the Corporation for any
reasonable expense actually incurred in connection with any threatened, pending
or completed action, suit or proceeding (including settlements thereof and
appeals therefrom), whether civil, criminal, administrative or investigative,
to which he shall be made a party or prospective party by reason of the fact
that he is or was a director, trustee, officer, employee, or agent of the
Corporation, or that he is or was serving, at the request of the Corporation,
as a director, trustee, officer, employee, or agent of another firm,
corporation, trust or other organization or enterprise. Provided, however, that
(a) such person shall be entitled to indemnification only upon a resolution of
the Board of Directors then holding office, excluding the votes of any
directors who are parties to the same or substantially the same action, suit,
or proceeding, finding that such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of the Corporation and, in addition, with respect to any criminal action, suit
or proceeding, that such person did not have reasonable cause to believe that
his conduct was unlawful; (b) no person shall be so indemnified or reimbursed
in relation to any matter in such action, suit or proceeding as to which he
shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his
duties to the Corporation, or to such other firm, corporation, trust,
organization or enterprise; and (c) no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding which
has been the subject of a compromise settlement, except with the approval of
(i) a court of competent jurisdiction, (ii) the holders of record of a majority
of the outstanding shares of capital stock of the Corporation, or (iii) a
majority of the members of the Board of
II-1
<PAGE> 138
Directors then holding office, excluding the votes of any directors who are
parties to the same or substantially the same action, suit or proceeding.
9.2 Payment of Expenses in Advance. Expenses incurred in defending
any action, suit, or proceeding referred to above may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director, trustee, officer,
employee or agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation as provided above.
9.3 Insurance. The Corporation, upon the affirmative vote of a
majority of its Board of Directors, may purchase and maintain insurance on
behalf of any person who is or was a director, trustee, officer, employee or
agent of the Corporation, or is or was serving, at the request of the
Corporation, as a director, trustee, officer, employee or agent of another
firm, corporation, trust or other organization or enterprise, against liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the foregoing provisions of these
By-Laws.
9.4 Rights Not Exclusive. The foregoing rights of indemnification
or reimbursement shall not be exclusive of other rights to which the persons
referred to above, or their heirs, executors, or administrators, may be
entitled as a matter of law, and the Corporation may indemnify such persons to
the extent permitted by the Georgia Business Corporation Code, as such laws may
be amended from time to time, and any other applicable laws.
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC registration fee................................... $3,036
NASD fee............................................... 1,650
Nasdaq listing fee..................................... 6,150
Trustee's fees and expenses............................ 15,000*
Legal fees............................................. 80,000*
Accounting fees and expenses........................... 25,000*
Printing expenses...................................... 35,000*
Blue Sky expenses...................................... 10,000*
Miscellaneous expenses................................. 9,164*
------
Total.......................................... $185,000*
</TABLE>
* Estimated
Item 26. Recent Sales of Unregistered Securities.
On November 30, 1998, the Corporation sold 132,500 shares of common
stock for an aggregate price of $2,650,000 in a private placement made in
reliance on Section 4(2) of the Securities Act of 1933. No underwriting
discounts or commissions were paid in connection with such offering.
II-2
<PAGE> 139
Item 27. Exhibits.
The exhibits filed as part of this registration statement are as
follows:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- ------- ------ ----------- -- -------
<S> <C>
1 Form of Underwriting Agreement*
2.1 Purchase Sale and Assumption Agreement, dated July 10, 1998, by and
between Century South Banks, Inc. and the Company(1)
3.1 Articles of Incorporation of the Company(2)
3.2 Bylaws of the Company(2)
4.1 Registration Rights Agreement, dated November 30, 1998, by
and among the Company and Community Financial Services,
Inc.(3)
4.2 Registration Rights Agreement, dated November 30, 1998, by and among the
Company and Ellijay Telephone Company, Inc.(3)
4.3 Registration Rights Agreement, dated November 30, 1998, by and among the
Company and JBC Bancshares, Inc.(3)
4.4 Form of Junior Subordinated Indenture
4.5 Form of Junior Subordinated Debenture (included in Exhibit 4.4)
4.6 Certificate of Trust of APAB Capital Trust I (included in Exhibit 4.7)
4.7 Form of Amended and Restated Trust Agreement
4.8 Form of Preferred Security (included in Exhibit 4.7)
4.9 Form of Guaranty Agreement
5.1 Opinion of Richards, Layton & Finger, P.A., trust counsel
5.2 Opinion of Paul, Hastings, Janofsky & Walker LLP
8.1 Opinion of Tax Counsel
10.1 1997 Directors' Non-Qualified Stock Option Plan**(4)
10.2 1997 Employee Incentive Stock Incentive Plan**(4)
10.3 Adoption Agreement for the Appalachian Bancshares, Inc. Section 401(k)
Profit Sharing Plan.(5)
10.4 Georgia Bankers Association Master 401(k) Profit Sharing Plan(5)
10.5 First Amendment to the Georgia Bankers Association Master Section 401(k)
Profit Sharing Plan(5)
10.6 Form of Deferred Fee Agreement between Gilmer County Bank
and certain directors and executive officers, with
addendum(6)
10.7 Loan and Stock Pledge Agreement, dated as of November 30, 1998, between
the Company and The Bankers Bank(3)
10.8 Promissory Note, dated November 30, 1998, issued by the Company to The
Bankers Bank(3)
11 Statement re: Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.1)
23.3 Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.2)
</TABLE>
* To be filed by amendment.
** The referenced exhibit is a compensatory contract, plan or arrangement.
<TABLE>
<S> <C>
(1) Incorporated by reference to the Company's Current Report on Form 8-K
filed November 30, 1998.
(2) Incorporated by reference to the Company's Registration Statement on
Form 8-A filed September 16, 1996.
(3) Incorporated by reference to the Company's Annual Report on Form
10-KSB filed March 31, 1999.
(4) Incorporated by reference to the Company's Annual Report on Form
10-KSB filed March 26, 1997.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-8 filed May 14, 1997.
(6) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB filed August 14, 1997.
</TABLE>
II-3
<PAGE> 140
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Corporation, or otherwise, the Corporation has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Corporation of expenses incurred or paid by a
director, officer or controlling person of the Corporation 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 Corporation will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Corporation will:
(1) For determining any liability under the Act, treat 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 Corporation under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for the securities offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering of those
securities.
II-4
<PAGE> 141
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned on
December 13, 1999.
APPALACHIAN BANCSHARES, INC.
By: /s/ Tracy R. Newton
-------------------
Tracy R. Newton
President and Chief Executive Officer
Duly Authorized Representative
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of the date indicated.
<TABLE>
<S> <C>
/s/ Tracy R. Newton Date: December 13, 1999
- -----------------------------------------------
Tracy R. Newton, President, Chief Executive
Officer and Director (Principal
Executive Officer)
/s/ Kent W. Sanford Date: December 13, 1999
- -----------------------------------------------
Kent W. Sanford, Executive Vice President,
Chief Operating Officer and Director
/s/ Alan R. May Date: December 13, 1999
- -----------------------------------------------
Alan R. May, Chief Financial Officer (Principal
Financial Officer)
/s/ P. Joe Sisson Date: December 13, 1999
- -----------------------------------------------
P. Joe Sisson, Director
Date:
- ----------------------------------------------- ----------------------
Joseph C. Hensley, Director
Date:
- ----------------------------------------------- ----------------------
Alan S. Dover, Director
Date:
- ----------------------------------------------- ----------------------
Charles A. Edmondson, Director
/s/ Roger E. Futch Date: December 13, 1999
- -----------------------------------------------
Roger E. Futch, Director
/s/ J. Ronald Knight Date: December 13, 1999
- -----------------------------------------------
J. Ronald Knight, Director
/s/ Kenneth D. Warren Date: December 13, 1999
- -----------------------------------------------
Kenneth D. Warren, Director
/s/ Frank E. Jones Date: December 13, 1999
- -----------------------------------------------
Frank E. Jones, Director
</TABLE>
II-5
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, APAB
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Wilmington, Delaware on December 13, 1999.
APAB CAPITAL TRUST I
By: /s/ Kent W. Sanford
----------------------------------
Kent W. Sanford
Authorized Representative
By: /s/ Alan R. May
----------------------------------
Alan R. May
Authorized Representative
II-6
<PAGE> 143
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- ------- ------ ----------- -- -------
<S> <C>
1 Form of Underwriting Agreement*
2.1 Purchase Sale and Assumption Agreement, dated July 10, 1998, by and between Century South
Banks, Inc. and the Company(1)
3.1 Articles of Incorporation of the Company(2)
3.2 Bylaws of the Company(2)
4.1 Registration Rights Agreement, dated November 30, 1998, by and among the Company and
Community Financial Services, Inc.(3)
4.2 Registration Rights Agreement, dated November 30, 1998, by and among the Company and Ellijay
Telephone Company, Inc.(3)
4.3 Registration Rights Agreement, dated November 30, 1998, by and among the Company and JBC
Bancshares, Inc.(3)
4.4 Form of Junior Subordinated Indenture
4.5 Form of Junior Subordinated Debenture (included in Exhibit 4.4)
4.6 Certificate of Trust of APAB Capital Trust I (included in Exhibit 4.7)
4.7 Form of Amended and Restated Trust Agreement
4.8 Form of Preferred Security (included in Exhibit 4.7)
4.9 Form of Guaranty Agreement
5.1 Opinion of Richards, Layton & Finger, P.A., trust counsel
5.2 Opinion of Paul, Hastings, Janofsky & Walker LLP
8.1 Opinion of Tax Counsel
10.1 1997 Directors' Non-Qualified Stock Option Plan**(4)
10.2 1997 Employee Incentive Stock Incentive Plan**(4)
10.3 Adoption Agreement for the Appalachian Bancshares, Inc. Section 401(k) Profit Sharing Plan.(5)
10.4 Georgia Bankers Association Master 401(k) Profit Sharing Plan(5)
10.5 First Amendment to the Georgia Bankers Association Master Section 401(k) Profit Sharing Plan(5)
10.6 Form of Deferred Fee Agreement between Gilmer County Bank and certain directors and executive
officers, with addendum(6)
10.7 Loan and Stock Pledge Agreement, dated as of November 30, 1998, between the Company and The
Bankers Bank(3)
10.8 Promissory Note, dated November 30, 1998, issued by the Company to The Bankers Bank(3)
11 Statement re: Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.1)
23.3 Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.2)
</TABLE>
* To be filed by amendment.
** The referenced exhibit is a compensatory contract, plan or arrangement.
<TABLE>
<S> <C>
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed November 30, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form 8-A filed September 16, 1996.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB filed March 31, 1999.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB filed March 26, 1997.
(5) Incorporated by reference to the Company's Registration Statement on Form S-8 filed May 14, 1997.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB filed August 14, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 4.4
APPALACHIAN BANCSHARES, INC.
AND
WILMINGTON TRUST COMPANY,
AS TRUSTEE
----------------------------
INDENTURE
----------------------------
___% JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES
DUE ________ __, 2030
DATED AS OF _________ __, 2000
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS......................................................................... 1
SECTION 1.1 DEFINITIONS OF TERMS................................................................ 1
ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION AND
EXCHANGE OF THE DEBENTURES.......................................................... 8
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.................................................... 8
SECTION 2.2 MATURITY............................................................................ 8
SECTION 2.3 FORM AND PAYMENT.................................................................... 8
SECTION 2.4 INTEREST............................................................................ 8
SECTION 2.5 EXECUTION AND AUTHENTICATIONS....................................................... 9
SECTION 2.6 REGISTRATION OF TRANSFER AND EXCHANGE............................................... 10
SECTION 2.7 TEMPORARY DEBENTURES................................................................ 11
SECTION 2.8 MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES..................................... 12
SECTION 2.9 CANCELLATION........................................................................ 13
SECTION 2.10 BENEFIT OF INDENTURE................................................................ 13
SECTION 2.11 AUTHENTICATING AGENT................................................................ 13
SECTION 2.12 RIGHT OF SET-OFF.................................................................... 13
SECTION 2.13 CUSIP NUMBERS....................................................................... 14
ARTICLE III. REDEMPTION OF DEBENTURES............................................................ 14
SECTION 3.1 REDEMPTION.......................................................................... 14
SECTION 3.2 SPECIAL EVENT REDEMPTION............................................................ 14
SECTION 3.3 OPTIONAL REDEMPTION BY CORPORATION.................................................. 14
SECTION 3.4 NOTICE OF REDEMPTION................................................................ 15
SECTION 3.5 PAYMENT UPON REDEMPTION............................................................. 15
SECTION 3.6 NO SINKING FUND..................................................................... 16
ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD................................................ 16
SECTION 4.1 EXTENSION OF INTEREST PAYMENT PERIOD................................................ 16
SECTION 4.2 NOTICE OF EXTENSION................................................................. 16
SECTION 4.3 LIMITATION ON TRANSACTIONS.......................................................... 17
ARTICLE V. PARTICULAR COVENANTS OF THE CORPORATION............................................. 17
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST................................................... 17
SECTION 5.2 MAINTENANCE OF AGENCY............................................................... 17
SECTION 5.3 PAYING AGENTS....................................................................... 18
SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.................................... 19
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS............................................ 19
SECTION 5.6 LIMITATION ON TRANSACTIONS.......................................................... 19
SECTION 5.7 COVENANTS AS TO THE TRUST........................................................... 19
SECTION 5.8 COVENANTS AS TO PURCHASES........................................................... 20
SECTION 5.9 RESERVE FOR INTEREST PAYMENTS....................................................... 20
ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY THE CORPORATION AND
THE TRUSTEE......................................................................... 20
SECTION 6.1 CORPORATION TO FURNISH TRUSTEE NAMES AND ADDRESSES OF DEBENTUREHOLDERS.............. 20
SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS.................... 20
SECTION 6.3 REPORTS BY THE CORPORATION.......................................................... 20
SECTION 6.4 REPORTS BY THE TRUSTEE.............................................................. 21
SECTION 6.5 STATEMENTS AS TO DEFAULT............................................................ 21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VII. REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF
DEFAULT............................................................................. 22
SECTION 7.1 EVENTS OF DEFAULT................................................................... 22
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE............................................................................. 23
SECTION 7.3 APPLICATION OF MONIES COLLECTED..................................................... 24
SECTION 7.4 LIMITATION ON SUITS................................................................. 24
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER.............................................................................. 25
SECTION 7.6 CONTROL BY DEBENTUREHOLDERS......................................................... 25
SECTION 7.7 UNDERTAKING TO PAY COSTS............................................................ 26
SECTION 7.8 DIRECT ACTION BY HOLDERS OF PREFERRED SECURITIES.................................... 26
ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE................................................ 26
SECTION 8.1 FORM OF DEBENTURE................................................................... 26
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES........................................................ 26
ARTICLE IX. CONCERNING THE TRUSTEE.............................................................. 26
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES................................................. 26
SECTION 9.2 NOTICE OF DEFAULTS.................................................................. 27
SECTION 9.3 CERTAIN RIGHTS OF TRUSTEE........................................................... 27
SECTION 9.4 TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC........................................... 28
SECTION 9.5 MAY HOLD DEBENTURES................................................................. 29
SECTION 9.6 MONIES HELD IN TRUST................................................................ 29
SECTION 9.7 COMPENSATION AND REIMBURSEMENT...................................................... 29
SECTION 9.8 RELIANCE ON OFFICERS' CERTIFICATE................................................... 29
SECTION 9.9 DISQUALIFICATION: CONFLICTING INTERESTS............................................. 30
SECTION 9.10 CORPORATE TRUSTEE REQUIRED ELIGIBILITY.............................................. 30
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR................................... 30
SECTION 9.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.............................................. 31
SECTION 9.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS......................... 31
SECTION 9.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE CORPORATION........................... 32
ARTICLE X. CONCERNING THE DEBENTUREHOLDERS..................................................... 32
SECTION 10.1 EVIDENCE OF ACTION BY HOLDERS....................................................... 32
SECTION 10.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS.............................................. 32
SECTION 10.3 WHO MAY BE DEEMED OWNERS............................................................ 33
SECTION 10.4 CERTAIN DEBENTURES OWNED BY CORPORATION DISREGARDED................................. 33
SECTION 10.5 ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.......................................... 33
ARTICLE XI. SUPPLEMENTAL INDENTURES............................................................. 33
SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
DEBENTUREHOLDERS.................................................................... 33
SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS............................ 34
SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES................................................... 35
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES...................................... 35
SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES................................................ 35
ARTICLE XII. SUCCESSOR CORPORATION............................................................... 35
SECTION 12.1 CORPORATION MAY CONSOLIDATE, ETC.................................................... 35
SECTION 12.2 SUCCESSOR CORPORATION SUBSTITUTED................................................... 36
SECTION 12.3 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.......................................... 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XIII. SATISFACTION AND DISCHARGE.......................................................... 36
SECTION 13.1 SATISFACTION AND DISCHARGE OF INDENTURE............................................. 36
SECTION 13.2 DISCHARGE OF OBLIGATIONS............................................................ 37
SECTION 13.3 DEPOSITED MONIES TO BE HELD IN TRUST................................................ 37
SECTION 13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS............................................. 37
SECTION 13.5 REPAYMENT TO CORPORATION............................................................ 37
ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
DIRECTORS........................................................................... 38
SECTION 14.1 NO RECOURSE......................................................................... 38
ARTICLE XV. MISCELLANEOUS PROVISIONS............................................................ 38
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.................................................... 38
SECTION 15.2 ACTIONS BY SUCCESSOR................................................................ 38
SECTION 15.3 SURRENDER OF CORPORATION POWERS..................................................... 39
SECTION 15.4 NOTICES............................................................................. 39
SECTION 15.5 GOVERNING LAW....................................................................... 39
SECTION 15.6 TREATMENT OF DEBENTURES AS DEBT..................................................... 39
SECTION 15.7 COMPLIANCE CERTIFICATES AND OPINIONS................................................ 39
SECTION 15.8 PAYMENTS ON BUSINESS DAYS........................................................... 39
SECTION 15.9 CONFLICT WITH TRUST INDENTURE ACT................................................... 40
SECTION 15.10 COUNTERPARTS........................................................................ 40
SECTION 15.11 SEPARABILITY........................................................................ 40
SECTION 15.12 ASSIGNMENT.......................................................................... 40
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS............................................................ 40
SECTION 15.14 ADDITIONAL PROVISIONS FOR THE PAYMENT OF EXPENSES................................... 40
ARTICLE XVI. SUBORDINATION OF DEBENTURES......................................................... 41
SECTION 16.1 AGREEMENT TO SUBORDINATE............................................................ 41
SECTION 16.2 DEFAULT ON SENIOR DEBT OR SUBORDINATED DEBT......................................... 41
SECTION 16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY................................................ 41
SECTION 16.4 SUBROGATION......................................................................... 42
SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION................................................. 43
SECTION 16.6 NOTICE BY THE CORPORATION........................................................... 43
SECTION 16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS............................... 44
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED................................................... 44
</TABLE>
iii
<PAGE> 5
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
SECTION OF TRUST INDENTURE ACT OF 1939, AS AMENDED SECTION OF INDENTURE
<S> <C>
310(a) 9.10
310(b) 9.9
9.11
310(c) N/A
311(a) 9.14
311(b) 9.14
311(c) N/A
312(a) 6.1
6.2(a)
312(b) 6.2(c)
312(c) 6.2(c)
313(a) 6.4(a)
313(b) 6.4(a)
313(c) 6.4(a)
6.4(b)
313(d) 6.4(b)
314(a) 6.3(a)
6.3(b)
6.3(c)
6.5(a)
314(b) N/A
314(c) 15.7
314(d) N/A
314(e) 15.7
314(f) N/A
315(a) 9.1(a)
9.1(b)
9.3
315(b) 9.2
315(c) 9.1(a)
315(d) 9.1(b)
315(e) 7.7
316(a) 1.1
7.6
316(b) 7.4(b)
316(c) 10.1(b)
317(a) 7.2(b)
317(b) 7.2(c)
318(a) 5.3
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Indenture
and shall not affect the interpretation of any of its terms or
provisions.
iv
<PAGE> 6
INDENTURE
INDENTURE, dated as of _________ __, 2000, between APPALACHIAN
BANCSHARES, INC., a Georgia corporation (the "Corporation"), and WILMINGTON
TRUST COMPANY, a Delaware banking corporation (the "Trustee").
RECITALS
WHEREAS, for its lawful corporate purposes, the Corporation has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of unsecured securities to be known as its ____% Junior Subordinated
Deferrable Interest Debentures due ______ __, 2030 (hereinafter referred to as
the "Debentures"), the form and substance of such Debentures and the terms,
provisions and conditions thereof to be set forth as provided in this
Indenture; and
WHEREAS, APAB Capital Trust I, a Delaware statutory business trust
(the "Trust"), has offered to the public up to $____________ aggregate
liquidation amount of its Preferred Securities (as defined herein) and proposes
to invest the proceeds from such offering, together with the proceeds of the
issuance and sale by the Trust to the Corporation of up to $_________ aggregate
liquidation amount of its Common Securities (as defined herein), in up to
$_________ aggregate principal amount of the Debentures; and
WHEREAS, the Corporation has requested that the Trustee execute and
deliver this Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Corporation and authenticated and delivered by the Trustee, the
valid obligations of the Corporation, have been performed, and the execution
and delivery of this Indenture have been duly authorized in all respects; and
WHEREAS, to provide the terms and conditions upon which the Debentures
are to be authenticated, issued and delivered, the Corporation has duly
authorized the execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Corporation, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of
the Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures and
intending to be legally bound hereby:
ARTICLE I.
DEFINITIONS
SECTION 1.1 DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section 1.1 and shall include the
plural as well as the singular. All other terms used in this Indenture that are
defined in the Trust Indenture Act, or that are by reference in the Trust
Indenture Act defined in the Securities Act (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in the Trust Indenture Act and in the
Securities Act as in force at the date of the execution of this instrument. All
accounting terms used herein and not expressly defined shall have the meanings
assigned to such terms in accordance with Generally Accepted Accounting
Principles as in effect at the time of computation.
"Additional Interest" shall have the meaning set forth in Section 2.4.
"Administrative Trustees" shall have the meaning set forth in the
Trust Agreement.
1
<PAGE> 7
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f)
if the specified Person is an individual, any entity of which the specified
Person is an executive officer, director or general partner.
"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 an authenticating agent with respect to
the Debentures appointed by the Trustee pursuant to Section 2.11.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Corporation
or any duly authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Corporation to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification.
"Business Day" means, with respect to the Debentures, any day other
than a Saturday or a Sunday or a day on which banking institutions in the
Cities of New York or New Orleans are authorized or required by law, executive
order or regulation to close, or a day on which the principal Corporate Trust
Office of the Trustee or the Property Trustee is closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion
of Counsel rendered by a law firm having a recognized national banking
practice, to the effect that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change pronouncement, action or decision
is announced on or after the date of original issuance of the Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
that the Preferred Securities would not constitute "Tier 1 Capital" (or the
then equivalent thereof) for purposes of the capital adequacy guidelines of the
Federal Reserve (or any successor regulatory authority with jurisdiction over
bank holding companies), or any capital adequacy guidelines as then in effect
and applicable to the Corporation.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer, the principal accounting officer, the
treasurer or any vice president of the Corporation. The Certificate need not
comply with the provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this 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.
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"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with the Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment in respect of (i) distributions and (ii)
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means (i) when used with respect to the
Trustee, the office of the Trustee at which, at any particular time, its
corporate trust business shall be principally administered, which office at the
date hereof is located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust Administration, or (ii)
when used with respect to the Property Trustee, the office of the Property
Trustee, at which, at any particular time, its corporate trust business shall
be principally administered, which office at the date hereof is located at
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration.
"Corporation" means Appalachian Bancshares, Inc. a corporation duly
organized and existing under the laws of the State of Georgia, and, subject to
the provisions of Article XII, shall also include its successors and assigns.
"Coupon Rate" shall have the meaning set forth in Section 2.4.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or
other similar term, means the Person or Persons in whose name or names a
particular Debenture shall be registered on the books of the Corporation or the
Trustee kept for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section
2.6(b).
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person, whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of financial derivative
products, including interest rate, foreign exchange rate and commodity forward
contracts, options, swaps and similar arrangements; (vii) every obligation of
the type referred to in clauses (i) through (v) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable, directly or indirectly, as obligor
or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulted Interest" has the meaning provided in Section 2.4A hereof.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
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"Depositary" means, with respect to the Debentures issuable or issued
in whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Corporation pursuant to Section 2.3. The
initial Depositary shall be DTC.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance
with the Trust Agreement and the Debentures held by the Property Trustee are to
be distributed to the holders of the Trust Securities issued by the Trust pro
rata in accordance with the Trust Agreement.
"DTC" shall mean The Depository Trust Company.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor statute, in each case as amended from time to time.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting
principles as are generally accepted at the time of any computation required
hereunder.
"Global Security" means a Debenture evidencing all or part of the
Debentures, issued to the Depositary or its nominee, and registered in the name
of such Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America that, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"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.
"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 in accordance with the terms hereof.
"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, shall have the meaning set forth in Section 2.4.
"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 Trust of an
Opinion of Counsel rendered by a law firm having a recognized national tax and
securities law practice, to the effect that, as a result of
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the occurrence of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in 1940 Act Law"), the
Trust is or shall be considered an "investment company" that is required to be
registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities under the Trust Agreement.
"Maturity Date" means the date on which the Debentures mature and on
which the principal shall be due and payable together with all accrued and
unpaid interest thereon including Compounded Interest and Additional Interest,
if any, as set forth in Section 2.2.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the Chairman,
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Controller or an Assistant Controller or the Secretary or an Assistant
Secretary, of the Corporation, and delivered to the Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering
the Officers' Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as being opined upon, that is delivered to
the Trustee in accordance with the terms hereof.
"Other Debentures" means all junior subordinated debentures ranking
pari passu or junior to the Debentures (other than the Debentures) issued by
the Corporation from time to time and sold to trusts established or to be
established by the Corporation, in each case similar to the Trust to issue
securities intended to qualify for Tier I capital treatment.
"Outstanding" when used with reference to the Debentures, means,
subject to the provisions of Section 10.4, as of any particular time, all
Debentures theretofore authenticated and delivered by the Trustee under this
Indenture, except (a) Debentures theretofore canceled by the Trustee or any
paying agent, or delivered to the Trustee or any paying agent for cancellation
or that have previously been canceled; (b) Debentures or portions thereof for
the payment or redemption of which monies or Governmental Obligations in the
necessary amount shall have been deposited in trust with the Trustee or with
any paying agent (other than the Corporation) or shall have been set aside and
segregated in trust by the Corporation (if the Corporation shall act as its own
paying agent); provided, however, that if such Debentures or portions of such
Debentures are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as provided in Article III or provision
satisfactory to the Trustee shall have been made for giving such notice; (c)
Debentures in lieu of or in substitution for which other Debentures shall have
been authenticated and delivered pursuant to the terms of Section 2.6 and (d)
Debentures paid pursuant to Section 2.8.
"Person" means any individual, corporation, partnership,
joint-venture, trust, limited liability company, joint-stock company,
unincorporated organization or government or any agency or political
subdivision thereof.
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"Place of Payment" means the place or places where the principal of
and interest on the Debentures are payable in accordance with the terms of this
Indenture.
"Predecessor Debenture" means every previous Debenture evidencing all
or a portion of the same debt as that evidenced by such particular Debenture;
and, for the purposes of this definition, any Debenture authenticated and
delivered under Section 2.8 in lieu of a lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the lost, destroyed or stolen
Debenture.
"Preferred Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Common Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means the Preferred Securities
Guarantee Agreement dated ________ __, 2000, as amended from time to time, by
and between the Corporation, as guarantor, and the Trustee, executed and
delivered for the benefit of the Holders of the Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Regular Record Date" means the Business Day next preceding any
Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee in its corporate trust administration who is responsible
for the administration of the Trust and whose name appears on the list of
Responsible Officers of the Trustee which shall be furnished by the Trustee to
the Corporation, as such list may be revised from time to time.
"Scheduled Maturity Date" means ________ __, 2030.
"Securities Act" means the Securities Act of 1933, or any successor
statute, in each case as amended from time to time.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Corporation
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of this
Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are not superior in right of payment to the
Debentures or to other Debt which is pari passu with, or subordinated to, the
Debentures; provided, however, that Senior Debt shall not be deemed to include
(i) any Debt of the Corporation which when incurred and without respect to any
election under Section 1111 (b) of the Bankruptcy Law was without recourse to
the Corporation; (ii) any Debt of the Corporation to any of its subsidiaries;
and (iii) any Debt to any employee of the Corporation.
"Senior Indebtedness" shall have the meaning set forth in Section
16.1.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Corporation
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of this
Indenture or thereafter incurred, which is by its terms expressly provided to
be junior and subordinate to other Debt of the Corporation (other than the
Debentures), except that Subordinated Debt shall not include: (i) any Debt of
the Corporation 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 Corporation; (ii) any Debt of the Corporation to any of
its
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Subsidiaries; (iii) any Debt to any employee of the Corporation and (iv)
Debentures or Other Debentures, including Debentures sold by the Corporation to
the Trust.
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture, trust or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned
by such Person, or by one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries; and (iii) any limited partnership of which
such Person or any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel
rendered by a law firm having a recognized national tax and securities
practice, to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the date of issuance of the Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
that (i) the Trust is, or shall be within 90 days after the date of such
Opinion of Counsel, subject to United States federal income tax with respect to
income received or accrued on the Debentures; (ii) interest payable by the
Corporation on the Debentures is not, or within 90 days after the date of such
Opinion of Counsel, shall not be, deductible by the Corporation, in whole or in
part, for United States federal income tax purposes; or (iii) the Trust is, or
shall be within 90 days after the date of such Opinion of Counsel, subject to
more than a de minimis amount of other taxes, duties, assessments or other
governmental charges. The Trust or the Corporation shall request and receive
such Opinion of Counsel with regard to such matters within a reasonable period
of time after the Trust or the Corporation shall have become aware of the
possible occurrence of any of the events described in clauses (i) through (iii)
above.
