<PAGE>
As filed with the Securities and Exchange Commission on December 15, 1997
Registration No. 333-
--------------
Registration No. 333-
--------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIDELITY BANKSHARES, INC. FIDELITY CAPITAL TRUST I
------------------------- ------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
<TABLE>
<S> <C> <C> <C>
Delaware 65-0717085 Delaware Applied For
------------------- --------------- --------------- ----------------
(State of Incorporation (I.R.S. Employer (State of Incorporation (I.R.S. Employer
or Organization) Identification Number) or Organization) Identification Number)
</TABLE>
218 Datura Street
West Palm Beach, Florida 33401-5679
(561) 659-9900
------------------------------------
(Address, including ZIP Code, and telephone number
including area code, of registrants' principal
executive offices)
Vince A. Elhilow
President and Chief Executive Officer
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, Florida 33401-5079
---------------------------------------
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
Alan Schick, Esq. Alison W. Miller, Esq.
Ned Quint, Esq. Michael I. Keyes, Esq.
Luse Lehman Gorman Pomerenk & Schick, P.C. Stearns Weaver Miller Weissler
5335 Wisconsin Avenue, N.W., Suite 400 Alhadeff & Sitterson, P.A.
Washington, D.C. 20015 150 West Flagler Street, Suite 2200
(202) 274-2000 Miami, Florida 33130
(305) 789-3200
- -------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. As soon as
practicable after the effective date of this Registration Statement.
<PAGE>
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [_].
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box [X].
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [_].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Title of each class of security Amount to be offering price aggregate Amount of
to be registered(4) registered per share offering price registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Preferred Securities, of Fidelity 2,837,500(1) $10.00 $28,375,000 $8,482
Capital Trust I
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Junior Subordinated Deferrable Interest 2,837,500 100% N/A N/A
Debentures of Fidelity Bankshares, Inc.(2)
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Fidelity Bankshares, Inc. Guarantee with N/A N/A N/A N/A
respect to Trust Preferred Securities(3)
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Total 2,837,500 $10.00 $28,375,000 $8,482
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes up to 375,000 additional Trust Preferred Securities which may be
acquired by the Underwriter to cover over-allotments, if any.
(2) The ___% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures") will be purchased by Fidelity Capital Trust I
with the proceeds of the sale of the Trust Preferred Securities (the
"Preferred Securities"). No separate consideration will be received for the
Junior Subordinated Debentures distributed upon any liquidation of Fidelity
Capital Trust I.
(3) No separate consideration will be received for the Fidelity Bankshares,
Inc. Guarantee (the "Guarantee").
(4) This Registration Statement is deemed to cover the Junior Subordinated
Debentures under the Indenture, the rights of holders of Preferred
Securities of Fidelity Capital Trust I under a trust agreement and the
rights of holders of the Preferred Securities under the Guarantee and the
Expense Agreement entered into by Fidelity Bankshares, Inc. as described
herein.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject To Completion, Dated __________, 1998
$25,000,000
FIDELITY CAPITAL TRUST I
____% Cumulative Trust Preferred Securities
(Liquidation Amount $10 Per Preferred Security)
2,500,000 Preferred Securities
Fully and Unconditionally Guaranteed, as described herein, by
[Logo]
[Fidelity Bankshares, Inc. Logo]
FIDELITY BANKSHARES, INC.
The ____% Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent beneficial interests in Fidelity Capital
Trust I, a statutory business trust created under the laws of the State of
Delaware (the "Trust Issuer"). Fidelity Bankshares, Inc., a Delaware
corporation ("Fidelity" or the "Company"), will own all of the beneficial
interests represented by common securities of the Trust Issuer (the "Common
Securities" and, collectively with the Preferred Securities, the "Trust
Securities"). ____________________ is the Property Trustee of the Trust Issuer.
The Trust Issuer exists for the sole purpose of issuing the Trust Securities and
investing the proceeds from the sale thereof in ____% Junior Subordinated
Deferrable Interest Debentures (the "Junior Subordinated Debentures") to be
issued by the Company. The Junior Subordinated Debentures will mature on
__________, 2028 (the "Stated Maturity"). The Preferred Securities will have a
preference over the Common Securities under certain circumstances with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise. See "Description of the Preferred Securities--Subordination of the
Common Securities."
Application has been made to list the Preferred