"Trust" means APAB Capital Trust I, a Delaware statutory business
trust created by the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement,
dated _______ __, 2000, of the Trust, as amended, modified or supplemented in
accordance with the applicable provisions thereof, among the trustees of the
trust named therein, the Corporation, as depositor, and the holders from time
to time of undivided beneficial ownership interests in the assets of the Trust,
including all exhibits thereto, including, for all purposes of the Trust
Agreement, and any such modification, amendment or supplement, the provisions
of the Trust Indenture Act that are deemed to be a part of and govern the Trust
Agreement and any such modification, amendment or supplement, respectively.
"Trustee" means Wilmington Trust Company and, subject to the
provisions of Article IX, shall also include its successors and assigns, and,
if at any time there is more than one Person acting in such capacity hereunder,
"Trustee" shall mean each such Person.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, subject to the provisions of Sections 11.1, 11.2, and 12.1 and any
successor statute thereto, in each case as amended from time to time.
"Trust Securities" means the Common Securities and Preferred
Securities, collectively.
"Voting Stock" as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than
shares, interests, participations or other equivalents having such power only
by reason of the occurrence of a contingency.
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ARTICLE II.
ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION
AND EXCHANGE OF THE DEBENTURES
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.
There are hereby authorized Debentures designated the "___% Junior
Subordinated Deferrable Interest Debentures due _______ __, 2030," limited in
aggregate principal amount to not more than $__________ which amount shall be
as set forth in any written order of the Corporation for the authentication and
delivery of Debentures pursuant to Section 2.5.
SECTION 2.2 MATURITY.
The Maturity Date shall be the Scheduled Maturity Date.
SECTION 2.3 FORM AND PAYMENT.
The Debentures shall be issued in fully registered certificated form
without interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee;
provided, however, that payment of interest may be made at the option of the
Corporation by check mailed to the holder at such address as shall appear in
the Debenture Register or by wire transfer to an account maintained by the
holder as specified in the Debenture Register, provided that the holder
provides proper wire transfer instructions by the Regular Record Date.
Notwithstanding the foregoing, so long as the holder of any Debentures is the
Property Trustee, the payment of the principal of and interest (including
Compounded Interest and Additional Interest, if any) on such Debentures held by
the Property Trustee shall be made at such place and to such account as may be
designated by the Property Trustee.
Debentures 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 DTC.
SECTION 2.4 INTEREST.
(a) Each Debenture shall bear interest at the rate of ___% per
annum (the "Coupon Rate") from the original date of issuance until the
principal thereof becomes due and payable, and on any overdue principal and (to
the extent that payment of such interest is enforceable under applicable law)
on any overdue installment of interest at the Coupon Rate, compounded
quarterly, payable (subject to the provisions of Article IV) quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each,
an "Interest Payment Date," commencing on March 31, 2000), to the Person in
whose name such Debenture or any Predecessor Debenture is registered at the
close of business on the Regular Record Date next preceding such Interest
Payment Date.
(b) The amount of interest payable for any period shall be
computed on the basis of a 360-day year of twelve 30-day months. Except as
provided in the following sentence, the amount of interest payable for any
period shorter than a full quarterly period for which interest is computed,
shall be computed on the basis of the actual number of days elapsed in such
period. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of interest payable on such date
shall be made on the next succeeding day which is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day (and without any reduction of
interest or any other payment in respect of any such acceleration), in each
case with the same force and effect as if made on the date such payment was
originally payable.
(c) If, at any time while the Property Trustee is the holder of
any Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever
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nature (other than withholding taxes) imposed by the United States, or any
other taxing authority, then, in any case, the Corporation shall pay as
additional interest ("Additional Interest") on the Debentures held by the
Property Trustee, such additional amounts as shall be required so that the net
amounts received and retained by the Trust and the Property Trustee after
paying such taxes, duties, assessments or other governmental charges shall be
equal to the amounts the Trust and the Property Trustee would have received had
no such taxes, duties, assessments or other governmental charges been imposed.
SECTION 2.4A DEFAULTED INTEREST.
Any interest on any Debenture that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date and (to the extent that
payment of such interest is enforceable) interest or any overdue installment of
interest at the Coupon Rate, compounded quarterly (herein called "Defaulted
Interest") shall, notwithstanding the provisions of Section 2.4(a), forthwith
cease to be payable to the holder on the relevant Regular Record Date by virtue
of having been such holder; and such Defaulted Interest shall be paid by the
Corporation, at its election, as provided in clause (a) or clause (b) below:
(a) The Corporation may make payment of any Defaulted Interest
on Debentures to the Persons in whose names such Debentures (or their
respective Predecessor Debentures) are registered at the close of business on a
special record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner: the Corporation shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each such
Debenture and the date of the proposed payment, and at the same time the
Corporation shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as herein
provided. Thereupon the Trustee shall fix a special record date for the payment
of such Defaulted Interest which shall not be more than 15 nor less than 10
days prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Corporation of such special record date and, in the
name and at the expense of the Corporation, shall cause notice of the proposed
payment of such Defaulted Interest and the special record date therefor to be
mailed, first class postage prepaid, to each Debentureholder at his or her
address as it appears in the Debenture Register, not less than 10 days prior to
such special record date. Notice of the proposed payment of such Defaulted
Interest and the special record date therefor having been mailed as aforesaid,
such Defaulted Interest shall be paid to the Persons in whose names such
Debentures (or their respective Predecessor Debentures) are registered on such
special record date and shall be no longer payable pursuant to the following
clause (b).
(b) The Corporation may make payment of any Defaulted Interest
on any Debentures in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Debentures may be listed,
and upon such notice as may be required by such exchange if, after notice given
by the Corporation to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the Trustee.
SECTION 2.5 EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Corporation
by its Chairman, President or one of its Vice Presidents, under its corporate
seal attested by its Secretary or one of its Assistant Secretaries. Signatures
may be in the form of a manual or facsimile signature. The Corporation may use
the facsimile signature of any Person who shall have been a Chairman, President
or Vice President thereof, or of any Person who shall have been a Secretary or
Assistant Secretary thereof, notwithstanding the fact that at the time the
Debentures shall be authenticated and delivered or disposed of such Person
shall have ceased to be the Chairman, President or a Vice President, or the
Secretary or an Assistant Secretary, of the Corporation (and any such signature
shall be binding on the Corporation). The seal of the Corporation may be in the
form of a facsimile of such seal and may be impressed, affixed, imprinted or
otherwise reproduced on the Debentures. The Debentures may contain such
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Debenture shall be dated the date of its authentication by the
Trustee.
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(b) A Debenture shall not be valid until authenticated manually
by an authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
(c) At any time and from time to time after the execution and
delivery of this Indenture, the Corporation may deliver Debentures executed by
the Corporation to the Trustee for authentication, together with a written
order of the Corporation for the authentication and delivery of such Debentures
signed by its Chairman, President or any Vice President and its Secretary or
any Assistant Secretary, and the Trustee in accordance with such written order
shall authenticate and make available for delivery such Debentures.
(d) In authenticating such Debentures and accepting the
additional responsibilities under this Indenture in relation to such
Debentures, the Trustee shall be entitled to receive, and (subject to Section
9.1) shall be fully protected in relying upon, an Opinion of Counsel stating
that the form and terms thereof have been established in conformity with the
provisions of this Indenture.
(e) The Trustee shall not be required to authenticate such
Debentures if the issue of such Debentures pursuant to this Indenture shall
affect the Trustee's own rights, duties or immunities under the Debentures and
this Indenture or otherwise in a manner that is not reasonably acceptable to
the Trustee.
SECTION 2.6 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at
the office or agency of the Corporation designated for such purpose, for other
Debentures and for a like aggregate principal amount, upon payment of a sum
sufficient to cover any tax or other governmental charge in relation thereto,
all as provided in this Section 2.6. In respect of any Debentures so
surrendered for exchange, the Corporation shall execute, the Trustee shall
authenticate and such office or agency shall deliver in exchange therefor the
Debenture or Debentures that the Debenture holder making the exchange shall be
entitled to receive, bearing numbers not contemporaneously outstanding.
(b) The Corporation shall keep, or cause to be kept, at its
office or agency designated for such purpose or such other location designated
by the Corporation a register or registers (herein referred to as the
"Debenture Register") in which, subject to such reasonable regulations as it
may prescribe, the Corporation shall register the Debentures and the transfers
of Debentures as in this Article II provided and which at all reasonable times
shall be open for inspection by the Trustee. The registrar for the purpose of
registering Debentures and transfer of Debentures as herein provided shall be
appointed as authorized by Board Resolution (the "Debenture Registrar"). Upon
surrender for transfer of any Debenture at the office or agency of the
Corporation designated for such purpose, the Corporation shall execute, the
Trustee shall authenticate and such office or agency shall make available for
delivery in the name of the transferee or transferees a new Debenture or
Debentures for a like aggregate principal amount. All Debentures presented or
surrendered for exchange or registration of transfer, as provided in this
Section 2.6, shall be accompanied (if so required by the Corporation or the
Debenture Registrar) by a written instrument or instruments of transfer, in
form satisfactory to the Corporation or the Debenture Registrar, duly executed
by the registered holder or by such holder's duly authorized attorney in
writing.
(c) No service charge shall be made for any exchange or
registration of transfer of Debentures, or issue of new Debentures in case of
partial redemption, but the Corporation may require payment of a sum sufficient
to cover any tax or other governmental charge in relation thereto, other than
exchanges pursuant to Section 2.7, Section 3.5(b) and Section 11.4 not
involving any transfer.
(d) The Corporation shall not be required (i) to issue,
exchange or register the transfer of any Debentures during a period beginning
at the opening of business 15 days before the day of the mailing of a notice of
redemption of less than all the Outstanding Debentures and ending at the close
of business on the day of such mailing; nor (ii) to register the transfer of or
exchange any Debentures or portions thereof called for redemption.
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(e) Notwithstanding any other provision of this Indenture,
transfers and exchanges of Debentures and beneficial interests in a Global
Security, whether pursuant to this Article II, Section 3.5, Article IX or
otherwise, shall be made only in accordance with this Section 2.6(e).
(i) A Debenture 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 Debenture that is not a Global Security or may be
exchanged, in whole or in part, for another Debenture that is not a
Global Security, as provided in this Section 2.6.
(ii) A beneficial interest in a Global Security may be
transferred or exchanged for a Debenture that is not a Global Security
only as provided in Section 2.7A.
SECTION 2.7 TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Corporation may
execute, and the Trustee shall authenticate and deliver, temporary Debentures
(printed, lithographed, or typewritten). Such temporary Debentures shall be
substantially in the form of the definitive Debentures in lieu of which they
are issued, but with such omissions, insertions and variations as may be
appropriate for temporary Debentures, all as may be determined by the
Corporation. Every temporary Debenture shall be executed by the Corporation and
be authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the definitive Debentures. Without
unnecessary delay the Corporation shall execute and shall furnish definitive
Debentures and thereupon any or all temporary Debentures may be surrendered in
exchange therefor (without charge to the holders), at the office or agency of
the Corporation designated for such purpose, and the Trustee shall authenticate
and such office or agency shall deliver in exchange for such temporary
Debentures an equal aggregate principal amount of definitive Debentures, unless
the Corporation advises the Trustee to the effect that definitive Debentures
need not be executed and furnished until further notice from the Corporation.
Until so exchanged, the temporary Debentures shall be entitled to the same
benefits under this Indenture as definitive Debentures authenticated and
delivered hereunder.
SECTION 2.7A GLOBAL SECURITIES.
(a) Each Global Security issued under this Indenture shall be
registered in the name of the Depositary designated by the Corporation 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 Debentures 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
Corporation is unable to locate a qualified successor, (ii) the Corporation
executes and delivers to the Trustee a Corporation order stating that the
Corporation 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
Debentures or cancelled in whole, it shall be surrendered by or on behalf of
the Depositary or its nominee to the Securities Registrar for exchange or
cancellation as provided in this Article II. If any Global Security is to be
exchanged for other Debentures or cancelled in part, or if another Debenture 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 II or (ii) the principal
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 principal amount of
such Debenture 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 Applicable
Procedures, shall instruct the Depositary or its authorized
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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 2.6 and as
otherwise provided in this Article II, authenticate and make available for
delivery any Debentures 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) Except as otherwise provided in the preceding provisions of
this Section 2.7A, every Debenture 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 II, Section
3.5 or Article IX or otherwise, shall be authenticated and delivered in the
form of, and shall be, a Global Security, unless such Debenture 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 Debenture, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to 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 2.8 MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become
mutilated or be destroyed, lost or stolen, the Corporation (subject to the next
succeeding sentence) shall execute, and upon the Corporation's request the
Trustee (subject as aforesaid) shall authenticate and make available for
delivery, a new Debenture bearing a number not contemporaneously outstanding,
in exchange and substitution for the mutilated Debenture, or in lieu of and in
substitution for the Debenture so destroyed, lost or stolen. In every case the
applicant for a substituted Debenture shall furnish to the Corporation and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Corporation and the Trustee evidence to their
satisfaction of the destruction, loss or theft of the applicant's Debenture and
of the ownership thereof. The Trustee may authenticate any such substituted
Debenture and make available for delivery the same upon the written request or
authorization of any officer of the Corporation. Upon the issuance of any
substituted Debenture, the Corporation may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith. In case any Debenture that has matured or is
about to mature shall become mutilated or be destroyed, lost or stolen, the
Corporation may, instead of issuing a substitute Debenture, pay or authorize
the payment of the same (without surrender thereof except in the case of a
mutilated Debenture) if the applicant for such payment shall furnish to the
Corporation and the Trustee such security or indemnity as they may require to
save them harmless, and, in case of destruction, loss or theft, evidence to the
satisfaction of the Corporation and the Trustee of the destruction, loss or
theft of such Debenture and of the ownership thereof.
(b) Every replacement Debenture issued pursuant to the
provisions of this Section 2.8 shall constitute an additional contractual
obligation of the Corporation whether or not the mutilated, destroyed, lost or
stolen Debenture shall be found at any time, or be enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Debentures duly issued hereunder. All
Debentures shall be held and owned upon the express condition that the
foregoing provisions are exclusive with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the
extent lawful) any and all other rights or remedies, notwithstanding
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any law or statute existing or hereafter enacted to the contrary with respect
to the replacement or payment of negotiable instruments or other securities
without their surrender.
SECTION 2.9 CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption,
exchange or registration of transfer shall, if surrendered to the Corporation
or any paying agent, be delivered to the Trustee for cancellation, or, if
surrendered to the Trustee, shall be canceled by it, and no Debentures shall be
issued in lieu thereof except as expressly required or permitted by any of the
provisions of this Indenture. On request of the Corporation at the time of such
surrender, the Trustee shall deliver to the Corporation canceled Debentures
held by the Trustee. In the absence of such request the Trustee may dispose of
canceled Debentures in accordance with its standard procedures. If the
Corporation shall otherwise acquire any of the Debentures, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.10 BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied,
shall give or be construed to give to any Person, other than the parties hereto
and the holders of the Debentures (and, with respect to the provisions of
Article XVI, the holders of Senior Indebtedness) any legal or equitable right,
remedy or claim under or in respect of this Indenture, or under any covenant,
condition or provision herein contained; all such covenants, conditions, and
provisions being for the sole benefit of the parties hereto and of the holders
of the Debentures (and, with respect to the provisions of Article XVI, the
holders of Senior Indebtedness).
SECTION 2.11 AUTHENTICATING AGENT.
(a) So long as any of the Debentures remain Outstanding there
may be an Authenticating Agent for any or all such Debentures, which the
Trustee shall have the right to appoint. Said Authenticating Agent shall be
authorized to act on behalf of the Trustee to authenticate Debentures issued
upon exchange, transfer or partial redemption thereof, and Debentures 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. All references in this Indenture to the authentication of Debentures
by the Trustee shall be deemed to include authentication by an Authenticating
Agent. Each Authenticating Agent shall be acceptable to the Corporation and
shall be a corporation that has a combined capital and surplus, as most
recently reported or determined by it, sufficient under the laws of any
jurisdiction under which it is organized or in which it is doing business to
conduct a trust business, and that is otherwise authorized under such laws to
conduct such business and is subject to supervision or examination by federal
or state authorities. If at any time any Authenticating Agent shall cease to be
eligible in accordance with these provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Corporation. The
Trustee may at any time (and upon request by the Corporation shall) terminate
the agency of any Authenticating Agent by giving written notice of termination
to such Authenticating Agent and to the Corporation. Upon resignation,
termination or cessation of eligibility of any Authenticating Agent, the
Trustee may appoint an eligible successor Authenticating Agent acceptable to
the Corporation. Any successor Authenticating Agent, upon acceptance of its
appointment hereunder, shall become vested with all the rights, powers and
duties of its predecessor hereunder as if originally named as an Authenticating
Agent pursuant hereto.
SECTION 2.12 RIGHT OF SET-OFF.
With respect to the Debentures initially issued to the Trust,
notwithstanding anything to the contrary herein, the Corporation shall have the
right to set-off any payment it is otherwise required to make in respect of any
such Debenture to the extent the Corporation has theretofore made, or is
concurrently on the date of such payment making, a payment under the Preferred
Securities Guarantee relating to such
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Debenture or to a holder of Preferred Securities pursuant to an action
undertaken under Section 7.8 of this Indenture.
SECTION 2.13 CUSIP NUMBERS.
The Corporation in issuing the Debentures may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Debentureholders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Debentures or as contained in any notice
of a redemption and that reliance may be placed only on the other
identification numbers printed on the Debentures, and any such redemption shall
not be affected by any defect in or omission or such numbers. The Corporation
will promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE III.
REDEMPTION OF DEBENTURES
SECTION 3.1 REDEMPTION.
Subject to the Corporation having received prior regulatory approval,
if then required under applicable capital guidelines or regulatory policies,
the Corporation may redeem the Debentures issued hereunder on and after the
dates set forth in and in accordance with the terms of this Article III.
SECTION 3.2 SPECIAL EVENT REDEMPTION.
Subject to the Corporation having received prior regulatory approval,
if then required under applicable capital guidelines or regulatory policies, if
a Special Event has occurred and is continuing, then, notwithstanding Section
3.3, the Corporation shall have the right upon not less than 30 days nor more
than 60 days notice to the holders of the Debentures to redeem the Debentures,
in whole but not in part, for cash within 90 days following the occurrence of
such Special Event (the "90-Day Period") at a redemption price equal to 100% of
the principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption (the "Redemption Price"), provided that
if such Special Event is a Tax Event and at the time there is available to the
Corporation the opportunity to eliminate, within the 90-Day Period, such Tax
Event by taking some ministerial action (a "Ministerial Action"), such as
filing a form or making an election, or pursuing some other similar reasonable
measure which has no adverse effect on the Corporation, the Trust or the
holders of the Trust Securities, the Corporation shall pursue such Ministerial
Action in lieu of redemption, and, provided further, that the Corporation shall
have no right to redeem the Debentures while the Trust is pursuing any
Ministerial Action pursuant to its obligations under the Trust Agreement. The
Redemption Price shall be paid prior to 12:00 noon, New York time, on the date
of such redemption or such earlier time as the Corporation determines, provided
that the Corporation shall deposit with the Trustee an amount sufficient to pay
the Redemption Price by 10:00 a.m., New York time, on the date such Redemption
Price is to be paid.
SECTION 3.3 OPTIONAL REDEMPTION BY CORPORATION.
(a) Subject to the provisions of Section 3.3(b), except as
otherwise may be specified in this Indenture but not in limitation of Section
3.2, the Corporation shall have the right to redeem the Debentures, in whole or
in part, from time to time, on or after ______ __, 2005, at a Redemption Price
equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest thereon to the date of such redemption. Any redemption pursuant
to this Section 3.3 shall be made upon not less than 30 days nor more than 60
days notice to the holder of the Debentures, at the Redemption Price. If the
Debentures are only partially redeemed pursuant to this Section 3.3, the
Debentures shall be redeemed pro rata or by lot or in such other manner as the
Trustee shall deem appropriate and fair in its discretion. The Redemption Price
shall be paid prior to 12:00 noon, New York time, on the date of such
redemption or at such earlier time as the Corporation determines provided that
the Corporation shall deposit with the Trustee an amount sufficient to pay the
Redemption Price by 10:00 a.m., New York time, on the date such Redemption
Price is to be paid.
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(b) If a partial redemption of the Debentures would result in
the delisting of the Preferred Securities issued by the Trust from the Nasdaq
SmallCap Market or any national securities exchange or other organization on
which the Preferred Securities are then listed, the Corporation shall not be
permitted to effect such partial redemption and may only redeem the Debentures
in whole.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) In case the Corporation shall desire to exercise such right
to redeem all or a portion of the Debentures in accordance with the right
reserved so to do, the Corporation shall, or shall cause the Trustee to, upon
receipt of 45 days written notice from the Corporation (which notice shall, in
the event of a partial redemption, include a representation to the effect that
such partial redemption will not result in the delisting of the Preferred
Securities as described in Section 3.3(b) hereof), give notice of such
redemption to holders of the Debentures to be redeemed by mailing, first class
postage prepaid, a notice of such redemption not less than 30 days and not more
than 60 days before the date fixed for redemption to such holders at their last
addresses as they shall appear upon the Debenture Register unless a shorter
period is specified in the Debentures to be redeemed. Any notice that is mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the registered holder receives the notice. In any case,
failure duly to give such notice to the holder of any Debenture designated for
redemption in whole or in part, or any defect in the notice, shall not affect
the validity of the proceedings for the redemption of any other Debentures. In
the case of any redemption of Debentures prior to the expiration of any
restriction on such redemption provided in the terms of such Debentures or
elsewhere in this Indenture, the Corporation shall furnish the Trustee with an
Officers' Certificate evidencing compliance with any such restriction. Each
such notice of redemption shall identify the Debenture to be redeemed
(including CUSIP numbers, if any) and shall specify the date fixed for
redemption and the Redemption Price and shall state that payment of the
Redemption Price shall be made at the office or agency of the Corporation or at
the Corporate Trust Office, upon presentation and surrender of such Debentures,
that interest accrued to the date fixed for redemption shall be paid as
specified in said notice and that from and after said date interest shall cease
to accrue. If less than all the Debentures are to be redeemed, the notice to
the holders of the Debentures shall specify the particular Debentures to be
redeemed. If the Debentures are to be redeemed in part only, the notice shall
state the portion of the principal amount thereof to be redeemed and shall
state that on and after the redemption date, upon surrender of such Debenture,
a new Debenture or Debentures in principal amount equal to the unredeemed
portion thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the
Corporation shall give the Trustee at least 45 days notice in advance of the
date fixed for redemption as to the aggregate principal amount of Debentures to
be redeemed, and thereupon the Trustee shall select, by lot or in such other
manner as it shall deem appropriate and fair in its discretion, the portion or
portions (equal to $10 or any integral multiple thereof) of the Debentures to
be redeemed and shall thereafter promptly notify the Corporation in writing of
the numbers of the Debentures to be redeemed, in whole or in part. The
Corporation may, if and whenever it shall so elect pursuant to the terms
hereof, by delivery of instructions signed on its behalf by its Chairman,
President or any Vice President, instruct the Trustee or any paying agent to
call all or any part of the Debentures for redemption and to give notice of
redemption in the manner set forth in this Section 3.4, such notice to be in
the name of the Corporation or its own name as the Trustee or such paying agent
may deem advisable. In any case in which notice of redemption is to be given by
the Trustee or any such paying agent, the Corporation shall deliver or cause to
be delivered to, or permit to remain with, the Trustee or such paying agent, as
the case may be, such Debenture Register, transfer books or other records, or
suitable copies or extracts therefrom, sufficient to enable the Trustee or such
paying agent to give any notice by mail that may be required under the
provisions of this Section 3.4.
SECTION 3.5 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been
completed as above provided, subject to the provisions of Section 3.2 the
Debentures or portions of Debentures to be redeemed specified in such notice
shall become due and payable on the date and at the place stated in such notice
at the applicable Redemption Price, and interest on such Debentures or portions
of Debentures shall cease to accrue on and after the date fixed for redemption,
unless the Corporation shall default in the payment of
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such Redemption Price with respect to any such Debenture or portion thereof. On
presentation and surrender of such Debentures on or after the date fixed for
redemption at the place of payment specified in the notice, said Debentures
shall be paid and redeemed at the Redemption Price (but if the date fixed for
redemption is an Interest Payment Date, the interest installment payable on
such date shall not be part of the Redemption Price and shall be payable
instead to the registered holder at the close of business on the Regular Record
Date next preceding the next succeeding Interest Payment Date).
(b) Subject to the provisions of Article II, upon presentation
of any Debenture that is to be redeemed in part only, the Corporation shall
execute and the Trustee shall authenticate and the office or agency where the
Debenture is presented shall make available for delivery to the holder thereof,
at the expense of the Corporation, a new Debenture of authorized denomination
in principal amount equal to the unredeemed portion of the Debenture so
presented.
SECTION 3.6 NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 EXTENSION OF INTEREST PAYMENT PERIOD.
So long as no Event of Default has occurred and is continuing, the
Corporation shall have the right, at any time and from time to time during the
term of the Debentures, to defer payments of interest by extending the interest
payment period of such Debentures for a period not exceeding 20 consecutive
quarters (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that no
Extended Interest Payment Period may extend beyond the Maturity Date. Interest,
which has been deferred because of the extension of the interest payment period
pursuant to this Section 4.1, shall bear interest thereon at the rate of __%
per annum, compounded quarterly during the Extended Interest Payment Period
(the "Compounded Interest"). At the end of the Extended Interest Payment
Period, the Corporation shall calculate (and deliver such calculation to the
Trustee) and pay all interest accrued and unpaid on the Debentures, including
any Additional Interest and Compounded Interest in respect of such period
(together, "Deferred Interest") that shall be payable to the holders of the
Debentures in whose names the Debentures are registered in the Debenture
Register as of the close of business on the Regular Record Date immediately
preceding the end of the Extended Interest Payment Period. Before the
termination of any Extended Interest Payment Period, the Corporation may
further extend such period, provided that such period together with all such
further extensions thereof shall not exceed 20 consecutive quarters, or extend
beyond the Maturity Date of the Debentures. Upon the termination of any
Extended Interest Payment Period and upon the payment of all Deferred Interest
then due, the Corporation may commence a new Extended Interest Payment Period,
subject to the foregoing requirements. No interest shall be due and payable
during an Extended Interest Payment Period, except at the end thereof, but the
Corporation may prepay at any time all or any portion of the interest accrued
during an Extended Interest Payment Period, which prepayments shall be payable
to the holders of the Debentures in whose names the Debentures are registered
in the Debenture Register as of the close of business on the Regular Record
Date immediately preceding the date of prepayment.
SECTION 4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of
the Debentures at the time the Corporation selects an Extended Interest Payment
Period, the Corporation shall give written notice to the Administrative
Trustees, the Property Trustee and the Trustee of its selection of such
Extended Interest Payment Period at least one Business Day before the earlier
of (i) the next succeeding date on which Distributions (as such term is defined
in the Trust Agreement) on the Trust Securities issued by the Trust are
payable; or (ii) the date the Trust is required to give notice of the record
date or the date such Distributions are payable to the American Stock Exchange
or other applicable self-regulatory organization
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or to holders of the Preferred Securities issued by the Trust, but in any event
at least one Business Day before such record date.
(b) If the Property Trustee is not the only holder of the
Debentures at the time the Corporation selects an Extended Interest Payment
Period, the Corporation shall give the holders of the Debentures and the
Trustee written notice of its selection of such Extended Interest Payment
Period at least one Business Day before the earlier of (i) the next succeeding
Interest Payment Date; or (ii) the date the Corporation is required to give
notice of the record or payment date of such interest payment to the Nasdaq
SmallCap Market or other applicable self-regulatory organization or to holders
of the Debentures, but in any event at least one Business Day before such
record date.
(c) The quarter in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20
quarters permitted in the Minimum Extended Interest Payment Period permitted
under Section 4.1.
SECTION 4.3 LIMITATION ON TRANSACTIONS.
If (i) the Corporation shall exercise its right to defer payment of
interest as provided in Section 4.1; (ii) there shall have occurred any Event
of Default that is continuing; or (iii) the Corporation is in default with
respect to its obligations under the Preferred Securities Guarantee, then (a)
the Corporation will not and will not permit any Subsidiary to declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Corporation's capital stock
(other than (1) the reclassification of any class of the Corporation's capital
stock into another class of its capital stock; (2) dividends or distributions
payable in any class of the Corporation's common stock, (3) any declaration of
a dividend in connection with the implementation of a shareholder rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (4) payments under the
Preferred Securities Guarantee and (5) purchases of the Corporation's common
stock related to the rights under any of the Corporation's stock benefit plans
for its or its Subsidiaries' directors, officers or employees); (b) the
Corporation will not and will not permit any Subsidiary to make any payment of
interest, principal or premium, if any, or repay, repurchase or redeem any debt
securities issued by the Corporation (including Other Debentures) which rank
pari passu with or junior to the Debentures; or make any guarantee payments
with respect to any guarantee by the Corporation of the debt securities of any
Subsidiary of the Corporation if such guarantee ranks pari passu with or is
junior to the Debentures provided, however, that notwithstanding the foregoing
the Corporation may make payments pursuant to its obligations under the
Preferred Securities Guarantee; and (c) the Corporation shall not redeem,
purchase or acquire less than all of the outstanding Debentures or any of the
Preferred Securities.
ARTICLE V.
PARTICULAR COVENANTS OF THE CORPORATION
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Corporation shall duly and punctually pay or cause to be paid the
principal of and interest on the Debentures at the time and place and in the
manner provided herein.
SECTION 5.2 MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Corporation
shall maintain a designated office or agency in the Place of Payment where (i)
Debentures may be presented for payment; (ii) Debentures may be presented as
hereinabove authorized for registration of transfer and exchange; and (iii)
notice and demands to or upon the Corporation in respect of the Debentures and
this Indenture may be given or served, such designation to continue with
respect to such office or agency until the Corporation shall, by written notice
signed by its Chairman, President or a Vice President and delivered to the
Trustee, designate some other office or agency for such purposes or any of
them. If at any time the Corporation shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address
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thereof, such presentations, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Corporation hereby appoints the
Trustee as its agent to receive all such presentations, notices and demands. In
addition to any such office or agency, the Corporation may from time to time
designate one or more offices or agencies where the Debentures may be presented
for registration or transfer and for exchange in the manner provided herein,
and the Corporation may from time to time rescind such designation as the
Corporation may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Corporation of its
obligation to maintain any such office or agency in the Place of Payment for
such purposes. The Corporation shall give the Trustee prompt written notice of
any such designation or rescission thereof.
SECTION 5.3 PAYING AGENTS.
(a) If the Corporation shall appoint one or more paying agents
for the Debentures, other than the Trustee, the Corporation shall cause each
such paying agent to execute and deliver to the Trustee an instrument in which
such agent shall agree with the Trustee, subject to the provisions of this
Section 5.3:
(i) that it shall hold all sums held by it as such
agent for the payment of the principal of or interest on the
Debentures (whether such sums have been paid to it by the Corporation
or by any other obligor of such Debentures) in trust for the benefit
of the Persons entitled thereto;
(ii) that it shall give the Trustee prompt written
notice of any failure by the Corporation (or by any other obligor of
such Debentures) to make any payment of the principal of or interest
on the Debentures when the same shall be due and payable;
(iii) that it shall, at any time during the continuance
of any failure referred to in the preceding paragraph (a)(ii) above,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such paying agent; and
(iv) that it shall perform all other duties of paying
agent as set forth in this Indenture.
(b) If the Corporation shall act as its own paying agent with
respect to the Debentures, it shall on or before each due date of the principal
of or interest on such Debentures, set aside, segregate and hold in trust for
the benefit of the Persons entitled thereto a sum sufficient to pay such
principal or interest so becoming due on Debentures until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and shall
promptly notify the Trustee of such action, or any failure (by it or any other
obligor on such Debentures) to take such action. Whenever the Corporation shall
have one or more paying agents for the Debentures, it shall, prior to each due
date of the principal of or interest on any Debentures, deposit with the paying
agent a sum sufficient to pay the principal or interest so becoming due, such
sum to be held in trust for the benefit of the Persons entitled to such
principal or interest, and (unless such paying agent is the Trustee) the
Corporation shall promptly notify the Trustee of this action or failure so to
act.
(c) Notwithstanding anything in this Section 5.3 to the
contrary, (i) the agreement to hold sums in trust as provided in this Section
5.3 is subject to the provisions of Section 13.3 and 13.4; and (ii) the
Corporation may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or direct any paying
agent to pay, to the Trustee all sums held in trust by the Corporation or such
paying agent, such sums to be held by the Trustee upon the same terms and
conditions as those upon which such sums were held by the Corporation 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.
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SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Corporation, whenever necessary to avoid or fill a vacancy in the
office of Trustee, shall appoint, in the manner provided in Section 9.11, a
Trustee that meets the requirements of Section 9.10, so that there shall at all
times be a Trustee hereunder.
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Corporation shall not, while any of the Debentures remain
outstanding, consolidate with, or merge into, or merge into itself, or convey,
transfer or lease all or substantially all of its property and assets to any
other entity and no entity shall consolidate with or merge into the Corporation
or convey, transfer or lease substantially all of its properties and assets to
the Corporation, unless the provisions of Article XII hereof are complied with.
SECTION 5.6 LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Corporation shall be in default with respect to its payment of any
obligations under the Preferred Securities Guarantee relating to the Trust; or
(iii) the Corporation shall have given notice of its election to defer payments
of interest on such Debentures by extending the interest payment period as
provided in this Indenture and such period, or any extension thereof, shall be
continuing, then (a) the Corporation will not and will not permit any
Subsidiary to declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of Corporation's capital stock (other than (1) the
reclassification of any class of the Corporation's capital stock into another
class of capital stock, (2) dividends or distributions payable in any class of
the Corporation's common stock, (3) any declaration of a dividend in connection
with the implementation of a shareholder rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (4) payments under the Preferred Securities Guarantee
and (5) purchases of the Corporation's common stock related to the rights under
any of the Corporation's stock benefit plans for its or its subsidiaries'
directors, officers or employees); (b) the Corporation will not and will not
permit any Subsidiary to make any payment of interest, principal or premium, if
any, or repay, repurchase or redeem any debt securities issued by the
Corporation (including Other Debentures) which rank pari passu with or junior
to the Debentures; or make any guarantee payments with respect to any guarantee
by the Corporation of the debt securities of any subsidiary of the Corporation
if such guarantee ranks pari passu with or junior to the Debentures; provided,
however, that the Corporation may make payments pursuant to its obligations
under the Preferred Securities Guarantee; and (c) the Corporation shall not
redeem, purchase or acquire less than all of the outstanding Debentures or any
of the Preferred Securities.
SECTION 5.7 COVENANTS AS TO THE TRUST.
For so long as such Trust Securities of the Trust remain outstanding,
the Corporation shall (i) maintain 100% direct or indirect ownership of the
Common Securities of the Trust; provided, however, that any permitted successor
of the Corporation under this Indenture may succeed to the Corporation's
ownership of the Common Securities; (ii) not voluntarily dissolve, wind up or
liquidate the Trust, except upon prior regulatory approval if then so required
under applicable capital guidelines or regulatory policies, and use its
reasonable efforts to cause the Trust (a) to remain a business trust, except in
connection with a distribution of Debentures, the redemption of all of the
Trust Securities of the Trust or certain mergers, consolidations or
amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise
continue not to be treated as an association taxable as a corporation or
partnership for United States federal income tax purposes; and (iii) use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an individual beneficial interest in the Debentures. In connection with
the distribution of the Debentures to the holders of the Preferred Securities
issued by the Trust upon a Dissolution Event, the Corporation shall use its
best efforts to list such Debentures on the Nasdaq SmallCap Market or on such
other exchange as the Preferred Securities are then listed.
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SECTION 5.8 COVENANTS AS TO PURCHASES.
Prior to _______ __, 2005, the Corporation shall not purchase any
Debentures, in whole or in part, from the Trust, except as otherwise permitted
by Section 3.2.
SECTION 5.9 RESERVE FOR INTEREST PAYMENTS.
For so long as the Debentures remain outstanding, the Corporation will
not: (i) declare or pay cash dividends on, or purchase, redeem or acquire for
value any shares of the capital stock of the Corporation, (ii) return any
capital to holders of the capital stock of the Corporation, or (iii) make any
distribution of assets to holders of the capital stock of the Corporation,
unless the Corporation retains cash, cash equivalents or marketable securities
(as determined in accordance with Generally Accepted Accounting Principles) in
an amount sufficient to pay the next succeeding eight consecutive quarterly
interest payments on the Debentures.
ARTICLE VI.
DEBENTUREHOLDERS' LISTS AND REPORTS BY
THE CORPORATION AND THE TRUSTEE
SECTION 6.1 CORPORATION TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTUREHOLDERS.
The Corporation shall furnish or cause to be furnished to the Trustee
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the holders of the Debentures as of each January 1 and June 30 of
each year and at such other times as the Trustee may request in writing within
30 days after receipt by the Corporation; provided that the Corporation shall
not be obligated to furnish or cause to furnish such list at any time that the
list shall not differ in any respect from the most recent list furnished to the
Trustee by the Corporation; provided, however, that, in either case, no such
list need be furnished if the Trustee shall be the Debenture Registrar.
SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH
DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Debentures contained in the most recent list furnished to it as
provided in Section 6.1 and as to the names and addresses of holders of
Debentures received by the Trustee in its capacity as registrar for the
Debentures (if acting in such capacity) or in any other capacity in respect of
the Debentures.
(b) The Trustee may destroy any list furnished to it as
provided in Section 6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section
312(b) of the Trust Indenture Act with other Debentureholders with respect to
their rights under this Indenture or under the Debentures. The Trustee shall
comply with the provisions of said Section and shall be entitled to the
protections provided by Section 312(c) of the Trust Indenture Act.
SECTION 6.3 REPORTS BY THE CORPORATION.
(a) The Corporation covenants and agrees to file with the
Trustee, within 15 days after the Corporation is required to file the same with
the Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) that the
Corporation may be required to file with the Commission pursuant to Section 13
or Section 15(d) of the Exchange Act; or, if the
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Corporation is not required to file information, documents or reports pursuant
to either of such Sections, then to file with the Trustee and the Commission,
in accordance with the rules and regulations prescribed from time to time by
the Commission, such of the supplementary and periodic information, documents
and reports that may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange
as may be prescribed from time to time in such rules and regulations.
(b) The Corporation covenants and agrees to file with the
Trustee and the Commission, in accordance with the rules and regulations
prescribed from to time by the Commission, such additional information,
documents and reports with respect to compliance by the Corporation with the
conditions and covenants provided for in this Indenture as may be required from
time to time by such rules and regulations.
(c) The Corporation covenants and agrees to transmit to the
Debentureholders, in the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to
be filed by the Corporation pursuant to subsections (a) and (b) of this Section
6.3 as may be required by rules and regulations prescribed from time to time by
the Commission.
(d) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Corporation's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 6.4 REPORTS BY THE TRUSTEE.
(a) The Trustee shall transmit to Debentureholders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to Section 313 of the Trust Indenture Act at the times and in the
manner provided pursuant thereto. If required by Section 313(a) of the Trust
Indenture Act, the Trustee shall, within sixty days after each May 15 following
the date of this Indenture deliver to Debentureholders a brief report, dated as
of such May 15, which complies with the provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to Debentureholders, be filed by the Trustee with each stock
exchange, if any, upon which the Debentures are listed, with the Commission and
with the Corporation. The Corporation will promptly notify the Trustee when any
Debentures become listed on any stock exchange.
SECTION 6.5 STATEMENTS AS TO DEFAULT.
(a) The Corporation will deliver to the Trustee annually,
within 120 days after the end of each of its fiscal years, a certificate, from
its principal executive officer, principal financial officer or principal
accounting officer, stating whether or not to the best knowledge of the signer
thereof the Corporation is in compliance (without regard to periods of grace or
notice requirements) with all conditions and covenants under this Indenture,
and if the Corporation shall not be in compliance, specifying such
non-compliance and the nature and status thereof of which such signer may have
knowledge.
(b) The Corporation shall deliver to the Trustee, as soon as
possible and in any event within five days after the Corporation becomes aware
of the occurrence of any Event of Default or an event which, with notice or the
lapse of time or both, would constitute an Event of Default, an Officers'
Certificate setting forth the details of such Event of Default or Default and
the action which the Corporation proposes to take with respect thereto.
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ARTICLE VII.
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event
of Default" means any one or more of the following events that has occurred and
is continuing:
(i) the Corporation defaults in the payment of any
installment of interest (including Additional Interest or Compounded
Interest, if any) upon any of the Debentures, as and when the same
shall become due and payable, and continuance of such default for a
period of 30 days; provided, however, that a valid extension of an
interest payment period by the Corporation in accordance with the
terms of Article IV of this Indenture shall not constitute a default
in the payment of interest for this purpose;
(ii) the Corporation defaults in the payment of the
principal on the Debentures as and when the same shall become due and
payable whether at maturity, upon redemption, by declaration of
acceleration of maturity or otherwise;
(iii) the Corporation fails to observe or perform any
other of its covenants or agreements with respect to the Debentures
for a period of 90 days after the date on which written notice of such
failure, requiring the same to be remedied and stating that such
notice is a "Notice of Default" hereunder, shall have been given to
the Corporation by the Trustee, by registered or certified mail, or to
the Corporation and the Trustee by the holders of at least 25% in
aggregate principal amount of the Debentures at the time Outstanding;
(iv) the Corporation pursuant to or within the meaning
of any Bankruptcy Law (i) commences a voluntary case; (ii) consents to
the entry of an order for relief against it in an involuntary case;
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (iv) makes a general assignment
for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order
under any Bankruptcy Law that (i) is for relief against the
Corporation in an involuntary case; (ii) appoints a Custodian of the
Corporation for all or substantially all of its property; or (iii)
orders the liquidation of the Corporation, and the order or decree
remains unstayed and in effect for 60 days; or
(vi) the Trust shall have voluntarily or involuntarily
dissolved, wound-up its business or otherwise terminated its existence
except in connection with (i) the distribution of Debentures to
holders of Trust Securities in liquidation of their interests in the
Trust; (ii) the redemption of all of the outstanding Trust Securities
of the Trust; or (iii) certain mergers, consolidations or
amalgamations, each as permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all
the Debentures shall have already become due and payable, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the
Debentures then Outstanding hereunder, by notice in writing to the Corporation
(and to the Trustee if given by such Debentureholders) may declare the
principal of all the Debentures to be due and payable immediately, and upon any
such declaration the same shall become and shall be immediately due and
payable, notwithstanding anything contained in this Indenture or in the
Debentures.
(c) At any time after the principal of the Debentures shall
have been so declared due and payable, and before any judgment or decree for
the payment of the monies due shall have been obtained or entered as
hereinafter provided, the holders of a majority in aggregate principal amount
of the Debentures then Outstanding hereunder, by written notice to the
Corporation and the Trustee, may rescind and annul such declaration and its
consequences if: (i) the Corporation has paid or deposited with the Trustee a
sum
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sufficient to pay all matured installments of interest (including Additional
Interest and Compounded Interest, if any) upon all the Debentures and the
principal of any and all Debentures that shall have become due otherwise than
by acceleration (and, without duplication of any of the foregoing, interest
upon such principal, and upon overdue installments of interest, at the rate per
annum expressed in the Debentures to the date of such payment or deposit) and
the amount payable to the Trustee under Section 9.7; and (ii) any and all
Events of Default under this Indenture, other than the nonpayment of principal
on Debentures that shall not have become due by their terms, shall have been
remedied or waived as provided in Section 7.6. No such rescission and annulment
shall extend to or shall affect any subsequent default or impair any right
consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any
right with respect to Debentures under this Indenture and such proceedings
shall have been discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been determined adversely to
the Trustee, then and in every such case the Corporation and the Trustee shall
be restored respectively to their former positions and rights hereunder, and
all rights, remedies and powers of the Corporation and the Trustee shall
continue as though no such proceedings had been taken.
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
(a) The Corporation covenants that (1) in case it shall default
in the payment of any installment of interest (including Additional Interest
and Compounded Interest) on any of the Debentures, and such default shall have
continued for a period of 90 Business Days; or (2) in case it shall default in
the payment of the principal of any of the Debentures when the same shall have
become due and payable, whether upon maturity of the Debentures or upon
redemption or upon declaration or otherwise, then, upon demand of the Trustee,
the Corporation shall pay to the Trustee, for the benefit of the holders of the
Debentures, the whole amount that then shall have been become due and payable
on all such Debentures for principal or interest, or both, as the case may be,
with interest upon the overdue principal and (if the Debentures are held by the
Trust or a trustee of the Trust, without duplication of any other amounts paid
by the Trust or trustee in respect thereof) upon overdue installments of
interest at the rate per annum expressed in the Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, and the amount payable to the Trustee and its counsel
under Section 9.7.
(b) If the Corporation shall fail to pay such amounts forthwith
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any action or proceedings
at law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Corporation or other
obligor upon the Debentures and collect the monies adjudged or decreed to be
payable in the manner provided by law out of the property of the Corporation or
other obligor upon the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Corporation or the creditors or property of either,
the Trustee shall have power to intervene in such proceedings and take any
action therein that may be permitted by the court and shall (except as may be
otherwise provided by law) be entitled to file such proofs of claim and other
papers and documents as may be necessary or advisable in order to have the
claims of the Trustee and of the holders of the Debentures allowed for the
entire amount due and payable by the Corporation under this Indenture at the
date of institution of such proceedings and for any additional amount that may
become due and payable by the Corporation after such date, and to collect and
receive any monies or other property payable or deliverable on any such claim,
and to distribute the same after the deduction of the amount payable to the
Trustee and its counsel under Section 9.7; and any receiver, assignee or
trustee in bankruptcy or reorganization is hereby authorized by each of the
holders of the Debentures to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under Section
9.7.
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(d) All rights of action and of asserting claims under this
Indenture, or under any of the terms established with respect to Debentures,
may be enforced by the Trustee without the possession of any of such
Debentures, or the production thereof at any trial or other proceeding relating
thereto, and any such suit or proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for payment to the Trustee of any amounts due
under Section 9.7, be for the ratable benefit of the holders of the Debentures.
In case of an Event of Default hereunder, the Trustee may in its discretion
proceed to protect and enforce the rights vested in it by this Indenture by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law. Nothing contained herein
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Debentureholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debentures or the rights
of any holder thereof or to authorize the Trustee to vote in respect of the
claim of any Debentureholder in any such proceeding.
SECTION 7.3 APPLICATION OF MONIES COLLECTED.
Any monies or other assets collected by the Trustee pursuant to this
Article VII with respect to the Debentures shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such monies or other assets on account of principal or
interest, upon presentation of the Debentures, and notation thereon of the
payment, if only partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of
all amounts payable to the Trustee under Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the
Corporation if and to the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and 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 Debentures for principal and interest, respectively.
FOURTH: Any remaining balance to the Corporation.
SECTION 7.4 LIMITATION ON SUITS.
(a) No holder of any Debenture shall have any right by virtue
or by availing of any provision of this Indenture to institute any suit, action
or proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless (i) such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof
with respect to the Debentures specifying such Event of Default, as
hereinbefore provided; (ii) the holders of not less than 25% in aggregate
principal amount of the Debentures then Outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its
own name as trustee hereunder; (iii) such holder or holders shall have offered
to the Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby; (iv) the Trustee
for 60 days after its receipt of such notice, request and offer of indemnity,
shall have failed to institute any such action, suit or proceeding; and (v)
during such 60 day period, the holders of a majority in principal amount of the
Debentures do not give the Trustee a direction inconsistent with the request.
(b) Notwithstanding anything contained herein to the contrary
or any other provisions of this Indenture, the right of any holder of the
Debentures to receive payment of the principal of and interest on the
Debentures, as therein provided, on or after the respective due dates expressed
in such Debenture (or in
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the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates (or
redemption date), shall not be impaired or affected without the consent of such
holder and by accepting a Debenture hereunder it is expressly understood,
intended and covenanted by the taker and holder of every Debenture with every
other such taker and holder and the Trustee, that no one or more holders of
Debentures shall have any right in any manner whatsoever by virtue or by
availing of any provision of this Indenture to affect, disturb or prejudice the
rights of the holders of any other of such Debentures, or to obtain or seek to
obtain priority over or preference to any other such holder, or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Debentures. For the
protection and enforcement of the provisions of this Section 7.4, each and
every Debentureholder and the Trustee shall be entitled to such relief as can
be given either at law or in equity.
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER.
(a) Except as otherwise provided in Section 2.8, all powers and
remedies given by this Article VII to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive
of any other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any
of the Debentures to exercise any right or power accruing upon any Event of
Default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of Section 7.4, every
power and remedy given by this Article VII or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Debentureholders.
SECTION 7.6 CONTROL BY DEBENTUREHOLDERS.
The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding, determined in accordance with Section 10.4,
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee; provided, however, that such direction shall
not be in conflict with any rule of law or with this Indenture. Subject to the
provisions of Section 9.1, the Trustee shall have the right to decline to
follow any such direction if the Trustee in good faith shall, by a Responsible
Officer or Officers of the Trustee, determine that the proceeding so directed
would involve the Trustee in personal liability. The holders of a majority in
aggregate principal amount of the Debentures at the time Outstanding affected
thereby, determined in accordance with Section 10.4, may on behalf of the
holders of all of the Debentures waive any past default in the performance of
any of the covenants contained herein and its consequences, except (i) a
default in the payment of the principal of or interest on, any of the
Debentures as and when the same shall become due by the terms of such
Debentures otherwise than by acceleration (unless such default has been cured
and a sum sufficient to pay all matured installments of interest and principal,
other than principal maturing because of the acceleration, has been deposited
with the Trustee (in accordance with Section 7.1(c)); (ii) a default in the
covenants contained in Section 4.3; or (iii) in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
holder of each Outstanding Debenture affected; provided, however, that if the
Debentures are held by the Trust or a trustee of the Trust, such waiver or
modification to such waiver shall not be effective until the holders of a
majority in liquidation preference of Preferred Securities of the Trust shall
have consented to such waiver or modification to such waiver; provided further,
that if the consent of the holder of each Outstanding Debenture is required,
such waiver shall not be effective until each holder of the Preferred
Securities of the Trust shall have consented to such waiver. Upon any such
waiver, the default covered thereby shall be deemed to be cured for all
purposes of this Indenture and the Corporation, the Trustee and the holders of
the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
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SECTION 7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 7.7 shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Debentureholder,
or group of Debentureholders, holding more than 10% in aggregate principal
amount of the Outstanding Debentures, or to any suit instituted by any
Debentureholder for the enforcement of the payment of the principal of or
interest on the Debentures, on or after the respective due dates expressed in
such Debenture or established pursuant to this Indenture.
SECTION 7.8 DIRECT ACTION BY HOLDERS OF PREFERRED SECURITIES.
Any registered holder of the Preferred Securities issued by the Trust
shall have the right, upon the occurrence of an Event of Default described in
Section 7.1(a)(i) or 7.1(a)(ii), to institute a suit directly against the
Corporation for enforcement of payment to such holder of principal of and
(subject to Sections 2.4 and 4.1) interest (including any Additional Interest)
on the Debentures having a principal amount equal to the aggregate Liquidation
Amount (as defined in the Trust Agreement) of such Preferred Securities held by
such holder. The Corporation may not amend this Indenture to remove this right
to institute a suit directly against the Corporation without the prior consent
of the holders of all the Preferred Securities.
ARTICLE VIII.
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1 FORM OF DEBENTURE.
The Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A
attached hereto and incorporated herein by reference.
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of up to $_________ may,
upon execution of this Indenture, be executed by the Corporation and delivered
to the Trustee for authentication, and the Trustee shall thereupon authenticate
and make available for delivery said Debentures to or upon the written order of
the Corporation, signed by its Chairman, its President, or any Vice President
and its Treasurer or an Assistant Treasurer, without any further action by the
Corporation.
ARTICLE IX.
CONCERNING THE TRUSTEE
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee, prior to the occurrence of an Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Debentures such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants shall be read into this Indenture against the Trustee. In case an
Event of Default has occurred that has not been cured or waived, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) 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:
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(1) prior to the occurrence of an Event of Default
and after the curing or waiving of all Events of Default that may have
occurred:
(i) the duties and obligations of the
Trustee shall, with respect to the Debentures, be determined
solely by the express provisions of this Indenture, and the
Trustee shall not be liable with respect to the Debentures
except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on the part
of the Trustee, the Trustee may with respect to the Indenture
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(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 the holders of not less than a
majority in principal amount of the Debentures at the time outstanding
(within the meaning of Section 316(a) of the Trust Indenture Act)
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 Debentures; and
(4) none of the provisions contained in this
Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any
of its duties or in the exercise of any of its rights or powers, if
there is reasonable ground for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of
this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 9.2 NOTICE OF DEFAULTS.
The Trustee shall transmit by mail to all holders of the Debentures,
in the manner and to the extent provided in Section 313(c) of the Trust
Indenture Act, notice of any default hereunder, within 90 days after the
occurrence thereof; provided, however, that, except in the case of any default
in the payment of the principal or interest (including Additional Interest and
Compounded Interest, if any) on any Debenture, 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 the directors and/or Responsible
Officers of the Trustee determines in good faith that the withholding of such
notice is in the interests of the holders of such Debentures. For the purposes
of this Section 9.2, the term "default" means any event which is, or after
notice or lapse of time or both, would become, an Event of Default with respect
to the Debentures.
SECTION 9.3 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1 or elsewhere in this
Indenture:
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
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;
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(b) Any request, direction, order or demand of the Corporation
mentioned herein shall be sufficiently evidenced by a Board Resolution or an
instrument signed in the name of the Corporation by the Chairman, President or
any Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer thereof (unless other evidence in respect
thereof is specifically prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a
default or an Event of Default, other than an Event of Default specified in
Section 7.1(a)(i) or (ii), unless and until it receives notification of such
Event of Default from the Corporation or by holders of at least 25% of the
aggregate principal amount of the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted 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, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an Event
of Default (that has not been cured or waived) to exercise with respect to the
Debentures such of the rights and powers vested in it by this Indenture, and to
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
(f) The Trustee shall not be liable for any action taken or
omitted to be taken by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security, or other papers or documents, but the Trustee in its discretion may
make such inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Corporation, personally or by agent or attorney; and
(h) 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 9.4 TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures, except
the certificates of authentication, shall be taken as the statements of the
Corporation, and the Trustee assumes no responsibility for the correctness of
the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or
application by the Corporation of any of the Debentures or of the proceeds of
such Debentures, or for the use or application of any monies paid over by the
Trustee in accordance with any provision of this Indenture, or for the use or
application of any monies received by any paying agent other than the Trustee.
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SECTION 9.5 MAY HOLD DEBENTURES.
The Trustee or any paying agent or registrar for the Debentures, in
its individual or any other capacity, may become the owner or pledgee of
Debentures and, subject to Sections 9.9 and 9.14, may otherwise deal with the
Corporation with the same rights it would have if it were not Trustee, paying
agent or Debenture Registrar.
SECTION 9.6 MONIES HELD IN TRUST.
Subject to the provisions of Section 13.5, all monies received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but 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 monies received by it hereunder except such as it
may agree in writing with the Corporation to pay thereon.
SECTION 9.7 COMPENSATION AND REIMBURSEMENT.
The Corporation agrees:
(1) to pay to the Trustee from time to time such
compensation as the Corporation and the Trustee shall from time to
time agree in writing for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, 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
compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to the fullest extent permitted by law, to
indemnify each of the Trustee or any predecessor Trustee and their
agents for, and to hold them harmless against, any and all loss,
damage, claims, liability or expense, including taxes (other than
taxes based upon, measured by or determined by the income of the
Trustee), arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs
and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith.
The Trustee shall have a lien prior to the Debentures as to all
property and funds held by it hereunder for any amount owing it or any
predecessor Trustee pursuant to this Section 9.7, except with respect to funds
held in trust for the benefit of the holders of particular Debentures. When the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in Section 7.1(a)(iv), Section 7.1(a)(v) or 7.1(a)(vi), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 9.8 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting to take any action hereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may, in
the absence of negligence or bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by an Officers' Certificate delivered to
the
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Trustee and such certificate, in the absence of negligence or bad faith on the
part of the Trustee, shall be full warrant to the Trustee for any action taken,
suffered or omitted to be taken by it under the provisions of this Indenture
upon the faith thereof.
SECTION 9.9 DISQUALIFICATION: CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Corporation shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act; provided, however, that for purposes of the first
proviso contained in Section 310 (b) of the Trust Indenture Act, the Trust
Agreement and Preferred Securities Guarantee shall be deemed to be specifically
described in this Indenture.
SECTION 9.10 CORPORATE TRUSTEE REQUIRED ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures
issued hereunder which shall at all times be a corporation organized and doing
business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, and subject to supervision or examination by federal,
state, territorial, or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 9.10, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. The Corporation may not,
nor may any Person directly or indirectly controlling, controlled by, or under
common control with the Corporation, serve as Trustee. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 9.10, the Trustee shall resign immediately in the manner and with the
effect specified in Section 9.11.
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at
any time resign by giving written notice thereof to the Corporation and by
transmitting notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Corporation shall
promptly appoint a successor trustee with respect to Debentures by written
instrument, in duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so appointed and
have accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning Trustee may petition at the expense of the
Corporation any court of competent jurisdiction for the appointment of a
successor trustee with respect to Debentures, or any Debentureholder who has
been a bona fide holder of a Debenture or Debentures for at least six months
may, subject to the provisions of Section 9.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it
may deem proper, appoint a successor trustee.
(b) In case at any time any one of the following shall occur,
(i) the Trustee shall fail to comply with the
provisions of Section 9.9 after written request therefor by the
Corporation or by any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.10 and shall fail to
resign after written request therefor by the Corporation or by any
such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or
shall be adjudged bankrupt or insolvent, or commence a voluntary
bankruptcy proceeding, or a receiver of the Trustee or of its
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property shall be appointed or consented to, or any public officer
shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, the Corporation may remove the
Trustee with respect to all Debentures and appoint a successor trustee
by written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject
to the provisions of Section 9.9, unless the Trustee's duty to resign
is stayed as provided herein, any Debentureholder who has been a bona
fide holder of a Debenture or Debentures for at least six months may,
on behalf of that holder and all others similarly situated, petition
any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Corporation and may appoint a successor Trustee
with the consent of the Corporation. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after such notification,
the Trustee may petition at the expense of the Corporation any court of
competent jurisdiction for the appointment of a successor trustee with respect
to Debentures, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, subject to the provisions
of Section 9.9, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor trustee. Such court
may appoint a successor trustee.
(d) No resignation or removal of the Trustee and no appointment
of a successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective until acceptance of
appointment by the successor trustee as provided in Section 9.12.
SECTION 9.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee
with respect to the Debentures, every successor trustee so appointed shall
execute, acknowledge and deliver to the Corporation and to the retiring Trustee
an instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Corporation or the successor trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor trustee all the rights, powers, and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor trustee all property and money held by such retiring Trustee
hereunder.
(b) Upon request of any successor trustee, the Corporation
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 paragraph (a) of this Section 9.12.
(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 IX.
(d) Upon acceptance of appointment by a successor trustee as
provided in this Section 9.12, the Corporation shall transmit notice of the
succession of such trustee hereunder by mail, first class postage prepaid, to
the Debentureholders, as their names and addresses appear upon the Debenture
Register. If the Corporation fails to transmit such notice within ten days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be transmitted at the expense of the Corporation.
SECTION 9.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the
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Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided that such corporation shall be qualified under the
provisions of Section 9.9 and eligible under the provisions of Section 9.10,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. In
case any Debentures 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
Debentures so authenticated with the same effect as if such successor Trustee
had itself authenticated such Debentures.
SECTION 9.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE CORPORATION.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the Trust Indenture Act to the extent included
therein.
ARTICLE X.
CONCERNING THE DEBENTUREHOLDERS
SECTION 10.1 EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders
of a majority or specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action),
the fact that at the time of taking any such action the holders of such
majority or specified percentage have joined therein may be evidenced by any
instrument or any number of instruments of similar tenor executed by such
holders of Debentures in Person or by agent or proxy appointed in writing.
(b) If the Corporation shall solicit from the Debentureholders
any request, demand, authorization, direction, notice, consent, waiver or other
action, the Corporation may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Debentureholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Corporation shall
have no obligation to do so. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other action may
be given before or after the record date, but only the Debentureholders of
record at the close of business on the record date shall be computed to be
Debentureholders for the purposes of determining whether Debentureholders of
the requisite proportion of Outstanding Debentures have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other action, and for that purpose the Outstanding Debentures shall
be computed as of the record date; provided, however, that no such
authorization, agreement or consent by such Debentureholders on the record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date.
SECTION 10.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS.
Subject to the provisions of Section 9.1, proof of the execution of
any instrument by a Debentureholder (such proof shall not require notarization)
or his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of
any instrument may be proved in any reasonable manner acceptable to the
Trustee.
(b) The ownership of Debentures shall be proved by the
Debenture Register of such Debentures or by a certificate of the Debenture
Registrar thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section 10.2 as it shall deem necessary.
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SECTION 10.3 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any
Debenture, the Corporation, the Trustee, any paying agent, any Authenticating
Agent and any Debenture Registrar may deem and treat the Person in whose name
such Debenture shall be registered upon the books of the Corporation as the
absolute owner of such Debenture (whether or not such Debenture shall be
overdue and notwithstanding any notice of ownership or writing thereon made by
anyone other than the Debenture Registrar) for the purpose of receiving payment
of or on account of the principal of and interest on such Debenture (subject to
Section 2.3) and for all other purposes; and neither the Corporation nor the
Trustee nor any paying agent nor any Authenticating Agent nor any Debenture
Registrar shall be affected by any notice to the contrary.
SECTION 10.4 CERTAIN DEBENTURES OWNED BY CORPORATION DISREGARDED.
In determining whether the holders of the requisite aggregate
principal amount of Debentures have concurred in any direction, consent or
waiver under this Indenture, the Debentures that are owned by the Corporation
or any other obligor on the Debentures or by any Person directly or indirectly
controlling or controlled by, or under common control with, the Corporation or
any other obligor on the Debentures shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, consent or waiver, only Debentures that a Responsible Officer
of the Trustee actually knows are so owned shall be so disregarded. The
Debentures so owned that have been pledged in good faith may be regarded as
Outstanding for the purposes of this Section 10.4, if the pledgee shall
establish to the satisfaction of the Trustee the pledgee's right so to act with
respect to such Debentures and that the pledgee is not a Person directly or
indirectly, controlling or controlled by, or under direct or indirect common
control with, the Corporation or any such other obligor. In case of a dispute
as to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee.
SECTION 10.5 ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action, any holder of a
Debenture that is shown by the evidence to be included in the Debentures the
holders of which have consented to such action may, by filing written notice
with the Trustee, and upon proof of holding as provided in Section 10.2, revoke
such action so far as concerns such Debenture. Except as aforesaid any such
action taken by the holder of any Debenture shall be conclusive and binding
upon such holder and upon all future holders and owners of such Debenture, and
of any Debenture issued in exchange therefor, on registration of transfer
thereof or in place thereof, irrespective of whether or not any notation in
regard thereto is made upon such Debenture. Any action taken by the holders of
the majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action shall be
conclusively binding upon the Corporation, the Trustee and the holders of all
the Debentures.
ARTICLE XI.
SUPPLEMENTAL INDENTURES
SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Corporation and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect),
without the consent of the Debentureholders, for one or more of the following
purposes:
(a) to cure any ambiguity, defect, or inconsistency herein or
in the Debentures;
(b) to comply with Article X;
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(c) to provide for uncertificated Debentures in addition to or
in place of certificated Debentures;
(d) to add to the covenants of the Corporation for the benefit
of the holders of all or any of the Debentures or to surrender any right or
power herein conferred upon the Corporation;
(e) to evidence the succession of another corporation to the
Corporation, and the assumption by any such successor of the covenants of the
Corporation herein and in the Debentures contained;
(f) to convey, transfer, assign, mortgage or pledge to or with
the Trustee any property or assets which the Corporation may desire to convey,
transfer, assign, mortgage or pledge;
(g) to add to, delete from, or revise the conditions,
limitations, and restrictions on the authorized amount, terms, or purposes of
issue, authentication, and delivery of Debentures, as herein set forth;
(h) to make any change that does not adversely affect the
rights of any Debentureholder in any material respect;
(i) to provide for the issuance of and establish the form and
terms and conditions of the Debentures, to establish the form of any
certifications required to be furnished pursuant to the terms of this Indenture
or of the Debentures, or to add to the rights of the holders of the Debentures;
or
(j) to qualify or maintain the qualification of this Indenture
under the Trust Indenture Act.
The Trustee is hereby authorized to join with the Corporation in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that adversely affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise. Any supplemental indenture authorized by the
provisions of this Section 11.1 may be executed by the Corporation and the
Trustee without the consent of the holders of any of the Debentures at the time
Outstanding, notwithstanding any of the provisions of Section 11.2.
SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the
holders of not less than a majority in aggregate principal amount of the
Debentures at the time Outstanding, the Corporation, when authorized by Board
Resolutions, and the Trustee may from time to time and at any time enter into
an indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying
in any manner not covered by Section 11.1 the rights of the holders of the
Debentures under this Indenture; provided, however, that no such supplemental
indenture shall without the consent of the holders of each Debenture then
Outstanding and affected thereby, (i) extend the fixed maturity of any
Debentures, reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon (other than the Corporation's right to
defer interest pursuant to this Indenture), without the consent of the holder
of each Debenture so affected; or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture; provided further, that if the Debentures are held by
the Trust or a trustee of the Trust, such supplemental indenture shall not be
effective until the holders of a majority in liquidation preference of Trust
Securities of the Trust shall have consented to such supplemental indenture;
provided further, that if the consent of the holder of each Outstanding
Debenture is required, such supplemental indenture shall not be effective until
each holder of the Trust Securities of the Trust shall have consented to such
supplemental indenture. It shall not be necessary for the consent of the
Debentureholders affected thereby under this Section 11.2 to approve the
particular form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance thereof.
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SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article XI, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Corporation and the holders of Debentures shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture that are authenticated
and delivered after the execution of such supplemental indenture pursuant to
the provisions of this Article XI may bear a notation in form approved by the
Corporation, provided such form meets the requirements of any exchange upon
which the Debentures may be listed, as to any matter provided for in such
supplemental indenture. If the Corporation shall so determine, new Debentures
so modified as to conform, in the opinion of the Board of Directors of the
Corporation, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Corporation, authenticated by the
Trustee and delivered in exchange for the Debentures then Outstanding.
SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Corporation, accompanied by Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Debentureholders
required to consent thereto as aforesaid, the Trustee shall join with the
Corporation in the execution of such supplemental indenture unless such
supplemental indenture adversely affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion but shall not be obligated to enter into such supplemental
indenture. The Trustee, subject to the provisions of Section 9.1, may receive
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article XI is authorized or permitted by, and
conforms to, the terms of this Article XI and that it is proper for the Trustee
under the provisions of this Article XI to join in the execution thereof.
(b) Promptly after the execution by the Corporation and the
Trustee of any supplemental indenture pursuant to the provisions of this
Section 11.5, the Trustee shall transmit by mail, first class postage prepaid,
a notice, setting forth in general terms the substance of such supplemental
indenture, to the Debentureholders as their names and addresses appear upon the
Debenture Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
ARTICLE XII.
SUCCESSOR CORPORATION
SECTION 12.1 CORPORATION MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Corporation with or into any other
corporation or corporations (whether or not affiliated with the Corporation, as
the case may be), or successive consolidations or mergers in which the
Corporation, as the case may be, or its successor or successors shall be a
party or parties, or shall prevent any sale, conveyance, transfer or other
disposition of the property of the Corporation, as the case may be, or its
successor or successors as an entirety, or substantially as an entirety, to any
other corporation (whether or not affiliated with the Corporation, as the case
may be, or its successor or successors) authorized to acquire and operate the
same; provided, however, the Corporation hereby covenants and agrees that, (i)
upon any such consolidation, merger, sale, conveyance, transfer or other
disposition, the due and punctual payment,
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in the case of the Corporation, of the principal of and interest on all of the
Debentures, according to their tenor and the due and punctual performance and
observance of all the covenants and conditions of this Indenture to be kept or
performed by the Corporation as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or
into which the Corporation, as the case may be, shall have been merged, or by
the entity which shall have acquired such property; (ii) in case the
Corporation consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially then 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 (iii) immediately after giving
effect thereto, no Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have occurred and be
continuing.
SECTION 12.2 SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition and upon the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of, in the case of the
Corporation, the due and punctual payment of the principal of and interest on
all of the Debentures Outstanding and the due and punctual performance of all
of the covenants and conditions of this Indenture to be performed by the
Corporation, as the case may be, such successor corporation shall succeed to
and be substituted for the Corporation, with the same effect as if it had been
named as the Corporation herein, and thereupon the predecessor corporation
shall be relieved of all obligations and covenants under this Indenture and the
Debentures.
(b) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition such changes in phraseology and form
(but not in substance) may be made in the Debentures thereafter to be issued as
may be appropriate.
(c) Nothing contained in this Indenture or in any of the
Debentures shall prevent the Corporation from merging into itself or acquiring
by purchase or otherwise all or any part of the property of any other Person
(whether or not affiliated with the Corporation).
SECTION 12.3 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption,
comply with the provisions of this Article XII.
ARTICLE XIII.
SATISFACTION AND DISCHARGE
SECTION 13.1 SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Corporation shall have delivered to the
Trustee for cancellation all Debentures theretofore authenticated (other than
any Debentures that shall have been destroyed, lost or stolen and that shall
have been replaced or paid as provided in Section 2.8 and Debentures for whose
payment money or Governmental Obligations have theretofore been deposited in
trust or segregated and held in trust by the Corporation (and thereupon repaid
to the Corporation or retained by Corporation and discharged from such trust,
as provided in Section 13.5)); or (b) all such Debentures not theretofore
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption, and the Corporation shall
deposit or cause to be deposited with the Trustee as trust funds the entire
amount in monies or Governmental Obligations sufficient or a combination
thereof, sufficient in the opinion of a nationally recognized firm of
independent public accountants expressed in written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee
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for cancellation, including principal and interest due or to become due to such
date of maturity or date fixed for redemption, as the case may be, and if the
Corporation shall also pay or cause to be paid all other sums payable hereunder
by the Corporation; then this Indenture shall thereupon cease to be of further
effect except for the provisions of Sections 2.3, 2.6, 2.8, 5.1, 5.2, 5.3 and
9.10, that shall survive until the date of maturity or redemption date, as the
case may be, and Sections 9.7 and 13.5, that shall survive to such date and
thereafter, and the Trustee, on demand of the Corporation and at the cost and
expense of the Corporation, shall execute proper instruments acknowledging
satisfaction of and discharging this Indenture.
SECTION 13.2 DISCHARGE OF OBLIGATIONS.
If at any time all Debentures not heretofore delivered to the Trustee
for cancellation or that have not become due and payable as described in
Section 13.1 shall have been paid by the Corporation by depositing irrevocably
with the Trustee as trust funds monies or an amount of Governmental Obligations
sufficient to pay at maturity or upon redemption all Debentures not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or date fixed for redemption, as the
case may be, and if the Corporation shall also pay or cause to be paid all
other sums payable hereunder by the Corporation, then after the date such
monies or Governmental Obligations, as the case may be, are deposited with the
Trustee, the obligations of the Corporation under this Indenture shall cease to
be of further effect except for the provisions of Sections 2.3, 2.6, 2.8, 5.1,
5.2, 5.3, 9.7, 9.10 and 13.5 hereof that shall survive until such Debentures
shall mature and be paid. Thereafter, Sections 9.7 and 13.5 shall survive.
SECTION 13.3 DEPOSITED MONIES TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee
pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available
for payment as due, either directly or through any paying agent (including the
Corporation acting as its own paying agent), to the holders of the Debentures
for the payment or redemption of which such Monies or Governmental Obligations
have been deposited with the Trustee.
The Corporation shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 13.1 or the principal and interest received in
respect thereof, other than any such tax, fee or other charge which by law is
for the account of the holders of Outstanding Debentures.
SECTION 13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture,
all monies or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Corporation, be paid to
the Trustee and thereupon such paying agent shall be released from all further
liability with respect to such monies or Governmental Obligations.
SECTION 13.5 REPAYMENT TO CORPORATION.
Any monies or Governmental Obligations deposited with any paying agent
or the Trustee, or then held by the Corporation in trust, for payment of
principal of or interest on the Debentures that are not applied but remain
unclaimed by the holders of such Debentures for at least two years after the
date upon which the principal of or interest on such Debentures shall have
respectively become due and payable, shall be repaid to the Corporation or
retained by Corporation, as the case may be, on May 31 of each year and shall
be discharged from such trust; and thereupon the paying agent and the Trustee
shall be released from all further liability with respect to such monies or
Governmental Obligations and the holder of any of the Debentures entitled to
receive such payment shall thereafter, as an unsecured general creditor, look
only to the Corporation for the payment thereof.
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ARTICLE XIV.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 14.1 NO RECOURSE.
(a) No recourse under or upon any obligation, covenant or
agreement of this Indenture, or of the Debentures, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director, past, present or future as such, of the
Corporation or of any predecessor or successor corporation, either directly or
through the Corporation or any such predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the incorporators, stockholders,
officers or directors as such, of the Corporation or of any predecessor or
successor corporation, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Debentures
or implied therefrom; and that any and all such personal liability of every
name and nature, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, stockholder, officer or director as such, because of the creation
of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom, are hereby expressly waived and released
as a condition of, and as a consideration for, the execution of this Indenture
and the issuance of such Debentures.
(b) No recourse under or upon any obligation, covenant or
agreement of this Indenture, or of the Debentures, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director, past, present or future as such, of the
Trustee or of any predecessor or successor corporation, either directly or
through the Trustee or any such predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that the
Indenture obligations of the Trustee are solely corporate obligations of the
Trustee, and that no such personal liability whatever shall attach to, or is or
shall be incurred by, the incorporators, stockholders, officers or directors as
such, of the Trustee or of any predecessor or successor corporation, or any of
them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Debentures or implied therefrom; and that any and
all such personal liability of every name and nature, either at common law or
in equity or by constitution or statute, of, and any and all such rights and
claims against, every such incorporator, stockholder, officer or director as
such, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Debentures or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Indenture by the Trustee.
ARTICLE XV.
MISCELLANEOUS PROVISIONS
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Corporation shall bind its
respective successors and assigns, whether so expressed or not.
SECTION 15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Corporation shall and may be done and performed with like force and effect by
the corresponding board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Corporation.
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SECTION 15.3 SURRENDER OF CORPORATION POWERS.
The Corporation by instrument in writing executed by appropriate
authority of its Board of Directors and delivered to the Trustee may surrender
any of the powers reserved to the Corporation, and thereupon such power so
surrendered shall terminate both as to the Corporation, as the case may be, and
as to any successor corporation.
SECTION 15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand
that by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures to or on the Corporation
may be given or served by being deposited first class postage prepaid in a
post-office letter box addressed (until another address is filed in writing by
the Corporation with the Trustee), as follows: Appalachian Bancshares, Inc.,
829 Industrial Boulevard, Ellijay, Georgia 30540, Attention: Chief Executive
Officer. Any notice, election, request or demand by the Corporation or any
Debentureholder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made in writing at
the Corporate Trust Office of the Trustee.
SECTION 15.5 GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract
made under the internal laws of the State of Delaware and for all purposes
shall be construed in accordance with the laws of said State without regard to
conflicts of law principles.
SECTION 15.6 TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness
and not as equity for federal income tax purposes. The provisions of this
Indenture shall be interpreted to further this intention.
SECTION 15.7 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application, request or demand by the Corporation
to the Trustee to take any action under any of the provisions of this
Indenture, including but not limited to actions which relate to the
authentication and delivery of the Debentures and to the satisfaction and
discharge of the Indenture, the Corporation shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent provided for in
this Indenture relating to the proposed action (including any covenants
compliance with which constitutes a condition precedent) have been complied
with and an Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent have been complied with.
(b) Each certificate or opinion of the Corporation provided for
in this Indenture with respect to compliance with a condition or covenant in
this Indenture (other than the certificates provided for in Section 6.3(d))
shall include (1) a statement that the Person making such certificate or
opinion has read such covenant or condition; (2) a brief statement as to the
nature and scope of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are based; (3) a statement
that, in the opinion of such Person, he has made such examination or
investigation as, in the opinion of such Person, is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (4) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been complied with.
SECTION 15.8 PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.4) be made
on the next succeeding Business Day with the same force and effect as if
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made on the nominal date of maturity or redemption, and no interest shall
accrue for the period after such nominal date.
SECTION 15.9 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 15.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
SECTION 15.11 SEPARABILITY.
In case any one or more of the provisions contained in this Indenture
or in the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 15.12 ASSIGNMENT.
The Corporation shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Corporation, provided that, in the event of any
such assignment, the Corporation shall remain liable for all such obligations.
Subject to the foregoing, this Indenture is binding upon and inures to the
benefit of the parties hereto and their respective successors and assigns. This
Indenture may not otherwise be assigned by the parties hereto.
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS.
The Corporation acknowledges that, with respect to any Debentures held
by the Trust or a trustee of the Trust, if the Property Trustee fails to
enforce its rights under this Indenture as the holder of the Debentures held as
the assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Corporation to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding
the foregoing, if an Event of Default has occurred and is continuing and such
event is attributable to the failure of the Corporation to pay interest or
principal on the Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, on the redemption date), the Corporation
acknowledges that a holder of Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder of the principal of or
interest on the Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the Debentures.
SECTION 15.14 ADDITIONAL PROVISIONS FOR THE PAYMENT OF EXPENSES.
In connection with the offering, sale and issuance of the Debentures
to the Trust and in connection with the sale of the Trust Securities by the
Trust, the Corporation, in its capacity as borrower with respect to the
Debentures, and not in limitation of the provisions contained in the "Expense
Agreement" (as such term is defined in the Trust Agreement) or the other
provisions contained herein, agrees to pay the following:
(a) All debts and other obligations (other than with
respect to the Preferred Securities) of the Trust and all costs and
expenses of the Trust (including costs and expenses relating to the
organization of the Trust, the fees and expenses of the Property
Trustee and the other costs and expenses relating to the operation of
the Trust); and
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(b) Any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which
the Trust might become subject.
The foregoing obligations of the Corporation are for the benefit of, and shall
be enforceable by, any person to whom such debts, obligations, costs, expenses
and liabilities are owed (a "Creditor") whether or not such Creditor has
received notice thereof. Not in limitation of the provisions of the Expense
Agreement, any such Creditor may enforce such obligations of the Corporation
directly against the Corporation, and the Corporation irrevocably waives any
right or remedy to require that any such Creditor take any action against the
Trust or any other person before proceeding against the Corporation. The
Corporation also agrees to execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.
ARTICLE XVI.
SUBORDINATION OF DEBENTURES
SECTION 16.1 AGREEMENT TO SUBORDINATE.
The Corporation covenants and agrees, and each holder of Debentures
issued hereunder by such holder's acceptance thereof likewise covenants and
agrees, that all Debentures shall be issued subject to the provisions of this
Article XVI; and each holder of a Debenture, whether upon original issue or
upon transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Corporation of the principal of and interest on
all Debentures issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and junior in right of payment to the
prior payment in full of all Senior Debt and Subordinated Debt (collectively,
"Senior Indebtedness") to the extent provided herein, whether outstanding at
the date of this Indenture or thereafter incurred. No provision of this Article
XVI shall prevent the occurrence of any default or Event of Default hereunder.
SECTION 16.2 DEFAULT ON SENIOR DEBT OR SUBORDINATED DEBT.
In the event and during the continuation of any default by the
Corporation in the payment of principal, premium, interest or any other payment
due on any Senior Indebtedness of the Corporation, or in the event that the
maturity of any Senior Indebtedness of the Corporation has been accelerated
because of a default, then, in either case, no payment shall be made by the
Corporation with respect to the principal (including redemption payments) of or
interest on the Debentures. In the event that, notwithstanding the foregoing,
any payment shall be received by the Trustee when such payment is prohibited by
the preceding sentence of this Section 16.2, such payment shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders
of Senior Indebtedness or their respective representatives, or to the trustee
or trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear,
but only to the extent that the holders of the Senior Indebtedness (or their
representative or representatives or a trustee) notify the Corporation or the
Trustee in writing within 90 days of such payment of the amounts then due and
owing on the Senior Indebtedness and only the amounts specified in such notice
to the Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Corporation or distribution of assets of the
Corporation of any kind or character, whether in cash, property or securities,
to creditors upon any liquidation, dissolution or winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in connection
with any insolvency or bankruptcy proceeding of the Corporation, all amounts
due upon all Senior Indebtedness of the Corporation shall first be paid in
full, or payment thereof provided for in money in accordance with its terms,
before any payment is made by the Corporation on account of the principal or
interest on the Debentures; and upon any such liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors, marshaling
of assets, any payment by the Corporation, or distribution of assets of the
Corporation of any kind or character, whether in cash, property or securities,
to which the holders of the Debentures or the Trustee would be entitled to
receive from the Corporation, except for the provisions of this Article XVI,
shall be
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paid by the Corporation or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
holders of the Debentures or by the Trustee under this Indenture if received by
them or it, directly to the holders of Senior Indebtedness of the Corporation
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders, as calculated by the Corporation) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay such Senior Indebtedness in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Corporation of any kind or character,
whether in cash, property or securities, prohibited by the foregoing, shall be
received by the Trustee before all Senior Indebtedness of the Corporation is
paid in full, or provision is made for such payment in money in accordance with
its terms, such payment or distribution shall be held in trust for the benefit
of and shall be paid over or delivered to the holders of such Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, as calculated by the Corporation, for application to the payment of all
Senior Indebtedness of the Corporation, as the case may be, remaining unpaid to
the extent necessary to pay such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness.
(c) For purposes of this Article XVI, the words "cash, property
or securities" shall not be deemed to include shares of stock of the
Corporation as reorganized or readjusted, or securities of the Corporation or
any other corporation provided for by a plan of reorganization or readjustment,
the payment of which is subordinated at least to the extent provided in this
Article XVI with respect to the Debentures to the payment of all Senior
Indebtedness of the Corporation, as the case may be, that may at the time be
outstanding, provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment;
and (ii) the rights of the holders of such Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization or readjustment.
The consolidation of the Corporation with, or the merger of the Corporation
into, another corporation or the liquidation or dissolution of the Corporation
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 16.3
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 9.7.
SECTION 16.4 SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness
of the Corporation, the rights of the holders of the Debentures shall be
subrogated to the rights of the holders of such Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Corporation,
as the case may be, applicable to such Senior Indebtedness until the principal
of and interest on the Debentures shall be paid in full; and for the purposes
of such subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior Indebtedness by holders of
the Debentures or the Trustee, shall, as between the Corporation, its creditors
other than holders of Senior Indebtedness of the Corporation, and the holders
of the Debentures, be deemed to be a payment by the Corporation to or on
account of such Senior Indebtedness. It is understood that the provisions of
this Article XVI are and are intended solely for the purposes of defining the
relative rights of the holders of the Debentures, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
42
<PAGE> 48
(b) Nothing contained in this Article XVI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Corporation, its creditors (other than the holders of Senior Indebtedness of
the Corporation), and the holders of the Debentures, the obligation of the
Corporation, which is absolute and unconditional, to pay to the holders of the
Debentures the principal of and interest on the Debentures as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the holders of the Debentures and
creditors of the Corporation, as the case may be, other than the holders of
Senior Indebtedness of the Corporation, nor shall anything herein or therein
prevent the Trustee or the holder of any Debenture from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture,
subject to the rights, if any, under this Article XVI of the holders of such
Senior Indebtedness in respect of cash, property or securities of the
Corporation, as the case may be, received upon the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the
Corporation referred to in this Article XVI, the Trustee, subject to the
provisions of Article IX, and the holders of the Debentures shall be entitled
to conclusively rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the Trustee or to the holders of the
Debentures, for the purposes of ascertaining the Persons entitled to
participate in such distribution, the holders of Senior Indebtedness and other
indebtedness of the Corporation, as the case may be, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XVI.
SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof
authorizes and directs the Trustee on such holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article XVI and appoints the Trustee such holder's attorney-in-fact for
any and all such purposes.
SECTION 16.6 NOTICE BY THE CORPORATION.
(a) The Corporation shall give prompt written notice to a
Responsible Officer of the Trustee of any fact known to the Corporation that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Debentures pursuant to the provisions of this Article XVI.
Notwithstanding the provisions of this Article XVI or any other provisions of
this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment of monies
to or by the Trustee in respect of the Debentures pursuant to the provisions of
this Article XVI, unless and until a Responsible Officer of the Trustee shall
have received written notice thereof from the Corporation or a holder or
holders of Senior Indebtedness or from any trustee therefor, and before the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 9.1, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the
notice provided for in this Section 16.6 at least two Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of or
interest on any Debenture), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive
such money and to apply the same to the purposes for which they were received,
and shall not be affected by any notice to the contrary that may be received by
it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 9.1,
shall be entitled to conclusively rely on the delivery to it of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
of the Corporation (or a trustee on behalf of such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
on behalf of any such holder or holders. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of such Senior Indebtedness to participate in
any payment or distribution pursuant to this Article XVI, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of such Senior Indebtedness held by such Person, the
extent to which such
43
<PAGE> 49
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XVI, 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 16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article XVI in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. The Trustee's right to compensation and
reimbursement of expenses as set forth in Section 9.7 shall not be subject to
the subordination provisions of this Article XVI.
(b) With respect to the holders of Senior Indebtedness of the
Corporation, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article XVI,
and no implied covenants or obligations with respect to the holders of such
Senior Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to have any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Section 9.1, the Trustee
shall not be liable to any holder of such Senior Indebtedness if it shall in
good faith mistakenly pay over or deliver to holders of Debentures, the
Corporation or any other Person money or assets to which any holder of such
Senior Indebtedness shall be entitled by virtue of this Article XVI or
otherwise.
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior
Indebtedness of the Corporation to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Corporation or by any act or failure to act, in good
faith, by any such holder, or by any noncompliance by the Corporation with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof that any such holder may have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Corporation may, at any
time and from time to time, without the consent of or notice to the Trustee or
the holders of the Debentures, without incurring responsibility to the holders
of the Debentures and without impairing or releasing the subordination provided
in this Article XVI or the obligations hereunder of the holders of the
Debentures to the holders of such Senior Indebtedness, do any one or more of
the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, such Senior Indebtedness, or otherwise
amend or supplement in any manner such Senior Indebtedness or any instrument
evidencing the same or any agreement under which such Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of such Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Corporation and any other Person.
44
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed all as of the day and year first above written.
APPALACHIAN BANCSHARES, INC.
By:
------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY, AS TRUSTEE
By:
------------------------------------
Name:
Title:
45
<PAGE> 51
EXHIBIT A
FACE OF DEBENTURE
NO. 1 $__________
CUSIP NO.
APPALACHIAN BANCSHARES, INC.
___% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE ________ __, 2030
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE
ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Appalachian Bancshares, Inc., a Georgia corporation (the
"Corporation," which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to Wilmington Trust Company, as Property Trustee for APAB Capital Trust I, or
registered assigns, the principal sum of _____________________ dollars
($_________) on _________ __, 2030 (the "Stated Maturity"), and to pay interest
on said principal sum from _________ __, 2000, or from the most recent interest
payment date (each such date, an "Interest Payment Date") to which interest has
been paid or duly provided for, quarterly (subject to deferral as set forth
herein) in arrears on March 31, June 30, September 30 and December 31 of each
year commencing ______ __, ____, at the rate of ____% per annum until the
principal hereof shall have become due and payable, and on any overdue
principal and (without duplication) on any overdue installment of interest at
the rate of ___% per annum compounded quarterly. The amount of interest payable
on any Interest Payment Date shall be computed on the basis of a 360-day year
of twelve 30-day months and for any period of less than a full month, the
actual number of days lapsed in such period, based on a thirty day month. In
the event that any date on which interest is payable on this Debenture is not a
business day, then payment of interest payable on such date shall be made on
the next succeeding day that is a business day (and without any interest or
other payment in respect of any such delay), except that, if such business day
is in the next succeeding calendar year, such payment shall be made on the
preceding business day, in each case with the same force and effect as if made
on such date. The interest installment so payable, and punctually, paid or duly
provided for, on any Interest Payment Date shall, as provided in the Indenture,
be paid to the person in whose name this Debenture (or one or more Predecessor
Debentures, as defined in said Indenture) is registered at the close of
business on the regular record date for such interest installment, which shall
be the 15th day of the month preceding the Interest Payment Date unless
otherwise provided in the Indenture. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered holders on such regular record date and may be paid to the Person in
whose name this Debenture (or one or more Predecessor Debentures) is registered
at the close of business on a special record date to be fixed by the Trustee
for the payment of such defaulted interest, notice whereof shall be given to
the registered holders of the Debentures not less than 10 days prior to such
special record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. The principal of and the
interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United
States of America that at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of interest may be
made at the option of the Corporation by check mailed to the registered holder
at such address as shall appear in the Debenture Register. Notwithstanding the
foregoing, so long as the holder of this Debenture is the Property Trustee, the
payment of the principal of and interest on this Debenture shall be made at
such place and to such account as may be designated by the Trustee.
1
<PAGE> 52
The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each holder of
this Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions; (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided; and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder
of Senior Indebtedness, whether now outstanding or hereafter incurred, and
waives reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed
by or on behalf of the Trustee.
This Debenture shall be deemed to be a contract made under the laws of
the State of Delaware and for all purposes shall be construed in accordance
with the laws of Delaware without regard to conflicts of laws principles.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed.
APPALACHIAN BANCSHARES, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Attest:
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture.
Dated:
WILMINGTON TRUST COMPANY, not in
its individual capacity but solely as Trustee or Authentication Agent
By: By:
----------------------------------------- ---------------------------
Authorized Signatory
2
<PAGE> 53
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Security
certificate to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignees social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer this Security certificate on the books
- ----------------------
of the Corporation. 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 Security)
Signature Guarantee:
----------------------------------
- ----------------
Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities and
Exchange Act of 1934, as amended.
3
<PAGE> 54
REVERSE OF DEBENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the
Corporation (herein sometimes referred to as the "Debentures"), specified in
the Indenture, all issued or to be issued under and pursuant to an Indenture
dated as of ________ __, 2000 (the "Indenture") duly executed and delivered
between the Corporation and Wilmington Trust Company, as Trustee (the
"Trustee"), to which Indenture reference is hereby made for a description of
the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Corporation and the holders of the Debentures.
The Debentures are limited in aggregate principal amount as specified in the
Indenture.
The Corporation has the right to redeem this Debenture at the option
of the Corporation, without premium or penalty (i) at any time on or after
_______ __, 2005 in whole or in part, or (ii) at any time in certain
circumstances in whole (but not in part) upon the occurrence of a Special
Event, in each case at a Redemption Price equal to 100% of the principal amount
plus any accrued but unpaid interest, to the date of such redemption (the
"Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon,
Eastern Standard Time, on the date of such redemption or at such earlier time
as the Corporation determines, provided that the Corporation shall deposit the
Redemption Price with the Trustee prior to 10:00 a.m. on the redemption date.
Any redemption pursuant to this paragraph shall be made upon not less than 30
days nor more than 60 days notice, at the Redemption Price. If the Debentures
are only partially redeemed by the Corporation, the Debentures shall be
redeemed pro rata or by lot or by any other fair and appropriate method
utilized by the Trustee.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures for the unredeemed portion hereof shall be issued in
the name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Corporation and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time Outstanding, as
defined in the Indenture, to execute supplemental indentures for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the holders of the Debentures; provided, however, that
no such supplemental indenture shall (i) extend the fixed maturity of the
Debentures except as provided in the Indenture, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon
(except for deferrals of interest as described below), without the consent of
the holder of each Debenture so affected; or (ii) reduce the aforesaid
percentage of Debentures, the holders of which are required to consent to any
such supplemental indenture, without the consent of the holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the holders of a majority in aggregate principal amount
of the Debentures at the time Outstanding, on behalf of all of the holders of
the Debentures, to waive any past default in the performance of any of the
covenants contained in the Indenture, or established pursuant to the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any of the Debentures. Any such consent or waiver by the registered
holder of this Debenture (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such holder and upon all future holders and owners
of this Debenture and of any Debenture issued in exchange therefor or in place
thereof (whether by registration of transfer or otherwise or whether any
notation of such consent or waiver is made upon this Debenture).
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay the principal and
interest on this Debenture at the time and place and at the rate and in the
money herein prescribed.
1
<PAGE> 55
So long as no Event of Default has occurred and is continuing, the
Corporation shall have the right at any time during the term of the Debentures
and from time to time to extend the interest payment period of such Debentures
for up to 20 consecutive quarters (each, an "Extended Interest Payment
Period"), at the end of which period the Corporation shall pay all interest
then accrued and unpaid (together with interest thereon at the rate specified
for the Debentures to the extent that payment of such interest is enforceable
under applicable law). Before the termination of any such Extended Interest
Payment Period, the Corporation may further extend such Extended Interest
Payment Period, provided that such Extended Interest Payment Period together
with all such further extensions thereof shall not exceed 20 consecutive
quarters and no Extended Interest Payment Period shall extend beyond the Stated
Maturity. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Corporation may commence a new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the registered holder
hereof on the Debenture Register of the Corporation, upon surrender of this
Debenture for registration of transfer at the office or agency of the Trustee
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Corporation or the Trustee duly executed by the registered
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Debentures of authorized denominations and for the same aggregate
principal amount shall be issued to the designated transferee or transferees.
No service charge shall be made for any such transfer, but the Corporation may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in relation thereto.
Prior to due presentment for registration of transfer of this
Debenture, the Corporation, the Trustee, any paying agent and the Debenture
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Debenture
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and interest due hereon and for all other purposes, and
neither the Corporation nor the Trustee nor any paying agent nor any Debenture
Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect of the Indenture, against any incorporator, stockholder, officer or
director, past, present or future, as such, of the Corporation or any
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of
the consideration for the issuance hereof, expressly waived and released.
The Debentures are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof.
All terms used in this Debenture that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Note is unsecured by any collateral, including the assets of the
Corporation or any of its subsidiaries or other affiliates.
2
<PAGE> 1
EXHIBIT 4.7
AMENDED AND RESTATED TRUST AGREEMENT
AMONG
APPALACHIAN BANCSHARES, INC.,
AS DEPOSITOR
WILMINGTON TRUST COMPANY,
AS PROPERTY TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF ________ __, 2000
-------------------------------------
APAB CAPITAL TRUST I
-------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINED TERMS................................................................................ 1
SECTION 101. DEFINITIONS.................................................................................. 1
ARTICLE II ESTABLISHMENT OF THE TRUST................................................................... 9
SECTION 201. NAME......................................................................................... 9
SECTION 202. OFFICE OF THE PROPERTY TRUSTEE; PRINCIPAL PLACE OF BUSINESS.................................. 9
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES..................................................................................... 9
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES......................................................... 9
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE
OF DEBENTURES................................................................................ 10
SECTION 206. DECLARATION OF TRUST......................................................................... 10
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS............................................. 11
SECTION 208. ASSETS OF TRUST.............................................................................. 14
SECTION 209. TITLE TO TRUST PROPERTY...................................................................... 14
ARTICLE III PAYMENT ACCOUNT.............................................................................. 14
SECTION 301. PAYMENT ACCOUNT.............................................................................. 14
ARTICLE IV DISTRIBUTIONS; REDEMPTION.................................................................... 14
SECTION 401. DISTRIBUTIONS................................................................................ 14
SECTION 402. REDEMPTION................................................................................... 15
SECTION 403. SUBORDINATION OF COMMON SECURITIES........................................................... 17
SECTION 404. PAYMENT PROCEDURES........................................................................... 17
SECTION 405. TAX RETURNS AND REPORTS...................................................................... 18
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.................................................. 18
SECTION 407. PAYMENTS UNDER INDENTURE..................................................................... 18
ARTICLE V TRUST SECURITIES CERTIFICATES................................................................ 18
SECTION 501. INITIAL OWNERSHIP............................................................................ 19
SECTION 502. THE TRUST SECURITIES CERTIFICATES............................................................ 19
SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES...................................... 19
SECTION 503A. GLOBAL PREFERRED SECURITIES.................................................................. 20
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED
SECURITIES CERTIFICATES...................................................................... 21
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES........................... 23
SECTION 506. PERSONS DEEMED SECURITYHOLDERS............................................................... 23
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES....................................... 23
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.............................................................. 23
SECTION 509. APPOINTMENT OF PAYING AGENT.................................................................. 24
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.................................................. 24
SECTION 511. NOTICES TO CLEARING AGENCY................................................................... 24
SECTION 511A. DEFINITIVE PREFERRED SECURITIES CERTIFICATE AND TEMPORARY
PREFERRED SECURITIES......................................................................... 25
SECTION 512. RIGHTS OF SECURITYHOLDERS.................................................................... 25
SECTION 513. CUSIP NUMBERS................................................................................ 26
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING.................................................... 26
SECTION 601. LIMITATIONS ON VOTING RIGHTS................................................................. 26
SECTION 602. NOTICE OF MEETINGS........................................................................... 27
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS........................................................ 27
SECTION 604. VOTING RIGHTS................................................................................ 27
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 605. PROXIES, ETC................................................................................. 27
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT..................................................... 28
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.................................................... 28
SECTION 608. ACTS OF SECURITYHOLDERS...................................................................... 28
SECTION 609. INSPECTION OF RECORDS........................................................................ 29
ARTICLE VII REPRESENTATIONS AND WARRANTIES............................................................... 29
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE....................................... 29
SECTION 702. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.................................................. 30
ARTICLE VIII TRUSTEES..................................................................................... 30
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.......................................................... 30
SECTION 802. CERTAIN NOTICES.............................................................................. 32
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE........................................................... 32
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES....................................... 34
SECTION 805. MAY HOLD SECURITIES.......................................................................... 34
SECTION 806. COMPENSATION; INDEMNITY; FEES................................................................ 34
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES................................. 35
SECTION 808. CONFLICTING INTERESTS........................................................................ 35
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE............................................................. 35
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR............................................ 36
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR....................................................... 38
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.................................. 38
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST................................. 38
SECTION 814. REPORTS BY PROPERTY TRUSTEE.................................................................. 38
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.............................................................. 39
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT............................................. 39
SECTION 817. NUMBER OF TRUSTEES........................................................................... 39
SECTION 818. DELEGATION OF POWER.......................................................................... 40
SECTION 819. VOTING....................................................................................... 40
ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER.......................................................... 40
SECTION 901. DISSOLUTION UPON EXPIRATION DATE............................................................. 40
SECTION 902. EARLY DISSOLUTION............................................................................ 40
SECTION 903. TERMINATION.................................................................................. 40
SECTION 904. LIQUIDATION.................................................................................. 41
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
THE TRUST.................................................................................... 42
ARTICLE X MISCELLANEOUS PROVISIONS..................................................................... 43
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS...................................................... 43
SECTION 1002. AMENDMENT.................................................................................... 43
SECTION 1003. SEPARABILITY................................................................................. 44
SECTION 1004. GOVERNING LAW................................................................................ 44
SECTION 1006. SUCCESSORS................................................................................... 44
SECTION 1007. HEADINGS..................................................................................... 45
SECTION 1008. REPORTS, NOTICES AND DEMANDS................................................................. 45
SECTION 1009. AGREEMENT NOT TO PETITION.................................................................... 45
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT....................................... 45
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.................................................................................... 46
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Preferred Securities Certificate
</TABLE>
-ii-
<PAGE> 4
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Trust Indenture Act Section of Amended and Restated
of 1939, as amended Trust Agreement
<S> <C>
310 (a) (1) 807
310 (a) (2) 807
310 (a) (3) 807
310 (a) (4) 207 (a) (ii)
310 (a) (5) Not Applicable
310 (b) 808
311 (a) 813
311 (b) 813
312 (a) 507
312 (b) 507
312 (c) 507
313 (a) 814 (a)
313 (b) 814 (a)
313 (c) 814 (a)
313 (d) 814 (b)
314 (a) (1) 815
314 (a) (2) 815
314 (a) (3) 815
314 (a) (4) 816
314 (b) Not Applicable
314 (c) (1) 816
314 (c) (2) 816
314 (c) (3) Not Applicable
314 (d) Not Applicable
314 (e) 101, 816
314 (f) Not Applicable
315 (a) 801, 803
315 (b) 802
315 (c) 801
315 (d) 801, 803
315 (e) Not Applicable
316 (a) (1) Not Applicable
316 (a) (2) Not Applicable
316 (b) 1002 (c)
316 (c) 607
317 (a) (1) Not Applicable
317 (a) (2) Not Applicable
317 (b) 509
318 (a) 1010
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect any interpretation of any of its terms or
provisions.
-iii-
<PAGE> 5
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of _______ __, 2000,
among (i) Appalachian Bancshares, Inc., a Georgia corporation (including any
successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, a
Delaware 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"), (iii) Alan May, an individual, and
Kent W. Sanford, an individual, each of whose address is c/o Appalachian
Bancshares, Inc., 829 Industrial Boulevard, Ellijay, Georgia 30540 (each an
"Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee and the Administrative Trustees referred to collectively as
the "Trustees"), and (iv) the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor and the Property Trustee have heretofore duly
declared and established a business trust, APAB Capital Trust I, pursuant to
the Delaware Business Trust Act by the entering into of that certain Trust
Agreement, dated as of November 18, 1999 (the "OriginalTrust Agreement"), and
by the execution and filing by the Property Trustee with the Secretary of State
of the State of Delaware of the Certificate of Trust, filed on November 18,
1999, the form of which is attached as Exhibit A; and
WHEREAS, the Depositor and the Trustees desire to amend and restate
the Original Trust Agreement in its entirety as set forth herein to provide
for, among other things, (i) the issuance of the Common Securities (as defined
herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance
and sale of the Preferred Securities (as defined herein) by the Trust pursuant
to the Underwriting Agreement (as defined herein); and (iii) the acquisition by
the Trust from the Depositor of all of the right, title and interest in the
Debentures (as defined herein).
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 Securityholders (as defined herein)
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows.
ARTICLE I
DEFINED TERMS
SECTION 101. 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 I have the meanings
assigned to them in this Article I 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) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
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<PAGE> 6
(d) the words "herein", "hereof and "hereunder" and other words
of similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement solely in such
Person's capacity as Administrative Trustee of the Trust formed and continued
hereunder and not in such Person's individual capacity, or such Administrative
Trustee's successor in interest in such capacity, or any successor
Administrative Trustee appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified person is a
general partner; (e) any officer or director of the specified Person; and (f)
if the specified Person is an individual, any entity of which the specified
Person is an executive officer, director or general partner.
"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 adjudging such Person a bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation or reorganization of
or in respect of such Person under the United States Bankruptcy Code of 1978,
as amended, or any other similar applicable federal or state law, and the
continuance of any such decree or order unvacated and unstayed for a period of
90 days; or the commencement of an involuntary case under the United States
Bankruptcy Code of 1978, as amended, in respect of such Person, which shall
continue undismissed for a period of 90 days or entry of an order for relief in
such case and such order shall have remained in force unvacated and unstayed
for a period of 90 days; or the entry of a decree or order of a court having
jurisdiction in the premises for the appointment on the ground of insolvency or
bankruptcy of a receiver, custodian, liquidator, trustee or assignee in
bankruptcy or insolvency of such Person or of its property, or for the winding
up or liquidation of its affairs, and such decree or order shall have remained
in force unvacated and unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be
adjudicated a voluntary bankrupt, or the consent by such Person to the filing
of a bankruptcy proceeding against it, or the filing by such Person of a
petition or answer or consent seeking liquidation or reorganization under the
United States
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<PAGE> 7
Bankruptcy Code of 1978, as amended, or other similar applicable Federal or
State law, or the consent by such Person to the filing of any such petition or
to the appointment on the ground of insolvency or bankruptcy of a receiver or
custodian or liquidator or trustee or assignee in bankruptcy or insolvency of
such Person or of its property, or the making by such person of a general
assignment for the benefit of creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors, or such committee of the Board of
Directors or officers of the Depositor to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect
on the date of such certification, and delivered to the appropriate Trustee.
"Business Day" means any day other than (a) a Saturday or Sunday, (b)
a day on which banking institutions in the Cities of New York or Atlanta are
authorized or required by law, executive order or regulation to close, or (c) a
day on which the principal Corporate Trust Office of the Property Trustee or of
the Debenture Trustee is closed for business.
"Capital Treatment Event" has the meaning specified in Section 1.1 of
the Indenture.
"Certificate Depositary Agreement" means the agreement among the
Trust, the Depositor and 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" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act. DTC shall be the initial
Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time Clearing
Agency effects book-entry transfers and pledges of securities deposited with
the Clearing Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, 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 Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein. Common Securities rank
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<PAGE> 8
pari passu with the Preferred Securities; provided, however, that upon the
occurrence of an Event of Default, the right of holders of Common Securities to
payment in respect of (i) distributions, and (ii) payments upon liquidation,
redemption and otherwise are subordinated to the right of holders of Preferred
Securities.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as Exhibit
C.
"Corporate Trust Office" means (i) when used with respect to the
Property Trustee, the principal corporate trust office of the Property Trustee
located in Wilmington, Delaware, and (ii) when used with respect to the
Debenture Trustee, the principal corporate trust office of the Debenture
Trustee located in Wilmington, Delaware.
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to
be redeemed under the Indenture, the date fixed for redemption under the
Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section 1.1
of the Indenture.
"Debenture Trustee" means Wilmington Trust Company, a banking
corporation organized under the laws of the State of Delaware, and any
successor thereto, not in its individual capacity but solely as trustee under
the Indenture.
"Debentures" means the aggregate principal amount of the Depositor's
___% Junior Subordinated Deferrable Interest Debentures due 2030, issued
pursuant to the Indenture.
"Definitive Preferred Securities Certificates" means the Preferred
Securities Certificates issued in certificated, fully registered form (non-
global) as provided in Section 503A.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from
time to time.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Depositary" means with respect any Preferred Securities issuable or
issued in whole or in part in the form of one or more Global Preferred
Securities, the Person designated as Depositary by the Depositor.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 401(b).
"DTC" means The Depository Trust Company.
"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):
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<PAGE> 9
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a period
of 30 days; or
(c) default by the Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trustees in this Trust Agreement
(other than a covenant or warranty a default in the performance 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 defaulting Trustee or Trustees 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 a Bankruptcy Event with respect to the
Property Trustee and the failure by the Depositor to appoint a successor
property Trustee within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor statute, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in
Section 4.1 of the Indenture.
"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 503A.
"Guarantee" means the Preferred Securities Guarantee Agreement
executed and delivered by the Depositor, as guarantor, and Wilmington Trust
Company, as Preferred Guarantee 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.
"Indenture" means the Indenture, dated as of ______ __, 2000 between
the Depositor and the Debenture Trustee, as trustee, as amended or supplemented
from time to time.
"Investment Company Act," means the Investment Company Act of 1940, or
any successor statute, in each case as amended from time to time.
"Investment Company Event" has the meaning specified in Section 1.1 of
the Indenture.
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<PAGE> 10
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Debentures to be contemporaneously redeemed in accordance with the
Indenture and the proceeds of which shall be used to pay the Redemption Price
of such Trust Securities; and (b) with respect to a distribution of Debentures
to Holders of Trust Securities in connection with a termination or liquidation
of the Trust, Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the Holder to whom such Debentures are
distributed. Each Debenture distributed pursuant to clause (b) above shall
carry with it accumulated interest in an amount equal to the accumulated and
unpaid interest then due on such Debentures.
"Liquidation Amount" means the stated amount of $10 per Trust
Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a dissolution and
liquidation of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section
904(d).
"Majority in liquidation amount of the Outstanding Preferred
Securities" means, except as provided in the terms of the Preferred Securities
or, except as provided by the Trust Indenture Act, a vote by Holder(s) of
Preferred Securities, voting separately as a class, of more than 50% of the
Liquidation Amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accumulated and unpaid Distributions
to but excluding the date upon which the voting percentages are determined) of
all Outstanding Preferred Securities.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, President or a Vice President and by the Chief Financial Officer,
the Treasurer or an Assistant Treasurer or the Controller or an Assistant
Controller or the Secretary or an Assistant Secretary, of the Depositor, and
delivered to the appropriate Trustee. One of the officers signing an Officers'
Certificate given pursuant to Section 314(a)(4) of the Trust Indenture Act
shall be the principal executive, financial or accounting officer of the
Depositor. Any Officers' Certificate delivered with respect to compliance with
a condition or covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer upon which the
statements contained in the certificate are based in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
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<PAGE> 11
"Opinion of Counsel" means an opinion in writing of independent
outside legal counsel, who may be counsel for the Trust, the Property Trustee,
or the Depositor and who shall be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals
to this Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means,
as of the date of determination, all Preferred Securities theretofore executed
and delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property
Trustee or delivered to the Property Trustee for cancellation;
(b) Preferred 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 Preferred Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange
for or in lieu of which other Preferred Securities have been executed and
delivered pursuant to Sections 504, 505 and 511A; 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 Trustee or any Affiliate of the Depositor or any Trustee
shall be disregarded and deemed not to be Outstanding, except that (i) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Preferred Securities that such Trustee actually knows to be so owned shall be
so disregarded and (ii) 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 Trustees and/or any such 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 Administrative Trustees 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.
"Owners" means each Person who is the beneficial owner of a beneficial
interest in a Global Preferred Security 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 509 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 Bank in its trust
department for the benefit of the Securityholders and established pursuant to
Section 301 in which all amounts paid in respect of the Debentures shall be
held and from which the Property Trustee shall make payments to the
Securityholders in accordance with Sections 401 and 402 or any other applicable
provisions hereof.
"Person" means any individual, corporation, partnership, joint
venture, trust, limited liability company or corporation, unincorporated
organization or government or any agency or political subdivision thereof.
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"Preferred Security" means an undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $10 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate", means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as
Exhibit E.
"Property Trustee" means the Person identified as the "Property
Trustee," in the preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor property trustee
appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date in an amount equal to the interest and
other sums (exclusive of principal) paid by the Depositor upon and in respect
of the concurrent redemption of a Like Amount of Debentures, allocated on a pro
rata basis (based on Liquidation Amounts) among the Trust Securities being
redeemed on the Redemption Date.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Securities is registered in the Securities Register; any such
Person is a beneficial owner within the meaning of the Delaware Business Trust
Act.
"Trust" means the APAB Capital Trust I, a Delaware business trust
continued hereby.
"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 all exhibits hereto, including, for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939, as
amended, is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) any cash on deposit in,
or owing to, the Payment Account; and (c) all proceeds and rights in respect of
the foregoing and any other property and assets for the time being held or
deemed to be held by the Property Trustee pursuant to the terms of this Trust
Agreement.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
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"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee and the
Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
______ __, 2000, including exhibits, among the Trust, the Depositor and the
Underwriter named therein.
"Underwriters' Over-Allotment Option" means the option, exercisable
within 30 days after the date of the prospectus, granted to the underwriters in
the offering to the public of Preferred Securities, to purchase up to
$1,500,000 in Liquidation Amount of additional Preferred Securities at the same
price per Preferred Security as paid for the other Preferred Securities issued
pursuant to the prospectus.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust created and continued hereby shall be known as "APAB Capital
Trust I," as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Trustees, in which name the Trustees may engage in the transactions
contemplated hereby, make and execute contracts and other instruments on behalf
of the Trust and sue and be sued.
SECTION 202. OFFICE OF THE PROPERTY TRUSTEE; PRINCIPAL PLACE OF
BUSINESS.
The address of the Property Trustee in the State of Delaware is Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration, or such other address in the State of Delaware
as the Property Trustee may designate by written notice to the Securityholders
and the Depositor. The principal place of business of the Property Trustee is
in the State of Delaware. The principal executive office of the Trust is c/o
Appalachian Bancshares, Inc., 829 Industrial Boulevard, Ellijay, Georgia 30540.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10.00, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
The Depositor on behalf of the Trust and pursuant to the Original
Trust Agreement, executed and delivered the Underwriting Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrative Trustee, on behalf of the Trust, shall execute in accordance
with Section 502 and deliver in accordance with the Underwriting Agreement,
Preferred Securities Certificates, registered in the name of the Persons
entitled thereto, in an aggregate amount of 1,000,000 shares of Preferred
Securities having an aggregate Liquidation Amount of $10,000,000 against
receipt of the
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aggregate purchase price of such Preferred Securities of $10,000,000, which
amount such Administrative Trustee shall promptly deliver to the Property
Trustee. If the underwriters exercise their Underwriters' Over-Allotment Option
and there is an Option Closing Date (as such term is defined in the
Underwriting Agreement), then an Administrative Trustee, on behalf of the
Trust, shall execute in accordance with Section 502 and deliver in accordance
with the Underwriting Agreement, additional Preferred Securities Certificates,
registered in the name of the Persons entitled thereto, in an aggregate amount
of up to 150,000 shares of Preferred Securities having an aggregate Liquidation
Amount of up to $1,500,000 against receipt of the aggregate purchase price of
such Preferred Securities of $1,500,000, which amount such Administrative
Trustee shall promptly deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF DEBENTURES.
(a) Contemporaneously with the execution and delivery of this
Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502 and deliver to the Depositor, Common
Securities Certificates, registered in the name of the Depositor in an
aggregate amount of _______________ Common Securities having an aggregate
Liquidation Amount of $___________ against payment by the Depositor of such
amount, which amount such Administrative Trustee shall promptly deliver to the
Property Trustee. Contemporaneously therewith, an Administrative Trustee on
behalf of the Trust, shall subscribe to and purchase from the Depositor
corresponding amounts of Debentures, registered in the name of the Property
Trustee on behalf of the Trust and having an aggregate principal amount equal
to $____________ (being the sum of the amounts delivered to the Property
Trustee pursuant to (i) the second sentence of Section 204; and (ii) the first
sentence of Section 205(a)), and, in satisfaction of the purchase price for
such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to
the Depositor the sum of $__________.
(b) If the underwriters exercise the Underwriters'
Over-Allotment Option and there is an Option Closing Date (as such term is
defined in the Underwriting Agreement), then an Administrative Trustee, on
behalf of the Trust, shall execute in accordance with Section 502 and deliver
to the Depositor, Common Securities Certificates, registered in the name of the
Depositor, in an aggregate amount of _________________ Common Securities having
an aggregate Liquidation Amount of up to $_______ against payment by the
Depositor of such amount. Contemporaneously therewith, an Administrative
Trustee, on behalf of the Trust, shall subscribe to and purchase from the
Depositor corresponding amounts of Debentures, registered in the name of the
Trust and having an aggregate principal amount of up to $_______, and, in
satisfaction of the purchase price of such Debentures, the Property Trustee, on
behalf of the Trust, shall deliver to the Depositor the amount received from
one of the Administrative Trustees pursuant to the last sentence of Section 204
(being the sum of the amounts delivered to the Property Trustee pursuant to (i)
the third sentence of Section 204; and (ii) the first sentence of this Section
205(b)).
SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Debentures; and (b) to engage in those activities necessary, convenient or
incidental thereto. The Depositor hereby appoints the Trustees as trustees of
the Trust, to have all the rights, powers and duties to the extent set forth
herein, and the Trustees hereby accept such appointment. The Property Trustee
hereby declares that it shall hold the Trust Property in trust upon and subject
to the conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Property Trustee shall be one of the
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Trustees of the Trust for the purpose of fulfilling the requirements of Section
3807 of the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in
accordance with the terms of this Trust Agreement. Subject to the limitations
set forth in paragraph (b) of this Section 207 and Article VIII, and in
accordance with the following provisions (i) and (ii), the Administrative
Trustees shall have the authority to enter into all transactions and agreements
determined by the Administrative Trustees to be appropriate in exercising the
authority, express or implied, otherwise granted to the Administrative Trustees
under this Trust Agreement, and to perform all acts in furtherance thereof,
including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting
singly or together, shall have the power and authority to act on behalf of the
Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities and
compliance with the Underwriting Agreement in connection therewith;
(B) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, the Expense Agreement,
Certificate Depositary Agreement and such other agreements or
documents as may be necessary or desirable in connection with the
purposes and function of the Trust;
(C) assisting in the registration of the Preferred
Securities under the Securities Act of 1933, as amended, and under
state securities or blue sky laws, and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred
Securities upon the Nasdaq SmallCap Market or such securities exchange
or exchanges as shall be determined by the Depositor and the
registration of the Preferred Securities under the Exchange Act, and
the preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing;
(E) the sending of notices (other than notices of
default) and other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust
Agreement;
(F) the appointment of a Paying Agent, authenticating
agent and Securities Registrar in accordance with this Trust
Agreement;
(G) to the extent provided in this Trust Agreement,
the winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or
appropriate for the preservation and the continuation of the Trust's
valid existence, rights, franchises and privileges as a statutory
business trust under the laws of the State of Delaware and of each
other jurisdiction in which such existence is necessary to protect the
limited liability of the Holders of the Preferred Securities or to
enable the Trust to effect the purposes for which the Trust was
created;
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(I) assisting in the registration or listing of the
Preferred Securities with DTC or upon such other trading facilities or
exchanges as shall be determined by the Depositor and the preparation
and filing of all periodic and other reports and other documents
pursuant to the foregoing; and
(J) the taking of any action incidental to the
foregoing as the Administrative Trustees may from time to time
determine is necessary or advisable to give effect to the terms of
this Trust Agreement for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any
other payments made in respect of the Debentures in the Payment
Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust Securities in accordance with
the terms of this Trust Agreement;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in
accordance with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement,
the winding up of the affairs of and liquidation of the Trust and the
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(I) after an Event of Default, the taking of any
action incidental to the foregoing as the Property Trustee may from
time to time determine is necessary or advisable to give effect to the
terms of this Trust Agreement and protect and conserve the Trust
Property for the benefit of the Securityholders (without consideration
of the effect of any such action on any particular Securityholder);
(J) registering transfers of the Trust Securities in
accordance with this Trust Agreement; and
(K) except as otherwise provided in this Section
207(a)(ii), the Property Trustee shall have none of the duties,
liabilities, powers or the authority of the Administrative Trustees
set forth in Section 207(a)(i).
(b) So long as this Trust Agreement remains in effect, the
Trust (or the Trustees acting on behalf of the Trust) shall not undertake any
business, activities or transaction except as expressly provided
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herein or contemplated hereby. In particular, the Trustees shall not (i)
acquire any investments or engage in any activities not authorized by this
Trust Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge,
setoff or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein; (iii) take
any action that would cause the Trust to fail or cease to qualify as a "grantor
trust" for United States federal income tax purposes; (iv) incur any
indebtedness for borrowed money or issue any other debt; or (v) take or consent
to any action that would result in the placement of a Lien on any of the Trust
Property. The Administrative Trustees shall defend all claims and demands of
all Persons at any time claiming any Lien on any of the Trust Property adverse
to the interest of the Trust or the Securityholders in their capacity as
Securityholders.
(c) In connection with the issuance and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist the
Trust with respect to, or effect on behalf of the Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the
date of this Trust Agreement are hereby ratified and confirmed in all
respects):
(i) the preparation and filing by the Trust with the
Commission and the execution on behalf of the Trust of a registration
statement on the appropriate form in relation to the Preferred
Securities, the Debentures and the Guarantee, including any amendments
thereto;
(ii) the determination of the states in which to take
appropriate action to qualify or register for sale all or part of the
Preferred Securities and to do any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and advise
the Trustees of actions they must take on behalf of the Trust, and
prepare for execution and filing any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of
any such States;
(iii) the preparation for filing by the Trust and
execution on behalf of the Trust of an application to the Nasdaq
SmallCap Market or another national stock exchange or other
organizations for listing of any Preferred Securities and to file or
cause an Administrative Trustee to file thereafter with such exchange
or organization such notifications and documents as may be necessary
from time to time;
(iv) the preparation for filing by the Trust with the
Commission and the execution on behalf of the Trust of a registration
statement on Form 8-A relating to the registration of the Preferred
Securities under Section 12(b) or 12(g) of the Exchange Act, including
any amendments thereto;
(v) the negotiation of the terms of, and the
execution and delivery of, the Underwriting Agreement providing for
the sale of, the Preferred Securities; and
(vi) the taking of any other actions necessary or
desirable to carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrative Trustees are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust shall not be deemed to be
an "investment company" required to be registered under the Investment Company
Act, shall be classified as a "grantor trust" and not as an association taxable
as a corporation for United States federal income tax purposes and so that the
Debentures shall be treated as indebtedness of the Depositor for United States
federal income tax purposes. In this connection, subject to Section 1002, the
Depositor and the Administrative Trustees are authorized to take any action,
not inconsistent with
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applicable law or this Trust Agreement, that each of the Depositor and the
Administrative Trustees determines in their discretion to be necessary or
desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. 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 Securityholders in accordance
with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the
Payment Account shall be held by the Property Trustee in the Payment Account
for the exclusive benefit of the Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Additional Amounts) will be made
on the Trust Securities at the rate and on the dates that payments of interest
(including of Additional Interest, as defined in the Indenture) are made on the
Debentures. Accordingly:
(a) Distributions on the Trust Securities shall be cumulative,
and shall accumulate whether or not there are funds of the Trust available for
the payment of Distributions. Distributions shall accumulate from the date of
issuance, and, except during any Extended Interest Payment Period with respect
to the Debentures, shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 each year, commencing on March 31, 2000. If any
date on which a Distribution is otherwise payable on the Trust Securities is
not a Business Day, then the payment of such Distribution shall be made on the
next succeeding day that is a Business Day (and without any reduction of
interest or other payment in respect of any such acceleration) except that, if
such Business Day is in the next succeeding calendar year, payment of such
Distribution shall be made on the immediately preceding Business Day (and
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without any reduction of interest or any other payment in respect of any such
acceleration), in each case with the same force and effect as if made on such
date (each date on which distributions are payable in accordance with this
Section 401(a), a "Distribution Date").
(b) Assuming payments of interest on the Debentures are made
when due (and before giving effect to Additional Amounts, if applicable),
Distributions on the Trust Securities shall be payable at a rate of ___% per
annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any full period shall be computed on the basis of a
360-day year of twelve 30-day months. Subject to the last sentence in Section
401(a), the amount of Distributions for any period shorter than a full
quarterly period for which Distributions are computed shall be computed on the
basis of the actual number of days elapsed in such period based on a 360-day
year of twelve 30-day months. During any Extended Interest Payment Period with
respect to the Debentures, Distributions on the Preferred Securities shall be
deferred for a period equal to the Extended Interest Payment Period and shall
be payable to the Holders in whose names the Trust Securities are registered in
the Securities Register as of the close of business on the 15th day of the
month in which the Extended Interest Payment Period ends. The amount of
Distributions payable for any period shall include the Additional Amounts and
Additional Interest, if any.
(c) Distributions on the Trust Securities shall be made by the
Property Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities on the relevant record date, which
shall be the 15th day of the month in which the Distribution is payable
(determined without giving effect to the last sentence of Section 401(a)).
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the stated
maturity of the Debentures the Trust shall 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
in the name of and at the expense of the Trust 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 Securities Register. The Property Trustee shall have
no responsibility for the accuracy of any CUSIP number contained in such
notice. All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that, on the Redemption Date, the Redemption Price shall
become due and payable upon each such Trust Security to be redeemed and that
Distributions thereon shall cease to accumulate on and after said date with
respect to each such Trust Security, except as provided in Section 402(d); and
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(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
(c) The Trust Securities redeemed on each Redemption Date shall
be redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the
extent that the Trust has immediately available 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., Atlanta time, on the
Redemption Date, subject to Section 402(c), the Property Trustee will, so long
as any of the Preferred Securities are in book-entry-only form, irrevocably
deposit with the Clearing Agency for the Preferred Securities funds sufficient
to pay the applicable Redemption Price and will give such Clearing Agency
irrevocable instructions and authority to pay the Redemption Price to the
appropriate beneficial holders thereof. If any of the Preferred Securities are
no longer in book-entry-only form, the Property Trustee, subject to Section
402(c), will provide the Paying Agent with irrevocable instructions and
authority to pay the Redemption Price to the Holders thereof 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 Securities Register for the Trust Securities
on the relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon the
date of such deposit, all rights of Securityholders holding Trust Securities so
called for redemption shall cease, except the right of such Securityholders to
receive the Redemption Price and any Distributions payable on or prior to the
Redemption Date to which such Securityholders may otherwise be entitled, but
without interest, and such Securities shall cease to be Outstanding. In the
event that any date on which any Redemption Price is payable is not a Business
Day, then payment of the Redemption Price payable on such date shall be made on
the next succeeding day that is a Business Day (and without any reduction of
interest or other payment in respect of any such acceleration), except that, if
such Business Day falls in the next calendar year, such payment shall be made
on the immediately preceding Business Day (and without any reduction of
interest or any other payment in respect of any such acceleration), in each
case, with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of any Trust Securities called for
redemption is improperly withheld or refused and not paid either by the Trust
or by the Depositor pursuant to the Guarantee, Distributions on such Trust
Securities shall continue to accumulate, at the then applicable rate, from the
Redemption Date originally established by the Trust for such Trust Securities
to the date such Redemption Price is actually paid, in which case the actual
payment date shall be the date fixed for redemption for purposes of calculating
the Redemption Price, and for periods after the Redemption Date originally
established the provisions of the third sentence of this paragraph (d) shall
cease to apply.
(e) Payment of the Redemption Price on the Trust Securities
shall be made to the record holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
one Business Day prior to the relevant Redemption Date; provided, however, in
the event that not all the Preferred Securities remain in book-entry form, the
relevant record date for all Trust Securities shall be the date 15 days prior
to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding
Trust Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be
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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, by such method (including, without limitation, by lot)
as the Property Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of portions (equal to $10 or an integral
multiple of $10 in excess thereof), of the Liquidation Amount of Preferred
Securities of a denomination larger than $10. The Property Trustee shall
promptly notify the Securities Registrar 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 this 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 Liquidation Amount of Preferred Securities which has been
or is to be redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 402(f), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities, provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
(including Additional Amounts, if applicable) on, or Redemption Price of, any
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 Additional
Amounts, if applicable) 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, shall have been
made or provided for, and all funds immediately available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions (including Additional Amounts, if applicable) on, or the
Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Event of Default
resulting from a Debenture Event of Default, the Holder of Common Securities
shall be deemed to have waived any right to act with respect to any such Event
of Default under this Trust Agreement until the effect of all such Debenture
Events of Default with respect to the Preferred Securities shall have been
cured, waived or otherwise eliminated. Until any such Event of Default under
this Trust Agreement resulting from a Debenture Event of Default shall 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 the Holder
of the Common Securities, and only the Holders of the Preferred Securities
shall have the right to direct the Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts and Additional
Interest, if applicable) 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 any 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 in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Common Securityholder.
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SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared),
at the Depositor's expense, and file all United States federal, state and local
tax and information returns and reports required to be filed by or in respect
of the Trust. In this regard, the Administrative Trustees shall (a) prepare and
file (or cause to be prepared and filed) the appropriate Internal Revenue
Service Form required to be filed in respect of the Trust in each taxable year
of the Trust; and (b) prepare and furnish (or cause to be prepared and
furnished) to each Securityholder the appropriate Internal Revenue Service form
required to be furnished to such Securityholder or the information required to
be provided on such form. The Administrative Trustees shall provide the
Depositor with a copy of all such returns and reports promptly after such
filing or furnishing. The Property Trustee shall comply with United States
federal withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Securityholders under the Trust
Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Interest, the Property
Trustee, at the written direction of an Administrative Trustee or the
Depositor, shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Trust by the
United States or any other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any Holder of Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder (or any
related Owner) has directly received under the Indenture pursuant to Section
7.8 thereof and 512(b) hereof and under the Guarantee.
SECTION 408. TAXES; WITHHOLDING.
The Property Trustee agrees, to the extent required by the Code, and
applicable federal regulations thereunder, to withhold from each payment due
hereunder or under any Trust Securities, United States withholding taxes at the
appropriate rate, and, on a timely basis, to deposit such amounts with an
authorized depository and make such returns, filings and other reports in
connection therewith as are required by the Code. In the event that any
withholding tax is imposed on a payment to a Securityholder, such tax shall
reduce the amount otherwise distributable to the Securityholder in accordance
with this Section. Any Securityholder which is organized under the laws of a
jurisdiction outside the United State shall, on or prior to the date such
Securityholder becomes a Securityholder, (a) so notify the Property Trustee,
(b) (i) provide the Property Trustee with Internal Revenue Service form 1001,
4224, 8709 or W-8, as appropriate, or (ii) notify the Property Trustee that it
is not entitled to an exemption from United States withholding tax or a
reduction in the rate thereof on payments of interest. Any such Securityholder
agrees by its acceptance of a Trust Security, on an ongoing basis, to provide
like certification for each taxable year and to notify the Property Trustee as
specified in clauses (a) and (b) above. The Property Trustee shall be fully
protected in relying upon, and each Securityholder by its acceptance of a
Security agrees to indemnify and hold the Property Trustee harmless against all
claims or liability of any kind arising in connection with or related to the
Property Trustee's reliance upon any documents, forms or information provided
by any Securityholder to the Property Trustee. In addition, if the Property
Trustee has not withheld taxes on any payment made to any Securityholder, and
the Property Trustee is subsequently required to remit to any taxing authority
any such amount not withheld, such Securityholder shall return such amount to
the Property Trustee upon written demand by the Property Trustee. The Property
Trustee shall be liable only for direct (but not consequential) damages to any
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Securityholder due to the Property Trustee's violation of the Code and only to
the extent such liability is caused by the Property Trustee's gross negligence
or willful misconduct.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
(a) The Preferred Securities Certificates shall be issued in
minimum denominations of $10 Liquidation Amount and integral multiples of $10
in excess thereof, and the Common Securities Certificates shall be issued in
denominations of $10 Liquidation Amount and integral multiples thereof. The
Trust Securities Certificates shall be executed on behalf of the Trust by
manual, facsimile or imprinted signature of at least one Administrative Trustee
and the Property Trustee shall authenticate and register the Preferred
Securities Certificates. 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 Trust, shall be validly issued and
entitled to the benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
delivery of such Trust Securities Certificates or did not hold such offices at
the date of delivery of such Trust Securities Certificates. A transferee of a
Trust Securities Certificate shall become a Securityholder, and shall be
entitled to the rights and subject to the obligations of a Securityholder
hereunder, upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Sections 504 and 511A.
(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 or 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.
SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
On the Closing Date and on the date on which the Underwriters exercise
the Underwriters' Over-Allotment Option (the "Option Closing Date"), the
Administrative Trustees shall cause Trust Securities Certificates, in an
aggregate Liquidation Amount as provided in Sections 204 and 205, to be
executed by manual, facsimile or imprinted signature on behalf of the Trust by
at least one of the Administrative Trustees and delivered to the Property
Trustee and upon such delivery, the Property Trustee shall authenticate and
register the Preferred Securities Certificates and make available for delivery
such Preferred Securities Certificates upon the written order of the Depositor,
executed by its Chairman of the Board, or President or any Vice President and
the Chief Financial Officer, Treasurer or an Assistant
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Treasurer or Secretary or Assistant Secretary without further corporate action
by the Depositor, in authorized denominations.
SECTION 503A. GLOBAL PREFERRED SECURITIES.
(a) Each Global Preferred Security issued under this Trust
Agreement shall be registered in the name of the Clearing Agency designated by
the Depositor for the related Global Preferred Securities or a nominee thereof
and delivered to such Clearing Agency or a nominee thereof or custodian
therefor.
(b) Notwithstanding any other provision in this Trust
Agreement, no Global Preferred Securities may be exchanged in whole or in part
for Preferred Securities registered, and no transfer of Global Preferred
Securities in whole or in part may be registered, in the name of any Person
other than as set forth in Section 502(b) unless (a) the Clearing Agency
advises the Property Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Global Preferred Securities, and the Administrative Trustees are unable to
locate a qualified successor, (b) the Trust at its option advises the Clearing
Agency in writing that it elects to eliminate the global system through the
Clearing Agency, (c) after the occurrence of a Debenture Event of Default in
the circumstances described in Section 511A(a) or (d) pursuant to the following
sentence. All or any portion of a Global Preferred Security may be exchanged
for a Preferred Security that has a like aggregate principal amount and is not
a Global Preferred Security upon 20 days' prior written request made by the
Clearing Agency or its authorized representative to the Property Trustee;
provided, however that no Definitive Preferred Security Certificate shall be
issued in an amount representing less than $100,000 in aggregate Liquidation
Amount of Preferred Securities. Upon the occurrence of any event specified in
clause (a), (b) or (c) above, the Administrative Trustees shall notify the
Clearing Agency and the Clearing Agency shall notify all Owners of beneficial
interests in Global Preferred Securities, the Property Trustee and the
Administrative Trustees of the occurrence of such event and of the availability
of the Definitive Preferred Security Certificate to such Owners requesting the
same; provided, however, that no Definitive Preferred Security Certificate
shall be issued in an amount representing less than $10 in aggregate
Liquidation Amount of Preferred Securities. Upon surrender to the
Administrative Trustees of the typewritten Preferred Securities Certificate or
certificates representing the Global Preferred Securities held by the Clearing
Agency, accompanied by registration instructions, the Administrative Trustees,
or any one of them, shall execute Definitive Preferred Securities Certificates
in accordance with the instructions of the Clearing Agency. Neither the
Securities Registrar nor the Trustees shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of a Definitive Preferred
Securities Certificate, the Trustees shall recognize the Holder of the
Definitive Preferred Securities Certificate as a Securityholder. Definitive
Preferred Securities Certificates shall be printed, lithographed or engraved or
may be produced in any other manner as is reasonably acceptable to the
Administrative Trustees, as evidenced by the execution thereof by the
Administrative Trustees or any one of them.
(c) If any Global Preferred Security is to be exchanged for
Definitive Preferred Securities Certificates or cancelled in part, or if
Definitive Preferred Securities Certificates are to be exchanged in whole or in
part for 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 aggregate Liquidation Amount represented by such
Global Preferred Security shall be reduced, subject to Section 502, or
increased, by an amount equal to the Liquidation Amount represented by that
portion of the Global Preferred Security to be so exchanged or cancelled, or
equal to the Liquidation Amount represented by such Definitive Preferred
Securities Certificates to be so exchanged for beneficial interests in the
Global Preferred Security represented thereby, as the case may be, by means of
an appropriate adjustment made on the records of the Securities Registrar,
whereupon the Property Trustee, in accordance with the Applicable Procedures,
shall instruct the Clearing Agency or its authorized representative to make a
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corresponding adjustment to its records. Upon surrender to the Administrative
Trustees or the Securities Registrar of the Global Preferred Security by the
Clearing Agency, accompanied by registration instructions, the Administrative
Trustees, or any one of them, shall execute the Definitive Preferred Securities
Certificates in accordance with the instructions of the Clearing Agency and
Section 502 hereof; provided, however, that no Definitive Preferred Securities
Certificates shall be issued in an amount representing less than $10 in
aggregate Liquidation Amount of Preferred Securities. None of the Securities
Registrar, the Property Trustee or the Administrative Trustees shall be liable
for any delay in delivery of such instructions and may conclusively rely on,
and shall be protected in relying on, such instructions. Upon the issuance of
Definitive Preferred Securities Certificates, the Property Trustee and
Administrative Trustees shall recognize the Holders of the Definitive Preferred
Securities Certificates as Securityholders. The Definitive Preferred Securities
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Administrative Trustees, as
evidenced by the execution thereof by the Administrative Trustees or any one of
them.
(d) Every Preferred Security executed 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 executed and delivered in the form of, and
shall be, a Global Preferred Security, unless such 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 registered owner of
a Global Preferred Security, shall be the Holder of such Global Preferred
Security for all purposes under this Trust Agreement and the Global Preferred
Security, and Owners with respect to a Global Preferred Security shall hold
such interests pursuant to the Applicable Procedures. The Securities Registrar
and the Trustees shall be entitled to deal with the Clearing Agency for all
purposes of this Trust Agreement relating to the Global Preferred Securities
(including the payment of the Liquidation Amount of and Distributions on the
beneficial interests in Global Preferred Securities represented thereby and the
giving of instructions or directions to Owners of Global Preferred Securities
represented thereby) as the sole Holder of the Global Preferred Securities
represented thereby and shall have no obligations to the Owners thereof.
Neither the Property Trustee nor the Securities Registrar shall have any
liability in respect of any transfers effected by the Clearing Agency.
The rights of the Owners of the Global Preferred Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such
Owners and the Clearing Agency and/or the Clearing Agency Participants.
Pursuant to the Certificate Depository Agreement, unless and until Definitive
Preferred Securities Certificates are issued pursuant hereto, the Clearing
Agency will make global transfers among the Clearing Agency Participants and
receive and transmit payments on the Preferred Securities to such Clearing
Agency Participants. Not in limitation of the other provisions herein
contained, the Property Trustee is authorized and empowered hereby to execute
the Certificate Depositary Agreement.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED
SECURITIES CERTIFICATES.
(a) The Property Trustee shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 508, a register or registers
for the purpose of registering Trust Securities Certificates and transfers and
exchanges of Preferred Securities Certificates (herein referred to as the
"Securities Register") in which the registrar and transfer agent (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 510 in the
case of the Common Securities
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Certificates) and registration of transfers and exchanges of Preferred
Securities Certificates as herein provided. The Property Trustee shall be the
initial Securities Registrar.
Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to Section
508, the Administrative Trustees or any one of them shall execute and the
Property Trustee shall authenticate and make available for delivery, in the
name of the designated transferee or transferees, one or more new Preferred
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee
or Trustees. The Securities Registrar shall not be required to register the
transfer of any Preferred Securities that have been called for redemption. At
the option of a Holder, Preferred Securities Certificates may be exchanged for
other Preferred Securities Certificates in authorized denominations of the same
class and of a like aggregate Liquidation Amount upon surrender of the
Preferred Securities Certificates to be exchanged at the office or agency
maintained pursuant to Section 508.
Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly
authorized in writing. Each Preferred Securities Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently
disposed of by the Property Trustee in accordance with its customary practice.
The Trust shall not be required to (i) issue, register the transfer of, or
exchange any Preferred Securities during a period beginning at the opening of
business 15 calendar days before the date of mailing of a notice of redemption
of any Preferred Securities called for redemption and ending at the close of
business on the day of such mailing; or (ii) register the transfer of or
exchange of any Preferred Securities so selected for redemption, in whole or in
part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or exchange of Preferred
Securities Certificates.
(b) Trust Securities may only be transferred, in whole or in
part, in accordance with the terms and conditions set forth in this Trust
Agreement. To the fullest extent permitted by law, any transfer or purported
transfer of any Trust Security not made in accordance with this Trust Agreement
shall be null and void. Notwithstanding any other provisions of this Trust
Agreement, transfers and exchanges of Trust Securities and beneficial interests
in Global Securities, shall be made only in accordance with the following:
(i) Subject to Section 503A, 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 504(a).
(ii) Subject to Section 503A and this Section 504, Preferred
Securities shall be freely transferable.
(iii) A beneficial interest in Global Preferred Security may be
exchanged for a Preferred Security that is not a Global Preferred Security as
provided in Section 503A.
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SECTION 505. 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, the Administrative Trustees and the Property Trustee such security
or indemnity as may be required by them to save each of them harmless, then in
the absence of notice that such Trust Securities Certificate shall have been
acquired by a bona fide purchaser, the Administrative Trustees, or any one of
them, on behalf of the Trust shall execute by manual, facsimile or imprinted
signature and the Property Trustee in the case of a Preferred Securities
Certificate shall authenticate and make available for delivery, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities
Certificate, a new Trust Securities Certificate of like class, tenor and
denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section 505, the Administrative Trustees or the
Securities Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Securities Certificate issued pursuant to this Section 505
shall constitute conclusive evidence of an undivided beneficial interest in the
assets of the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Trust Securities Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent, the Securities Registrar and Depositor
shall treat any Persons 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 neither the Trust, the Property Trustee,
the Administrative Trustees, the Securities Registrar nor the Depositor shall
be bound by any notice to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall
furnish or cause to be furnished to the Property Trustee a list, in such form
as the Property Trustee may reasonably require, of the names and addresses of
the Securityholders as of January 1 and June 30 of each year and at such other
times as the Property Trustee may request in writing, in each case to the
extent such information is in the possession or control of the Administrative
Trustees or the Depositor or any paying agents of either and is not identical
to a previously supplied list or has not otherwise been received by the
Property Trustee in its capacity as Securities Registrar, and the Property
Trustee shall preserve, in as current a form as reasonably practicable the most
recent list so furnished to or received by it. To the extent applicable, the
Depositor and Property Trustee shall comply with the other provisions of
Section 312(a) of the Trust Indenture Act. The rights of Securityholders to
communicate with other Securityholders with respect to their rights under this
Trust Agreement or under the Trust Securities, and the corresponding rights of
the Property Trustee shall be as provided in the Trust Indenture Act. Each
Holder and each Owner agrees not to hold the Depositor, the Property Trustee or
the Administrative Trustees accountable by reason of the disclosure of its name
and address, regardless of the source from which such information was derived.
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, 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
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demands to or upon the Trustees in respect of the Trust Securities Certificates
may be served. The Property Trustee initially designates its corporate trust
office at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attn: Corporate Trust Administration, as the principal corporate trust
office for such purposes. The Property Trustee shall give prompt written notice
to the Depositor, the Administrative Trustees and to the Securityholders of any
change in the location of the Securities Register or any such office or agency.
SECTION 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Administrative Trustees may
revoke such power and remove the Paying Agent if such Trustees determine in
their sole discretion that the Paying Agent shall have failed to perform its
obligation under this Trust Agreement in any material respect. The Paying Agent
shall initially be the Property Trustee, and any co-paying agent chosen by the
Property Trustee, and acceptable to the Administrative Trustees and the
Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees 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 Administrative Trustees shall appoint a successor that is
reasonably acceptable to the Property Trustee to act as Paying Agent. The
Administrative Trustees shall cause such successor Paying Agent to execute and
deliver to the Trustees an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Trustees that as Paying Agent,
such successor Paying Agent or additional Paying Agent shall hold all sums, if
any, held by it for payment to the Securityholders in trust for the benefit of
the Securityholders entitled thereto until such sums shall be paid to such
Securityholders, and the Paying Agent, if other than the Property Trustee,
shall give such Property Trustee notice of any default in the making of any
payment on the Trust Securities. 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 801, 803 and 806 shall apply to the Property Trustee
also in its role as Paying Agent, for so long as the Property Trustee shall act
as Paying Agent and, to the extent applicable, to any other paying agent
appointed hereunder. Any reference in this Trust Agreement to the Paying Agent
shall include any co-paying agent unless the context requires otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent permitted
by law, any attempted transfer of the Common Securities (other than a transfer
pursuant to Section 12.1 of the Indenture) shall be void. The Administrative
Trustees shall cause each Common Securities Certificate issued to the Depositor
to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A
SUCCESSOR IN INTEREST TO APPALACHIAN BANCSHARES, INC. IN COMPLIANCE WITH
APPLICABLE LAW AND SECTION 510 OF THAT CERTAIN AMENDED AND RESTATED TRUST
AGREEMENT DATED _________ __, 2000, AMONG APPALACHIAN BANCSHARES, INC., AS
DEPOSITOR, WILMINGTON TRUST COMPANY, AS PROPERTY TRUSTEE, AND THE
ADMINISTRATIVE TRUSTEES NAMED THEREIN."
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SECTION 511. 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 all Preferred Securities
are represented by a Global Preferred Securities Certificate, the 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 511A. DEFINITIVE PREFERRED SECURITIES CERTIFICATE AND TEMPORARY
PREFERRED SECURITIES.
(a) If (a) the Clearing Agency advises the Trustees in writing
that the Clearing Agency is no longer willing or able to discharge properly its
responsibilities with respect to the Preferred Securities, and the Depositor is
unable to locate a qualified successor within 90 days, (b) the Trust at its
option advises the Trustees in writing that it elects to terminate the
book-entry system through the Clearing Agency or (c) after the occurrence of a
Debenture Event of Default, Holders of a beneficial interest in Preferred
Securities representing beneficial interests aggregating at least a majority of
the Liquidation Amount advise the Administrative Trustees in writing that the
continuation of a book-entry system though the Clearing Agency is no longer in
the best interest of the Holders of Preferred Securities, then the
Administrative Trustees shall notify the Clearing Agency and the Clearing
Agency shall notify the owners of beneficial interests in Global Preferred
Securities and the other Trustees of the occurrence of such event and of the
availability of a Definitive Preferred Security to Holders of such class
requesting the same.
(b) Pending the preparation of permanent Definitive Preferred
Securities Certificates, an Administrative Trustee may cause to be executed and
delivered on behalf of the Trust temporary Preferred Securities (the "Temporary
Preferred Securities"), which Temporary Preferred Securities are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the Definitive Preferred
Securities Certificates in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Temporary Preferred Securities may determine, as
evidenced by their execution thereof.
If Temporary Preferred Securities are issued, an Administrative
Trustee will cause Definitive Preferred Securities Certificates to be prepared
without unreasonable delay. After the preparation of the Definitive Preferred
Securities Certificates, the Temporary Preferred Securities shall be
exchangeable for Definitive Preferred Securities Certificates upon surrender of
the Temporary Preferred Securities at any office or agency of the Depositor
designated herein, without charge to the Holder. Upon surrender for
cancellation of any one or more Temporary Preferred Securities, the Depositor
shall execute and an Administrative Trustee shall execute by manual, facsimile
or imprinted signature and the Property Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
Definitive Preferred Securities Certificates of authorized denominations. Until
so exchanged the Temporary Preferred Securities shall in all respects be
entitled to the same benefits as Definitive Preferred Securities Certificates.
SECTION 512. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively
in the Property Trustee (in its capacity as such) in accordance with Section
209, and the Securityholders shall not have any right or title therein other
than the undivided beneficial interest in the assets of the Trust conferred by
their Trust Securities and they shall have no right to call for any partition
or division of property, profits or rights of the Trust except as described
below. The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust
Securities shall have no preemptive or similar rights. When issued and
delivered to Holders of the Trust Securities against payment of the
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purchase price therefor, the Trust Securities shall be fully paid and
nonassessable, undivided beneficial interests in the assets of the Trust. The
Holders of the Trust Securities, in their capacities as such, shall be entitled
to the same limitation of personal liability extended to stockholders of
private corporations for profit organized under the General Corporation Law of
the State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding,
if, upon a Debenture Event of Default arising from the failure to pay interest
or principal on the Debentures, any Holders of Preferred Securities then
Outstanding shall, to the fullest extent permitted by law and subject to the
terms of this Trust Agreement and the Indenture, have the right to institute a
proceeding directly against the Depositor for enforcement of payment to such
Holder of principal of or interest on the Debentures having a principal amount
equal to the Liquidation Amount of the Preferred Securities of such Holder.
SECTION 513. CUSIP NUMBERS.
The Depositor in issuing the Debentures may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustees shall use "CUSIP" numbers in
notices of redemption as a convenience to holders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Debentures or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Debentures, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Depositor will
promptly notify the Property Trustee of any change in the CUSIP numbers.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 512,
810 and 1002 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 Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so as
to constitute the Securityholders from time to time as partners or members of
an association.
(b) So long as any Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures; (ii) waive any past default which is waivable under Article VII of
the Indenture; (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable; or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a Majority in
liquidation amount of the Outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
Holder of Outstanding 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 Trustees shall not revoke any action previously
authorized or approved by a vote of the Holders of the Outstanding Preferred
Securities, except by a subsequent vote of the Holders of the Outstanding
Preferred Securities. The Property Trustee shall notify each Holder of
Outstanding Preferred Securities of any notice of default received from the
Debenture Trustee with respect to the Debentures. In addition to obtaining the
foregoing approvals of the Holders of the Preferred Securities, prior to taking
any of the foregoing actions, the Administrative Trustees shall provide to the
Property Trustee, at the expense of the Depositor, an Opinion of Counsel
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experienced in such matters to the effect that the Trust shall continue to be
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
(c) If any proposed amendment to the Trust Agreement provides
for, or the Trustees otherwise propose to effect, (i) any action that would
adversely affect in any material respect the powers, preferences or special
rights of the Preferred Securities, whether by way of amendment to the Trust
Agreement or otherwise; or (ii) the dissolution, winding-up or termination of
the Trust, other than pursuant to the terms of this Trust Agreement, then the
Holders of Outstanding Preferred Securities as a class shall be entitled to
vote on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of the Holders of at least a Majority in
liquidation amount of the Outstanding Preferred Securities. No amendment to
this Trust Agreement may be made if, as a result of such amendment, the Trust
would cease to be classified as a grantor trust or would be classified as an
association taxable as a corporation for United States federal income tax
purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Preferred Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 1008 to each Preferred Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be
so considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be
held. The Administrative Trustees, however, shall call a meeting of
Securityholders to vote on any matter in respect of which Preferred
Securityholders are entitled to vote upon the written request of the Preferred
Securityholders of record of 25% of the Outstanding Preferred Securities (based
upon their aggregate Liquidation Amount) and the Administrative Trustees or the
Property Trustee may, at any time in their discretion, call a meeting of
Preferred Securityholders to vote on any matters as to which the Preferred
Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation
Amount), present in person or by proxy shall constitute a quorum at any meeting
of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by
the Preferred Securityholders of record present, in person or by proxy, holding
more than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the action of
the Securityholders unless this Trust Agreement requires a greater number of
affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each $10 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
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SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees
may direct, for verification prior to the time at which such vote shall be
taken. When Trust Securities are held jointly by several Persons, any one of
them may vote at any meeting in person or by proxy in respect of such Trust
Securities, but if more than one of them shall be present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Trust Securities. A proxy purporting to be executed by or on behalf of a
Securityholder shall be deemed valid unless challenged at or prior to its
exercise, and, the burden of proving invalidity shall rest on the challenger.
No proxy shall be valid more than three years after its date of execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting and without prior notice if Securityholders holding a
majority of all Outstanding Trust Securities (based upon their aggregate
Liquidation Amount) entitled to vote in respect of such action (or such larger
proportion thereof as shall be required by any express provision of this Trust
Agreement) shall consent to the action in writing.
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled
to notice of and to vote at any meeting or by written consent, or to
participate in any Distribution on the Trust Securities, in respect of which a
record date is not otherwise provided for in this Trust Agreement, or for the
purpose of any other action, the Administrative Trustees may from time to time
fix a date, not more than 90 days prior to the date of any meeting of
Securityholders or the payment of any Distribution or other action as the case
may be, as a record date for the determination of the identity of the
Securityholders of record for such purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Trust Agreement
to be given, made or taken by Securityholders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such
Securityholders in person or by an agent duly appointed in writing, and, except
as otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders
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 801) conclusive in
favor of the Trustees, if made in the manner provided in this Section 608.
(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 a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which any Trustee receiving the same deems sufficient.
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(c) The ownership of Preferred Securities shall be proved by
the Securities Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the securityholder of any Trust Security shall
bind every future Securityholder of the same Trust Security and the
Securityholder of every Trust Security issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustees or the Trust in reliance
thereon, whether or not notation of such action is made upon such Trust
Security.
(e) Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount of
such Trust Security or by one or more duly appointed agents each of which may
do so pursuant to such appointment with regard to all or any part of such
Liquidation Amount.
(f) A Securityholder may institute a legal proceeding directly
against the Depositor under the Guarantee to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee (as defined in the Guarantee), the Trust or any Person.
SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as a
Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE.
The Property Trustee as of the date hereof hereby represents and
warrants for the benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a Delaware banking corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware;
(b) the Property Trustee has full corporate power, authority
and legal right to execute, deliver and perform its obligations under this
Trust Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(c) the Property Trustee has its principal place of business in
the State of Delaware;
(d) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and constitutes the valid and legally binding
agreement of the Property Trustee enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors rights and to general equity principles;
(e) the execution, delivery and performance by the Property
Trustee of this Trust Agreement has been duly authorized by all necessary
corporate or other action on the part of the Property Trustee and does not
require any approval of stockholders of the Property Trustee and such execution
delivery and
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performance shall not (i) violate the charter or by-laws of the Property
Trustee; (ii) violate any provision of, or constitute, with or without notice
or lapse of time, a default under, or result in the creation or imposition of,
any Lien on any properties included in the Trust Property pursuant to the
provisions of any indenture, mortgage, credit agreement, license or other
agreement or instrument to which the Property Trustee is a party or by which it
is bound; or (iii) violate any law, governmental rule or regulation of the
State of Delaware governing the banking or trust powers of the Property Trustee
or (as appropriate in context) or any order, judgment or decree applicable to
the Property Trustee;
(f) neither the authorization, execution or delivery by the
Property Trustee of this Trust Agreement nor the consummation of any of the
transactions by the Property Trustee contemplated herein or therein requires
the consent or approval of, the giving of notice to, the registration with or
the taking of any other action with respect to any governmental authority or
agency under any existing Delaware law governing the banking or trust powers of
the Property Trustee, as the case may be;
(g) there are no proceedings pending or, to the best of the
Property Trustee's knowledge, threatened against or affecting the Property
Trustee in any court or before any governmental authority, agency or
arbitration board or tribunal which, individually or in the aggregate, would
materially and adversely affect the Trust or would question the right, power
and authority of the Property Trustee to enter into or perform its obligations
as one of the Trustees under this Trust Agreement; and
(h) The Property Trustee satisfies the requirements of Section
3807 of the Delaware Business Trust Act.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing
Date or the Option Closing Date, if applicable, on behalf of the Trust have
been duly authorized and, shall have been, duly and validly executed, issued
and delivered by the Administrative Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders shall be, as of such date, entitled to the benefits of
this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges
payable by the Trust (or the Trustees on behalf of the Trust) under the laws of
the State of Delaware or any political subdivision thereof in connection with
the execution, delivery and performance by the Bank or the Property Trustee, as
the case may be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured. No
Administrative Trustee shall be liable for its act or omissions hereunder
except as a result of its own gross negligence or bad faith or willful
misconduct. The Property Trustee's liability shall be determined under
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the Trust Indenture Act. Whether or not therein expressly so provided, every
provision of this Trust Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustees shall be subject to the
provisions of this Section 801. To the extent that, at law or in equity, an
Administrative Trustee has duties (including fiduciary duties) and liabilities
relating thereto to the Trust or to the Securityholders, such Administrative
Trustee shall not be liable to the Trust or to any Securityholder for such
Trustee's good faith reliance on the provisions of this Trust Agreement. The
provisions of this Trust Agreement, to the extent that they restrict the duties
and liabilities of the Administrative Trustees otherwise existing at law or in
equity, are agreed by the Depositor and the Securityholders to replace such
other duties and liabilities of the Administrative Trustees.
(b) All payments made by the Property Trustee or a Paying Agent
in respect of the Trust Securities shall be made only from the revenue and
proceeds from the Trust Property and only to the extent that there shall be
sufficient revenue or proceeds from the Trust Property to enable the Property
Trustee or a Paying Agent to make payments in accordance with the terms hereof.
With respect to the relationship of each Securityholder and the Trustees, each
Securityholder, by its acceptance of a Trust Security, agrees that it shall
look solely to the revenue and proceeds from the Trust Property to the extent
legally available for distribution to it as herein provided and that the
Trustees are not personally liable to it for any amount distributable in
respect of any Trust Security or for any other liability in respect of any
Trust Security. This Section 801(b) does not limit the liability of the
Trustees expressly set forth elsewhere in this Trust Agreement or, in the case
of the Property Trustee, in the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation amount
of the Outstanding Trust Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee under this
Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Payment Account shall be to deal with such Property in a similar manner as the
Property Trustee deals with similar property for its own account, subject to
the protections and limitations on liability afforded to the Property Trustee
under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in writing with
the Depositor and money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Payment Account
maintained by the Property Trustee pursuant to Section 301 and except to the
extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Depositor with
their respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the negligence, default or misconduct of the
Administrative Trustees or the Depositor.
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SECTION 802. CERTAIN NOTICES.
(a) Within 90 days after the occurrence of any Event of Default
actually known to the Property Trustee or, to the extent Section 315(b) of the
Trust Indenture Act applies, within 90 days after the occurrence of any default
hereunder known to the Property Trustee, the Property Trustee shall transmit,
in the manner and to the extent provided in Section 313(c) of the Trust
Indenture Act notice of such Event of Default or default to the
Securityholders, the Administrative Trustees and the Depositor, unless such
Event of Default shall have been cured or waived. For purposes of this Section
802, the term "Event of Default" means any event that is or after notice or
lapse of time or both would become an Event of Default.
(b) The Administrative Trustees shall transmit, to the
Securityholders and the Property Trustee in the manner and to the extent
provided in Section 1008 hereof and, to the extent applicable, Section 313(c)
of the Trust Indenture Act, notice of the Depositor's election to begin or
further extend an Extended Interest Payment Period on the Debentures (unless
such election shall have been revoked) within the time specified for
transmitting such notice to the holders of the Debentures pursuant to the
Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may conclusively rely and shall be
protected in acting or refraining from acting in good faith upon any
resolution, Opinion of Counsel, certificate, written representation of a Holder
or transferee, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) if (i) in performing its duties under this Trust Agreement
the Property Trustee is required to decide between alternative courses of
action; or (ii) in construing any of the provisions of this Trust Agreement the
Property Trustee finds the same ambiguous or inconsistent with other provisions
contained herein; or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to
which the Preferred Securityholders are entitled to vote under the terms of
this Trust Agreement, the Property Trustee shall deliver a notice to the
Depositor requesting written instructions of the Depositor as to the course of
action to be taken and the Property Trustee shall take such action, or refrain
from taking such action, as the Property Trustee shall be instructed in writing
to take, or to refrain from taking, by the Depositor, and shall have no
liability for acting in accordance with such instructions; provided, however,
that if the Property Trustee does not receive such instructions of the
Depositor within 10 Business Days after it has delivered such notice, or such
reasonably shorter period of time set forth in such notice (which to the extent
practicable shall not be less than 2 Business Days), it may, but shall be under
no duty to, take or refrain from taking such action not inconsistent with this
Trust Agreement as it shall deem advisable and in the best interests of the
Securityholders, in which event the Property Trustee shall have no liability
except for its own bad faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced
by an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence
of bad
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faith on its part, request and conclusively rely upon an Officers' Certificate
which, upon receipt of such request, shall be promptly delivered by the
Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty on behalf of the
Trust 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 reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice
(which counsel may be counsel to the Depositor or any of its Affiliates) 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;
(g) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Trust Agreement at
the request or direction of any of the Securityholders pursuant to this Trust
Agreement, unless such Securityholders shall have offered to the Property
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(h) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval, bond, debenture, note or other evidence of indebtedness or other
paper or document, unless requested in writing to do so by one or more
Securityholders, but the Property Trustee may make such further inquiry or
investigation into such facts or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through its agents or attorneys, provided that the Property Trustee shall be
responsible for its own negligence or recklessness with respect to selection of
any agent or attorney appointed by it hereunder;
(j) except as provided in this Article VIII, in accepting the
trusts hereby created the Property Trustee acts solely as such hereunder and
not in its individual capacity;
(k) 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 written instructions from the Holders of the
Trust Securities which written instructions may only be followed by the
Property Trustee if given by the Holders of the same proportion in Liquidation
Amount of the Trust Securities as would be entitled to direct the Property
Trustee under the terms of the Trust Securities in respect of such remedy,
right or action; (ii) may refrain from enforcing such remedy or right or taking
such other action until such instructions are received; and (iii) shall be
protected in acting in accordance with such written instructions; and
(l) except as otherwise expressly provided by this Trust
Agreement, the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Trust Agreement. No
provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to
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exercise any such right, power, duty or obligation. No permissive power or
authority available to the Property Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation
as the Trustees and the Depositor may agree in writing for all services
rendered by them hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse
the Trustees upon request for all reasonable expenses, disbursements and
advances incurred or made by the Trustees in accordance with any provision of
this Trust Agreement (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative
Trustees, any such expense, disbursement or advance as may be attributable to
its, his or her gross negligence, bad faith or willful misconduct); and
(c) to indemnify, to the fullest extent permitted by law, each
of the Trustees or any predecessor Trustee for, and to hold the Trustees
harmless against, any and all loss, damage, claim, liability, penalty or
expense, including taxes (other than taxes based on the income of the Trustee)
incurred without negligence or willful misconduct on its part, arising out of
or in connection with the acceptance or administration of this Trust Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the acceptance, exercise or performance of any of
its powers or duties hereunder, except any such expense, disbursement or
advance as may be attributable to such Trustee's negligence, bad faith or
willful misconduct (or, in the case of the Administrative Trustees, any such
expense, disbursement or advance as may be attributable to its, his or her
gross negligence, bad faith or willful misconduct).
The provisions of this Section 806 shall survive the termination of
this Trust Agreement or the earlier resignations or removal of any Trustee.
No Trustee may claim any Lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 806.
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When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 7.1(a)(iv), Section 7.1(a)(v) or
7.1(a)(vi) of the Indenture, the expenses (including reasonable charges and
expenses of its counsel) and the compensation for the services are intended to
constitute expenses of administration under any applicable Bankruptcy Law.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder
with respect to the Trust Securities. The Property Trustee shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000. If any such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of its supervising or examining authority, then for the purposes
of this Section 807, 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 807, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative
Trustees hereunder with respect to the Trust Securities. Each Administrative
Trustee shall be either a natural person who is at least 21 years of age or a
legal entity that shall act through one or more persons authorized to bind that
entity.
(c) One of the Trustees with respect to the Trust Securities at
all times shall meet the requirements of Section 3807 of the Delaware Business
Trust Act.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, if applicable,
the Property Trustee and Company shall in all respects comply with the
provisions of Section 310 of the Trust Indenture Act and, to the extent not
inconsistent therewith, this Trust Agreement; provided, however, that for
purposes of the first proviso contained in Section 310 (b) of the Trust
Indenture Act, the Indenture and Preferred Securities Guarantee shall be deemed
to be specifically described in this Trust Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any
part of the Trust Property may at the time be located, the Depositor shall have
power to appoint, and upon the written request of the Property Trustee, the
Depositor shall for such purpose join with the Property Trustee in the
execution, delivery and performance of any 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 809. If
the Depositor does not join in such appointment within 15 days after the
receipt by it of a request so to do, or in case a Debenture Event of Default
has occurred and is continuing, the Property Trustee alone shall have power to
make such appointment. Any co-trustee or separate trustee appointed pursuant
to this Section 809 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.
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(b) 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.
(c) 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:
(i) The Trust Securities shall be executed and delivered and
all rights, powers, duties and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by
the Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
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.
(iii) 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 809, and, in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee shall have the 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 809.
(iv) 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.
(v) The Property Trustee shall not be liable by reason of any
act of a co-trustee or separate trustee.
(vi) 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 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant
Trustee") and no appointment of a successor Trustee pursuant to this Article
VIII shall become effective until the acceptance of appointment by the
successor Trustee in accordance with the applicable requirements of Section
811.
(b) Subject to the immediately preceding paragraph, the
Relevant Trustee may resign at any time with respect to the Trust Securities by
giving written notice thereof to the Depositor and with respect to the Property
Trustee to the Securityholders. If the instrument of acceptance by the
successor Trustee required by Section 811 shall not have been delivered to the
Relevant Trustee within 30 days after
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the giving of such notice of resignation, the Relevant Trustee may petition, at
the expense of the Depositor, any court of competent jurisdiction for the
appointment of a successor Relevant Trustee with respect to the Trust
Securities.
(c) Unless a Debenture Event of Default shall have occurred and
be continuing, any Trustee may be removed at any time by act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee may be removed at such time by Act of the
Holders of a Majority in liquidation amount of the Outstanding Preferred
Securities, delivered to the Relevant Trustee (in its individual capacity and
on behalf of the Trust). An Administrative Trustee may be removed by the Common
Securityholder at any time. In no event will the Holders of the Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which right to remove is vested exclusively in the
Common Securityholder. If an instrument of acceptance by a Successor Trustee
required by Section 811 shall have not been delivered to the Relevant Trustee
within 30 days after the giving of such notice of removal, the Relevant Trustee
may petition, at the expense of the Depositor, any court of competent
jurisdiction for the appointment of a Successor Relevant Trustee with respect
to the Trust Securities.
(d) If any Trustee shall resign, be removed or become incapable
of acting as Trustee, or if a vacancy shall occur in the office of any Trustee
for any cause, at a time when no Debenture Event of Default shall have occurred
and be continuing, the Common Securityholder, by Act of the Common
Securityholder delivered to the retiring Trustee, shall promptly appoint a
successor Trustee or Trustees with respect to the Trust Securities and the
Trust, and the successor Trustee shall comply with the applicable requirements
of Section 811. If the Property Trustee shall resign, be removed or become
incapable of continuing to act as the Property Trustee at a time when a
Debenture Event of Default shall have occurred and is continuing, the Preferred
Securityholders, by Act of the Securityholders of a Majority in liquidation
amount of the Outstanding Preferred Securities then Outstanding delivered to
the retiring Relevant Trustee, shall promptly appoint a successor Relevant
Trustee or Trustees with respect to the Trust Securities and the Trust, and
such successor Trustee shall comply with the applicable requirements of Section
811. If an Administrative Trustee shall resign, be removed or become incapable
of acting as Administrative Trustee, at a time when a Debenture Event of
Default shall have occurred and be continuing, the Common Securityholder, by
Act of the Common Securityholder delivered to an Administrative Trustee, shall
promptly appoint a successor Administrative Trustee or Administrative Trustees
with respect to the Trust Securities and the Trust, and such successor
Administrative Trustee or Administrative Trustees shall comply with the
applicable requirements of Section 811. If no successor Relevant Trustee with
respect to the Trust Securities shall have been so appointed by the Common
Securityholder or the Preferred Securityholders and accepted appointment in the
manner required by Section 811, any Securityholder who has been a
Securityholder of Trust Securities on behalf of himself and all others
similarly situated may petition a court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Trust Securities.
(e) The Administrative Trustee shall give notice of each
resignation and each removal of the Property Trustee and each appointment of a
successor Property Trustee to all Securityholders in the manner provided in
Section 1008 and shall give notice to the Depositor.
(f) Notwithstanding the foregoing or any other provision of
this Trust Agreement, in the event any Administrative Trustee who is a natural
person dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of the remaining Administrative Trustees
if there are at least two of them; or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees as forth in Section 807).
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SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor
Relevant Trustee with respect to the Trust Securities and the Trust, the
retiring Relevant Trustee and each successor Relevant Trustee with respect to
the Trust Securities shall execute and deliver an instrument hereto wherein
each successor Relevant 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 Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the 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
Relevant Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Relevant
Trustee with respect to the Trust Securities and the Trust, but, on request of
the Trust or any successor Relevant Trustee such retiring Relevant Trustee
shall upon payment of its charges hereunder, duly assign, transfer and deliver
to such successor Relevant Trustee all Trust Property, all proceeds thereof and
money held by such retiring Relevant Trustee hereunder with respect to the
Trust Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the
Trust shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Relevant Trustee all such rights,
powers and trusts referred to in the immediately preceding paragraph, as the
case may be.
(c) No successor Relevant Trustee shall accept its appointment
unless at the time of such acceptance such successor Relevant Trustee shall be
qualified and eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Person into which the Property 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 corporation succeeding to all or substantially all the corporate trust
business of such Relevant Trustee, shall be the successor of such Relevant
Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Article VIII, without the execution or filing of any paper
or any further act on the part of any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR
TRUST.
If and when the Property Trustee shall be or become, directly or
indirectly, a creditor of the Depositor or the Trust (or any other obligor upon
the Debentures or the Trust Securities), excluding any creditor relationship
described in Section 311(b) of the Trust Indenture Act, the Property Trustee
shall be subject to and shall take all actions necessary in order to comply
with the provisions of Section 311(a) of Trust Indenture Act regarding the
collection of claims against the Depositor or Trust (or any such other
obligor), to the extent applicable.
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) The Property Trustee shall transmit to Securityholders
entitled to receive the same under Section 313(c) of the Trust Indenture Act by
mail such reports concerning the Property Trustee and its actions under this
Trust Agreement as may be required pursuant to Section 313(b) of the Trust
Indenture Act at the times provided pursuant thereto. If required by Section
313(a) of the Trust Indenture Act, the Property Trustee shall, within sixty
days after each May 15 following the date of the Trust Agreement,
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deliver to Securityholders entitled to receive the same under Section 313(c) of
the Trust Indenture Act by mail a brief report, dated as of such May 15, which
complies with the provisions of such Section 313(a).
(b) A copy of each such report provided for in this Section 814
shall, at the time of such transmission to Holders, be filed by the Property
Trustee with the Nasdaq Small Cap Market or other organization upon which the
Trust Securities are listed, and also with the Commission.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information
as required by Section 314 of the Trust Indenture Act (if any) and the
compliance certificate required by Section 314(a) of the Trust Indenture Act in
the form in the manner and at the times required by Section 314 of the Trust
Indenture Act.
Delivery of such reports, information and documents to the Property
Trustee is for information purposes only and the Property Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Depositor's compliance with any of its covenants hereunder (as to which the
Property Trustee is entitled to rely exclusively on Officers' Certificates).
The Depositor shall transmit to Securityholders, in the manner and to
the extent provided in Section 313(c) of the Trust Indenture Act, such
summaries of the above-referenced materials as may be required by Section
314(a)(3) of the Trust Indenture Act.
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee (i) 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 in accordance with the requirements of said Section and (ii) such
certificates, if any, as may be required by Section 314(a)(4) of the Trust
Indenture Act. Any certificate or opinion required to be given by an officer
pursuant to Section 314(a)(4) or 314(c)(1) of the Trust Indenture Act shall be
given in the form of an Officers' Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be three, provided that the
Holder of all of the Common Securities by written instrument may increase or
decrease the number of Administrative Trustees.
(b) If a Trustee ceases to hold office for any reason and the
number of Administrative Trustees is not reduced pursuant to Section 817(a), or
if the number of Trustees is increased pursuant to Section 817(a), a vacancy
shall occur. The vacancy shall be filled with a Trustee appointed in accordance
with Section 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of
Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 810, the
Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Trust Agreement.
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SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purpose of executing any documents
contemplated in Section 207(a); and
(b) The Administrative Trustees shall have power to delegate
from time to time to such of their number or to the Depositor the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by
not less than a majority of the Administrative Trustees, unless there are only
two, in which case both must consent.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 901. DISSOLUTION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on
______ __, 2030 (the "Expiration Date").
SECTION 902. EARLY DISSOLUTION.
The first to occur of any of the following events is an "Early
Termination Event" upon the occurrence of which the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by
the Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor), subject to the Depositor having received any
required prior approvals under applicable federal or state banking guidelines,
policies or regulations, to dissolve the Trust and distribute the Debentures to
Securityholders in exchange for the Preferred Securities in accordance with
Section 904;
(c) the redemption of all of the Preferred Securities in
connection with the redemption of all of the Debentures; and
(d) an order for dissolution of the Trust shall have been
entered by a court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and
the Trust created and continued hereby shall terminate upon the latest to occur
of the following: (a) the distribution by the
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Property Trustee to Securityholders upon the liquidation of the Trust pursuant
to Section 904, or upon the redemption of all of the Trust Securities pursuant
to Section 402, of all amounts required to be distributed hereunder upon the
final payment of the Trust Securities; (b) the payment of any expenses owed by
the Trust; (c) the discharge of all administrative duties of the Administrative
Trustees, including the performance of any tax reporting obligations with
respect to the Trust or the Securityholders; and (d) the filing of a
Certificate of Cancellation by the Administrative Trustees under the Delaware
Business Trust Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b),
or (d) of Section 902 occurs or upon the Expiration Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, to each Securityholder a Like Amount of
Debentures, subject to Section 904(d). Notice of liquidation shall be given by
the Property Trustee by first-class mail, postage prepaid, mailed not later
than 30 nor more than 60 days prior to the Liquidation Date to each Holder of
Trust Securities at such Holder's address appearing in the Securities Register.
All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust Securities
Certificates not surrendered for exchange shall be deemed to represent a Like
Amount of Debentures;
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Debentures, or, if
Section 904(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees shall deem appropriate;
(iv) state the CUSIP number; and
(v) state the office or agency of the Trust where Securities
should be surrendered.
(b) Except where Section 902(c) or 904(d) applies, in order to
effect the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the
Liquidation Date, (i) the Trust Securities shall no longer be deemed to be
Outstanding; (ii) certificates representing a Like Amount of Debentures shall
be issued to holders of Trust Securities Certificates upon surrender of such
certificates to the Administrative Trustees or their agent for exchange; (iii)
the Depositor shall use its reasonable efforts to have the Debentures listed on
the Nasdaq Small Cap Market or on such other securities exchange or other
organization as the Preferred Securities are then listed or traded; (iv) any
Trust Securities Certificates not so surrendered for exchange shall be deemed
to represent a Like Amount of Debentures, accruing interest at the rate and for
the period provided for in the Debentures from the last Distribution Date on
which a Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal shall be made to holders of
Trust Securities Certificates with respect to such Debentures): and (v) all
rights of
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Securityholders holding Trust Securities shall cease, except the right of such
Securityholders to receive Debentures upon surrender of Trust Securities
Certificates.
(d) In the event that, notwithstanding the other provisions of
this Section 904, whether because of an order for dissolution entered by a
court of competent jurisdiction or otherwise, distribution of the Debentures in
the manner provided herein is determined by the Administrative Trustees not to
be practical, the Trust Property shall be liquidated, and the Trust shall be
wound-up by the Property Trustee in such manner as the Property Trustee
determines. In such event, Securityholders shall be entitled to receive out of
the assets of the Trust available for distribution to Securityholders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the Liquidation Amount per Trust Security plus
accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If, upon any such winding-up the
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts
payable by the Trust on the Trust Securities shall be paid on a pro rata basis
(based upon Liquidation Amounts). The Holder of the Common Securities shall be
entitled to receive Liquidation Distributions upon any such winding-up 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.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
THE TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any Person, except pursuant to this Section
905 or Section 904. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Holders of the Preferred
Securities or the Property Trustee, the Trust may merge with or into,
consolidate, amalgamate, be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state; provided, that (i) such successor entity either
(a) expressly assumes all of the obligations of the Trust with respect to the
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 rank the same as
the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise; (ii) the Depositor
expressly appoints a trustee of such successor entity possessing substantially
the same powers and duties as the Property Trustee as the holder of the
Debentures; (iii) the Successor Securities are registered or listed, or any
Successor Securities shall be registered or listed upon notification of
issuance, on any national securities exchange or other organization on which
the Preferred Securities are then registered or listed (including, if
applicable, the Nasdaq Small Cap Market), if any; (iv) 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, (v)
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; (vi) such successor entity has a purpose substantially
identical to that of the Trust, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Depositor has
received an Opinion of Counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the Holders of
the Preferred Securities (including any Successor Securities) in any material
respect: and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such
successor entity shall be required to register as an "investment company" under
the Investment Company Act, and (viii)
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the Depositor or any permitted successor or assignee owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the 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 Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Trust or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death, incapacity, dissolution, bankruptcy or termination of any
Person having an interest, beneficial or otherwise, in Trust Securities shall
not operate to terminate this Trust Agreement, nor dissolve, terminate or annul
the Trust, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or
bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by
the Trustees and the Depositor, without the consent of any Securityholders, (i)
as provided in Section 811 with respect to acceptance of appointment by a
successor Trustee; (ii) to cure any ambiguity, correct or supplement any
provision herein or therein which may be inconsistent with any other provision
herein or therein, or to make any other provisions with respect to matters or
questions arising under this Trust Agreement, that shall not be inconsistent
with the other provisions of this Trust Agreement; or (iii) to modify,
eliminate or add to any provisions of this Trust Agreement to such extent as
shall be necessary to ensure that the Trust shall be classified for United
States federal income tax purposes as a grantor trust at all times that any
Trust Securities are outstanding or to ensure that the Trust shall not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (ii), such action shall not
adversely affect in any material respect the interests of any Securityholder,
and any such amendments of this Trust Agreement shall become effective when
notice thereof is given to the Securityholders.
(b) Except as provided in Section 601(c) or Section 1002(c)
hereof, any provision of this Trust Agreement may be amended by the Trustees
and the Depositor (i) with the consent of Trust Securityholders representing
not less than a majority (based upon Liquidation Amounts) of the Trust
Securities then Outstanding; and (ii) upon receipt by the Trustees of an
Opinion of Counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment shall not
affect the Trust's status as a grantor trust for United Status federal income
tax purposes or the 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 Securityholder (such
consent being obtained in accordance with Section 603 or 606 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
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to be made in respect of the Trust Securities as of a specified date; or (ii)
restrict the right of a Securityholder to institute suit for the enforcement of
any such payment on or after such date. Notwithstanding any other provision
herein, without the unanimous consent of the Securityholders (such consent
being obtained in accordance with Section 603 or 606 hereof), this paragraph
(c) of this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust
Agreement, no Trustee shall enter into or consent to any amendment to this
Trust Agreement which would cause the Trust to fail or cease to qualify for the
exemption from status of an "investment company" under the Investment Company
Act or to fail or cease to be classified as a grantor trust for United States
federal income tax purposes.
(e) In the event that any amendment to this Trust Agreement is
made, the Administrative Trustees shall promptly provide to the Depositor a
copy of such amendment.
(f) The Property Trustee shall not be required to enter into
any amendment to this Trust Agreement which adversely affects its own rights,
duties or immunities under this Trust Agreement. The Property Trustee shall be
entitled to receive an Opinion of Counsel and an Officers' Certificate stating
that any amendment to this Trust Agreement is in compliance with this Trust
Agreement.
SECTION 1003. 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 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST
AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES).
SECTION 1005. 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 which is a Business Day (except as
otherwise provided in Sections 401(a) and 402(d)), with the same force and
effect as though made on the date fixed for such payment, and no distribution
shall accumulate thereon for the period after such date.
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant
Trustee(s), including any successor by operation of law. The Depositor shall
not assign its obligations hereunder except as contemplated by Article XII of
the Indenture and unless the assignee thereof agrees in writing, in form and
substance satisfactory to the Property Trustee, to perform all of Depositor's
obligations hereunder with the same effect as if it had been named herein as
Depositor.
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SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall
not affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or
served to or upon any Securityholder or the Depositor may be given or served in
writing by deposit thereof, first-class postage prepaid, in the United States
mail, hand delivery or facsimile transmission, in each case, addressed, (a) in
the case of a Preferred Securityholder, to such Preferred Securityholder as
such Securityholder's name and address may appear on the Securities Register;
and (b) in the case of the Common Securityholder or the Depositor, to
Appalachian Bancshares, Inc. 829 Industrial Boulevard, Ellijay, Georgia 30540
Attention: Chief Executive Officer, facsimile no.: (706) 276-8005. Such notice,
demand or other communication to or upon a Securityholder shall be deemed to
have been sufficiently given or made, for all purposes, upon hand delivery,
mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee or the Administrative Trustees shall 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 (until another address is published by the Trust) as follows: (a)
with respect to the Property Trustee, to Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration; (b) with respect to the Trust or the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of APAB Capital Trust I."
Such notice, demand or other communication to or upon the Trust or the Property
Trustee shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been dissolved in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws")
or otherwise join in the commencement of any proceeding against the Trust under
any Bankruptcy Law. In the event the Depositor takes action in violation of
this Section 1009, the Property Trustee agrees, for the benefit of
Securityholders, that at the expense of the Depositor (which expense shall be
paid prior to the filing), it shall file an answer with the bankruptcy court or
otherwise properly contest the filing of such petition by the Depositor against
the Trust or the commencement of such action and raise the defense that the
Depositor has agreed in writing not to take such action and should be estopped
and precluded therefrom. The provisions of this Section 1009 shall survive the
termination of this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the
Trust Indenture Act that are required to be part of this Trust Agreement and
shall, to the extent applicable, be governed by such provisions.
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(b) The Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required
provision shall control. If any provision of this Trust Agreement modifies or
excludes any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Trust Agreement
as so modified or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE
UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A
BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF
THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS AMONG THE
TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
APPALACHIAN BANCSHARES, INC.
AS DEPOSITOR
By:
------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
AS PROPERTY TRUSTEE
By:
------------------------------------
Name:
Title:
---------------------------------------
Name: Alan May
Title: As Administrative Trustee
---------------------------------------
Name: Kent W. Sanford
Title: As Administrative Trustee
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EXHIBIT A
CERTIFICATE OF TRUST
OF
APAB CAPITAL TRUST I
THIS Certificate of Trust of APAB Capital Trust I (the "Trust") is
being duly executed and filed by the undersigned, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. C ss.3801, et
seq.).
1. Name. The name of the business trust formed by this Certificate
of Trust is APAB Capital Trust I.
2. Delaware Trustee. The name and business address of the trustee
of the Trust in the State of Delaware are Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective
upon filing.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Trust as of the date first-above written.
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as Trustee
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
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EXHIBIT E
Certificate Number Number of Preferred Securities
P-1 __________________
CUSIP NO. _______________
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
APAB CAPITAL TRUST I
___% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
APAB Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co.
(the "Holder") is the registered owner of _________________________ preferred
securities of the Trust representing an undivided beneficial interest in the
assets of the Trust and designated the APAB Capital Trust I ___% Trust
Preferred Securities (liquidation amount $10 per Preferred Security) (the
"Preferred Securities"). The Preferred Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer as
provided in Section 504 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 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
Trust dated as of _________________, 2000, as the same may be amended from time
to time (the "Trust Agreement"), including the designation of the terms of
Preferred Securities as set forth therein. The Holder is entitled to the
benefits of the Guarantee Agreement, as amended, entered into by Appalachian
Bancshares, Inc., a Georgia corporation, and Wilmington Trust Company, as
guarantee trustee, dated as of ______________, 2000 (the "Guarantee"), to the
extent provided therein. The Trust will furnish a copy of the Trust Agreement
and the Guarantee to the Holder without charge upon written request to the
Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust
has executed this certificate this ___ day of __________________, 2000.
APAB CAPITAL TRUST I
By:
-------------------------------------
Name: Kent W. Sanford
Title: Administrative Trustee
Page 1
<PAGE> 53
This is one of the Preferred Securities referred to in the Trust
Agreement.
Dated: , 2000.
--------------------
WILMINGTON TRUST COMPANY,
as Trustee
By:
-----------------------------------------
Authorized Signatory
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Security certificate to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to
- ----------------------------------------------------------------------
Transfer this Security certificate on the books of the Company. 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 Security)
Signature Guarantee:
-------------------------------------
Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
other such "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
Page 2
<PAGE> 1
EXHIBIT 4.9
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
APPALACHIAN BANCSHARES, INC.
AND
WILMINGTON TRUST COMPANY
___________ __, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I................................................................................................1
DEFINITIONS AND INTERPRETATION...........................................................................1
SECTION 1.1 DEFINITIONS AND INTERPRETATION.......................................................1
ARTICLE II...............................................................................................4
TRUST INDENTURE ACT......................................................................................4
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.....................................................4
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.......................................................4
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE...........................................5
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE......................................5
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.....................................5
SECTION 2.6 EVENTS OF DEFAULT; WAIVER............................................................5
SECTION 2.7 EVENT OF DEFAULT; NOTICE.............................................................5
SECTION 2.8 CONFLICTING INTERESTS................................................................6
ARTICLE III..............................................................................................6
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE.................................................6
SECTION 3.1 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.................................6
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE........................................7
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE................................8
ARTICLE IV...............................................................................................9
PREFERRED GUARANTEE TRUSTEE..............................................................................9
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.............................................9
SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEES.................9
ARTICLE V...............................................................................................10
GUARANTEE...............................................................................................10
SECTION 5.1 GUARANTEE...........................................................................10
SECTION 5.2 WAIVER OF NOTICE AND DEMAND.........................................................10
SECTION 5.3 OBLIGATIONS NOT AFFECTED............................................................10
SECTION 5.4 RIGHTS OF HOLDERS...................................................................11
SECTION 5.5 GUARANTEE OF PAYMENT................................................................11
SECTION 5.6 SUBROGATION.........................................................................11
SECTION 5.7 INDEPENDENT OBLIGATIONS.............................................................11
ARTICLE VI..............................................................................................12
LIMITATION OF TRANSACTIONS; SUBORDINATION...............................................................12
SECTION 6.1 LIMITATION OF TRANSACTIONS..........................................................12
SECTION 6.2 RANKING.............................................................................12
ARTICLE VII.............................................................................................12
TERMINATION.............................................................................................12
SECTION 7.1 TERMINATION.........................................................................12
ARTICLE VIII............................................................................................12
INDEMNIFICATION.........................................................................................12
SECTION 8.1 EXCULPATION.........................................................................12
SECTION 8.2 INDEMNIFICATION.....................................................................13
ARTICLE IX..............................................................................................13
MISCELLANEOUS...........................................................................................13
SECTION 9.1 SUCCESSORS AND ASSIGNS..............................................................13
SECTION 9.2 AMENDMENTS..........................................................................13
SECTION 9.3 NOTICES.............................................................................13
SECTION 9.4 BENEFIT.............................................................................14
SECTION 9.5 GOVERNING LAW.......................................................................14
</TABLE>
i
<PAGE> 3
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Trust Indenture Section of Guarantee Agreement
Act of 1939, as Amended
<S> <C>
310(a) 4.1 (a)
310(b) 4.1 (c), 2.8
310(c) Not Applicable
31l(a) 2.2(b)
311(b) 2.2(b)
311(c) Not Applicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Not Applicable
314(c) 2.5
314(d) Not Applicable
314(e) 1.1, 2.5, 3.2
314(f) 2.1, 3.2
315(a) 3.1 (d)
315(b) 2.7
315(c) 3.13
15(d) 3.1 (d)
315(e) Not Applicable
316(a) 1.1, 2.6, 5.4
316(b) 5.1, 5.3
317(a) 3.1
317(b) Not Applicable
318(a) 2.1
318(b) 2.1
318(c) 2.1
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect the interpretation of any of its terms or
provisions
ii
<PAGE> 4
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Preferred
Securities Guarantee"), dated as of ________ __, 2000, is executed and delivered
by APPALACHIAN BANCSHARES, INC., a Georgia corporation (the "Guarantor"), and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the
"Preferred Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
APAB Capital Trust I, a Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of ________ __, 2000, among the trustees of the
Trust named herein, the Guarantor, as depositor, and the holders from time to
time of undivided beneficial interests in the assets of the Trust, the Trust is
issuing preferred securities, having an aggregate liquidation amount of $10 per
share, designated the ___% Cumulative Trust Preferred Securities (the "Preferred
Securities") representing undivided beneficial ownership interests in the assets
of the Trust and having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Trust and the
proceeds thereof, together with the proceeds from the issuance of the Trust's
Common Securities, will be used to purchase the Junior Subordinated Debentures
due 2030 (the "Junior Subordinated Debentures") of the Guarantor which will be
deposited with Wilmington Trust Company, as Property Trustee under the Trust
Agreement, as trust assets; and
WHEREAS, as an incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, 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 by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) terms defined in the Trust Agreement in effect on the date of
execution of this Preferred Securities Guarantee have the same meaning when used
in this Preferred Securities Guarantee unless otherwise defined herein;
(c) a term defined anywhere in this Preferred Securities Guarantee has
the same meaning throughout;
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
<PAGE> 5
(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday or Sunday or a day
on which banking institutions in the Cities of New York or Atlanta are
authorized or required by law, executive order or regulation to close or a day
on which the Corporate Trust Office of the Preferred Guarantee Trustee is closed
for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the ___% Junior Subordinated Debentures due 2030, of
the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all dividends
of another Person the payments of which, in either case, such Person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.
"Guarantor" means Appalachian Bancshares, Inc., a Georgia corporation,
or any permitted successors or assigns.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined
in the Trust Agreement) that are required to be paid on such Preferred
Securities, to the extent the Trust shall have funds available therefor, (ii)
the redemption price, including all accrued and unpaid Distributions to the date
of redemption (the "Redemption Price"), to the extent the Trust has funds
available therefor, with respect to any Preferred Securities called for
redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Junior Subordinated Debentures to the Holders in exchange for
Preferred Securities as provided in the Trust Agreement or a redemption of all
of the Preferred Securities),
2
<PAGE> 6
the lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid Distributions on the Preferred Securities to the date of payment, to the
extent the Trust shall have funds available therefor (the "Liquidation
Distribution"), and (b) the amount of assets of the Trust remaining available
for distribution to Holders in liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records
of the 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 or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of _______ __, 2000, among the
Debenture Issuer and Wilmington Trust Company, as trustee, and any indenture
supplemental thereto pursuant to which certain subordinated debt securities of
the Debenture Issuer are to be issued to the Property Trustee of the Trust.
"Junior Subordinated Debentures" shall have the meaning set forth in
the Recitals hereto.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
"Majority in liquidation amount of the Preferred Securities" means,
except as provided in the terms of the Preferred Securities or, except as
provided by the Trust Indenture Act, a vote by Holder(s) of Preferred
Securities, voting separately as a class, of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accumulated and unpaid Distributions to but
excluding the date upon which the voting percentages are determined) of all of
the Outstanding Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two authorized officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer upon which the statements contained in
the certificate are based in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Other Debentures" means all junior subordinated debentures ranking
pari passu or junior to the Debentures (other than the Debentures) issued by the
Guarantor from time to time and sold to trusts established or to be established
by the Guarantor, in each case similar to the Trust to issue securities intended
to qualify for Tier I capital treatment.
"Other Guarantees" means all guarantees (other than the Preferred
Securities Guarantee), issued or to be issued by the Guarantor from time to time
with respect to preferred securities or preference stock
3
<PAGE> 7
issued to trusts (other than the Trust) established or to be established by the
Guarantor, in each case similar to the Trust.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means Wilmington Trust Company, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer of the Preferred Guarantee Trustee, including any vice-
president, any assistant vice-president, any assistant secretary, any assistant
treasurer or other officer customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officers knowledge of and familiarity with the
particular subject.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing or any
petition in bankruptcy or for reorganization relating to the Guarantor whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided however, that Senior Debt shall not be deemed to include
(i) any Debt of the Guarantor 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 Guarantor, (ii) any Debt of the Guarantor
to any of its subsidiaries and (iii) Debt to any employee of the Guarantor.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a
list, in such form as the Preferred Guarantee Trustee may reasonably require, of
the names and addresses of the Holders of the Preferred Securities ("List of
Holders") as of January 1 and June 30 of each year, and at such other times as
Preferred Guarantee Trustee may reasonably request in writing within 30 days
after the receipt by the
4
<PAGE> 8
Corporation of any such request; provided, that the Guarantor shall not be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Preferred Guarantee
Trustee by the Guarantor. The Preferred Guarantee Trustee shall preserve the
list of Holders and all information contained therein in as current a form as is
reasonably practicable, but may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Section 311(a) of the Trust Indenture Act (but excluding from the
operation of such Section a creditor relationship arising in the circumstances
described in Section 311(b) of the Trust Indenture Act) and under Section 312(b)
of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
The Preferred Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by, and otherwise
in compliance with, Section 313 of the Trust Indenture Act. The Preferred
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 of the Trust
Indenture Act (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act. Delivery of such reports, information
and documents to the Preferred Guarantee Trustee is for informational purposes
only and the Preferred Guarantee Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained herein, including the Guarantor's compliance with any of
its covenants hereunder (as to which the Preferred Guarantee Trustee is entitled
to rely exclusively on Officer's Certificates). The Guarantor also shall
transmit to the Holders of the Preferred Securities, in the manner and to the
extent provided in Section 313(c) of the Trust Indenture Act, such summaries of
the foregoing documents, reports and information as may be required by rules and
regulations prescribed by the Commission.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act that may be required by such
Section. Any certificate or opinion required to be given by an officer pursuant
to Section 314(c) of the Trust Indenture Act shall 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 Preferred Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such Event
of Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of a default hereunder, transmit by mail to the Holders of the
Preferred Securities in the manner and to the extent provided in Section 313(c)
of the Trust Indenture Act notice of all defaults hereunder actually known to
the Preferred Guarantee Trustee, unless such defaults have been cured before the
giving of such notice;
5
<PAGE> 9
provided, that except in the case of payment defaults, the Preferred Guarantee
Trustee shall be protected in withholding such notice if and so long as the
Preferred Guarantee Trustee determines in accordance with Section 315(b) of the
Trust Indenture Act in good faith that the withholding of such notice is in the
interest of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or of which a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Trust Agreement shall
have obtained actual knowledge.
SECTION 2.8 CONFLICTING INTERESTS.
The Trust Agreement and Indenture shall be deemed to be specifically
described in this Preferred Securities Guarantee for the purposes of clause (i)
of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically vest in any
Successor Preferred Guarantee Trustee, 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 Preferred Guarantee
Trustee.
(b) If an Event of Default has occurred and is continuing, the
Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee
for the benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Preferred Guarantee Trustee shall exercise such of
the rights and powers vested in it by this Preferred Securities Guarantee, and
use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred 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 Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Preferred Securities Guarantee, and the
Preferred Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Preferred Securities Guarantee, and no
implied covenants or obligations shall be read into this
Preferred Securities Guarantee against the Preferred Guarantee
Trustee; and
6
<PAGE> 10
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed herein, upon any
certificates or opinions furnished to the Preferred Guarantee
Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates
or opinions that by any provision hereof are required to be
furnished to the Preferred Guarantee Trustee, the Preferred
Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of
this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible Officer
of the Preferred Guarantee Trustee, unless it shall be proved that the
Preferred Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Preferred 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 Preferred Guarantee Trustee, or exercising any
trust or power conferred upon the Preferred Guarantee Trustee under
this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee
shall require the Preferred 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 Preferred Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Preferred Securities Guarantee or indemnity, reasonably satisfactory to
the Preferred Guarantee Trustee, against such risk or liability is not
reasonably assured to it.
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining from acting
upon, any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed, sent or presented
by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be sufficiently evidenced by
an Officers' Certificate;
(iii) whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall deem it
desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Preferred Guarantee
Trustee (unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or any
rerecording, refiling or reregistration thereof);
(v) the Preferred Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such counsel
with respect to legal matters shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by
it hereunder in
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<PAGE> 11
good faith and in accordance with such advice or opinion. Such counsel
may be counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Preferred Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Preferred
Guarantee Trustee such security and indemnity, reasonably satisfactory
to the Preferred Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request
or direction, including such reasonable advances as may be requested by
the Preferred Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of Default, or its
obligation to exercise the rights and powers vested in it by this
Preferred Securities Guarantee;
(vii) the Preferred 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
Preferred Guarantee trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit;
(viii) the Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents, nominees, custodians or attorneys,
and the Preferred Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder;
(ix) any action taken by the Preferred Guarantee Trustee
or its agents hereunder shall bind the Holders of the Preferred
Securities, and the signature of the Preferred Guarantee Trustee or its
agents alone shall be sufficient and effective to perform any such
action. No third party shall be required to inquire as to the authority
of the Preferred Guarantee Trustee to so act or as to its compliance
with any of the terms and provisions of this Preferred Securities
Guarantee, both of which shall be conclusively evidenced by the
Preferred Guarantee Trustee's or its agent's taking such action;
(x) whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall deem it
desirable to receive instructions with respect to enforcing any remedy
or right or taking any other action hereunder, the Preferred Guarantee
Trustee (i) may request written instructions from the Holders of a
Majority in liquidation amount of the Preferred Securities, (ii) may
refrain from enforcing such remedy or right or taking such other action
until such written instructions are received, and (iii) shall be
protected in relying on or acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed
to impose any duty or obligation on the Preferred 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
Preferred 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 Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Preferred Guarantee Trustee does not assume
any responsibility for their correctness. The Preferred
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Guarantee Trustee makes no representation as to the validity or sufficiency of
this Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or Person
permitted by the Securities and Exchange Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000, and subject to supervision or
examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1 (a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1 (a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred 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 PREFERRED GUARANTEE TRUSTEES
(a) Subject to Section 4.2(c), the Preferred Guarantee Trustee may be
appointed or removed with or without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee may be removed for cause at any
time by Act (within the meaning of Section 608 of the Trust Agreement) of the
Holders of at least a Majority in liquidation amount of the Preferred
Securities, delivered to the Preferred Guarantee Trustee.
(c) The Preferred Guarantee Trustee shall not be removed in accordance
with Sections 4.2(a) and 4.2(b) until a Successor Preferred Guarantee Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Preferred Guarantee Trustee and delivered to the
Guarantor.
(d) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(e) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery of an instrument of resignation,
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the resigning Preferred Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Preferred Guarantee Trustee.
(f) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(g) Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2,
the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued
to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Trust), as and when due, regardless of any defense, right of set-off
or counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
SECTION 5.2 WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3 OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, 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 (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Junior Subordinated Debentures);
(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 Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
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(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the common
equity securities issued by the Trust), including the failure to receive any
regulatory approval required in connection with the redemption of the Preferred
Securities;
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 RIGHTS OF HOLDERS.
(a) The Guarantor expressly acknowledges that: (i) this Guarantee will
be deposited with the Preferred Guarantee Trustee to be held for the benefit of
the Holders; (ii) the Preferred Guarantee Trustee has the right to enforce this
Preferred Securities Guarantee; and (iii) 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 Preferred
Guarantee Trustee in respect of this Preferred Securities Guarantee or
exercising any trust or power conferred upon the Preferred Guarantee Trustee
under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5 GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and
not of collection. This Preferred Securities Guarantee will not be discharged
except by payment of the Guarantee Payments in full (without duplication of
amounts theretofore paid by the Trust).
SECTION 5.6 SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7 INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the 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 Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (h), inclusive, of Section 5.3 hereof.
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ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 LIMITATION OF TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if there shall
have occurred an Event of Default under this Preferred Securities Guarantee, an
Event of Default under the Trust Agreement or during an Extended Interest
Payment Period (as defined in the Indenture), then (a) the Guarantor shall not
and shall not permit any Subsidiary to declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
the reclassification of any class of the Corporation's capital stock into
another class of capital stock, (ii) dividends or distributions payable in any
class of the Corporation's common stock, (iii) any declaration of a dividend in
connection with the implementation of a shareholder rights plan, or the issuance
of stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto and (iv) purchases of the Corporation's common
stock related to the rights under any of the Corporation's benefit plans for its
or its subsidiaries' directors, officers or employees), and (b) the Guarantor
shall not and shall not permit any Subsidiary to make any payment of interest or
principal on or repay, repurchase or redeem any debt securities issued by the
Guarantor (including Other Debentures) which rank pari passu with or junior to
the Junior Subordinated Debentures; and (c) the Guarantor shall not redeem,
purchase or acquire less than all of the outstanding Debentures or any of the
Preferred Securities.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to all Senior Debt of the Guarantor, (ii) pari passu with the most
senior preferred securities or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect to any preferred securities or preference stock of any Affiliate of
the Guarantor, and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION.
This Preferred Securities Guarantee shall terminate upon (i) full
payment of the Redemption Price of all Preferred Securities, (ii) upon full
payment of the amounts payable in accordance with the Trust Agreement upon
liquidation of the Trust, or (iii) upon distribution of the Junior Subordinated
Debentures to the Holders of the Preferred Securities. Notwithstanding the
foregoing, this Preferred Securities Guarantee shall continue to be effective or
shall be reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
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<PAGE> 16
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2 INDEMNIFICATION.
The Guarantor agrees to indemnify, to the fullest extent permitted by
law, each Indemnified Person for, and to hold each Indemnified Person harmless
against, any and all loss, liability or expense, including taxes (other than
taxes based on the income of the Guarantee Trustee) incurred without negligence
or bad faith on the part of such Indemnified Person, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee. The provisions
of this Section shall survive the termination of the Preferred Securities
Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding. Guarantor shall not assign its
obligations hereunder except in connection with a consolidation, merger, sale or
other transaction involving the Guarantor that is permitted under Article XII of
the Indenture and unless the assignee thereof agrees in writing, in form and
substance reasonably satisfactory to the Preferred Guaranty Trustee, to perform
all the Guarantor's obligations hereunder with the same effect as if it had been
named herein as Guarantor, and any purported assignment that is not in
accordance with these provisions shall be void.
SECTION 9.2 AMENDMENTS.
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Preferred Securities Guarantee may only be amended with the
prior approval of the Holders of at least a Majority in liquidation amount of
the Preferred Securities. The provisions of Article VI of the Trust Agreement
with respect to meetings of Holders of the Preferred Securities apply to the
giving of such approval.
SECTION 9.3 NOTICES.
All notices provided for in this Preferred Securities Guarantee shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first-class mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
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<PAGE> 17
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Facsimile No.: (302) 651-8882
Attention: Corporate Trust Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Appalachian Bancshares, Inc.
829 Industrial Boulevard
Ellijay, Georgia 30540
Facsimile No.: (706) 276-8000
Attention: Chief Executive Officer
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 9.4 BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1 (a), is not
separately transferable from the Preferred Securities.
SECTION 9.5 GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This Preferred Securities Guarantee is executed as of the day and year
first above written.
APPALACHIAN BANCSHARES, INC.,
AS GUARANTOR
By:
----------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
AS PREFERRED GUARANTEE TRUSTEE
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
14
<PAGE> 1
EXHIBIT 5.1
December 9, 1999
APAB Capital Trust I
c/o Appalachian Bancshares, Inc.
829 Industrial Boulevard
Ellijay, Georgia 30540
Re: APAB Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Appalachian
Bancshares, Inc., a Georgia bank holding company (the "Company"), and APAB
Capital Trust I, a Delaware business trust (the "Trust"), in connection with the
matters set forth herein. At your request, this opinion is being furnished to
you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust as filed with the
office of the Secretary of State of the State of Delaware (the "Secretary of
State") on November 18, 1999;
(b) The Trust Agreement of the Trust, dated as of November 18,
1999, as amended by the Amended and Restated Trust Agreement, (in the form
attached as exhibit 4.7 to the Registration Statement referred to below)
(collectively, the "Trust Agreement"), among the Company and the trustees of the
Trust named therein;
(c) The Registration Statement (the "Registration Statement")
on Form SB- 2, including a preliminary prospectus with respect to the Trust (the
"Prospectus"), relating to the Preferred Securities of the Trust representing a
preferred undivided beneficial interests in the assets of the Trust (each, a
"Preferred Security" and collectively, the "Preferred
<PAGE> 2
APAB Capital Trust I
December 9, 1999
Page 2
Securities"), filed by the Company and the Trust with the Securities and
Exchange Commission on or about December 10, 1999; and
(d) A Certificate of Good Standing for the Trust, dated
December 8, 1999, obtained from the Secretary of State.
Initially, capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (d) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (d) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed
(i) the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Trust Agreement and the Certificate of Trust are in full force and effect and
have not been amended, (ii) except to the extent provided in paragraph 1 below,
the due organization or due formation, as the case may be, and valid existence
in good standing of each party to the documents examined by us under the laws of
the jurisdiction governing its creation, organization or formation, (iii) the
legal capacity of natural persons who are parties to the documents examined by
us, (iv) that each of the parties to the documents examined by us has the power
and authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) the receipt by each Person to whom
a Preferred Security is to be issued by the Trust (collectively, the "Preferred
Security Holders") of a Preferred Securities Certificate for such Preferred
Security and the payment for such Preferred Security, in accordance with the
Trust Agreement and the Prospectus, and (vii) that the Preferred Securities will
be issued and sold to the Preferred Security Holders in accordance with the
Trust Agreement and the Prospectus. We have not participated in the preparation
of the Registration Statement and assume no responsibility for its contents.
<PAGE> 3
APAB Capital Trust I
December 9, 1999
Page 3
This opinion is limited to the laws of the State of Delaware,
and we have not considered and express no opinion on the laws of any other
jurisdiction, including federal laws and rules and regulations relating thereto.
Our opinions are rendered only with respect to Delaware laws (excluding
securities laws) and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities of the Trust will represent valid
and, subject to the qualifications set forth in paragraph 3 below, fully paid
and nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Legal and Tax Matters" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
WF/wrm
<PAGE> 1
EXHIBIT 5.2
PAUL, HASTINGS, JANOFSKY & WALKER LLP
Suite 2400
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Telephone: (404) 815-2400
Facsimile: (404) 815-2424
December 9, 1999
Board of Directors
Appalachian Bancshares, Inc.
829 Industrial Boulevard
Ellijay, Georgia 30540
Re: Registration Statement on Form SB-2 (the "Registration
Statement")
Ladies and Gentlemen:
You have requested our opinion, as your counsel, in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of up to
$11,500,000 aggregate principal amount of Junior Subordinated Debentures (the
"Junior Subordinated Debentures") of Appalachian Bancshares, Inc., a Georgia
corporation (the "Corporation"), up to $11,500,000 aggregate liquidation amount
of Trust Preferred Securities (the "Trust Preferred Securities") of APAB Capital
Trust I, a business trust created under the laws of the State of Delaware (the
"Issuer"), and the Guarantee with respect to the Trust Preferred Securities (the
"Guarantee") to be executed and delivered by the Corporation for the benefit of
the holders from time to time of the Trust Preferred Securities.
In rendering this opinion, we have examined the Registration Statement
and such records and documents and made such examination of law as we have
deemed relevant in connection with this opinion. We have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, the legal capacity of all natural persons and the conformity
with the original documents of any copies thereof submitted to us for
examination.
Upon the basis of such examination, we advise you that, when:
(1) the Registration Statement relating to the Junior
Subordinated Debentures, the Trust Preferred Securities and the Guarantee has
become effective under the Act;
(2) the Guarantee Agreement relating to the Guarantee with
respect to the Trust Preferred Securities of the Issuer has been duly executed
and delivered;
(3) the Junior Subordinated Debentures have been duly executed
and authenticated in accordance with the Indenture and issued and delivered as
contemplated in the Registration Statement; and
(4) the Trust Preferred Securities have been duly executed in
accordance with the Amended and Restated Trust Agreement of the Issuer and
issued and delivered as contemplated in the Registration Statement;
<PAGE> 2
Board of Directors
December 9, 1999
Page 2
the Junior Subordinated Debentures and the Guarantee relating to the Trust
Preferred Securities of the Issuer will constitute valid and legally binding
obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, usury laws and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
We understand that you have received an opinion regarding the Trust
Preferred Securities from Richards, Layton & Finger, P.A., special Delaware
counsel for the Corporation and the Issuer. We are expressing no opinion with
respect to the matters contained in such opinion.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Corporation and other sources believed by us
to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal and
Tax Matters" in the Prospectus. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE> 1
EXHIBIT 8.1
PAUL, HASTINGS, JANOFSKY & WALKER LLP
Thirty-First Floor
399 Park Avenue
New York, New York 10022
December 9, 1999
Appalachian Bancshares, Inc.
829 Industrial Boulevard
Ellijay, Georgia 30540
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as special tax counsel to APAB Capital Trust I
(the "Issuer") and Appalachian Bancshares, Inc. (the "Corporation") in
connection with the issuance by the Issuer of up to $11,500,000 of its
cumulative trust preferred securities pursuant to the prospectus (the
"Prospectus") contained in the Registration Statement. For purposes of rendering
this opinion we have assumed that each of the operative documents described in
the Prospectus will be duly executed and performed in accordance with the terms
described therein, that all of the facts contained in the Prospectus are true,
correct and complete, and that all of the factual representations to be made by
the Corporation and the Issuer in the underwriting agreement to be entered into
with Wachovia Securities, Inc. are true, correct and complete. We assume no
responsibility to inform you of any change or inaccuracy that may occur or come
to our attention. Based upon the foregoing, we hereby confirm to you our opinion
as set forth under the heading "Federal Income Tax Consequences" in the
Prospectus, subject to the limitations set forth therein.
Our opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, Treasury Regulations promulgated thereunder,
published pronouncements of the Internal Revenue Service and case law, any of
which may be changed at any time with retroactive effect.
We express no opinion as to the United States federal income
tax consequences to holders of trust preferred securities subject to special
treatment under United States federal income tax law (including, for example,
banks, financial institutions, thrift institutions, regulated investment
companies, real estate investment trusts, employee benefit plans, tax-exempt
<PAGE> 2
organizations, dealers in securities or currencies, persons that will hold trust
preferred securities as part of a position in a "straddle" or as part of a
"synthetic security," "hedging," or other integrated investment transaction for
United States federal income tax purposes, persons whose functional currency is
not the United States dollar, or persons that do not hold the trust preferred
securities as capital assets).
We hereby consent to (i) the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the SB-2 and (ii) the
reference to our firm under the headings "Federal Income Tax Consequences" and
"Legal and Tax Matters" in the Registration Statement. In giving such consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
Paul, Hastings, Janofsky & Walker LLP
2
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
APPALACHIAN BANCSHARES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
The following tabulation presents the calculation of basic and fully
diluted earnings per common share for nine-month periods ended September 30,
1999 and September 30, 1998 and the years ended December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BASIC:
Reported net income (loss)................................... $ 851,830 $ 838,605 $1,208,231 $1,017,766 $ 516,736
========== ========== ========== ========== ==========
Earnings (loss) on common shares............................. $ 851,830 $ 838,605 $1,208,231 $1,017,766 $ 516,736
========== ========== ========== ========== ==========
Weighted average common shares outstanding -- basic.......... 1,323,335 1,750,050 1,166,425 1,154,990 1,136,000
========== ========== ========== ========== ==========
Earnings (loss) per common share from continuing operations
-- basic.................................................... $ .64 $ .73 $ 1.04 $ .88 $ .45
========== ========== ========== ========== ==========
Net income (loss)............................................ $ .64 $ .73 $ 1.04 $ .88 $ .45
========== ========== ========== ========== ==========
DILUTED:
Reported net income (loss)................................... $ 851,830 $ 838,605 $1,208,231 $1,017,766 $ 516,736
========== ========== ========== ========== ==========
Earnings (loss) on common shares............................. $ 851,830 $ 838,605 $1,208,231 $1,017,766 $ 516,736
========== ========== ========== ========== ==========
Weighted average common shares outstanding -- diluted........ 1,419,025 1,194,275 1,220,976 1,162,206 1,136,000
========== ========== ========== ========== ==========
Earnings (loss) per common share from continuing
operations -- diluted....................................... $ .60 $ .70 $ .99 $ .88 $ .45
========== ========== ========== ========== ==========
Net income (loss)............................................ $ .60 $ .70 $ .99 $ .88 $ .45
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of Appalachian Bancshares, Inc.
Gilmer County Bank, a Georgia state bank
Appalachian Community Bank, a Georgia state bank
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 being filed
by Appalachian Bancshares, Inc. of our report dated February 5, 1999, on the
consolidated financial statements of Appalachian Bancshares, Inc. and
subsidiaries as of December 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1998, and of our report dated October 26,
1999, on the unaudited consolidated financial statements of Appalachian
Bancshares, Inc. and subsidiaries as of September 30, 1999 and 1998 and for the
nine months then ended. We also consent to the reference to our firm under the
caption "Experts" in the Prospectus of the Registration Statement.
Birmingham, Alabama /s/ Schauer, Taylor, Cox & Vise, P.C.
December 9, 1999 -------------------------------------
Schauer, Taylor, Cox & Vise, P.C.
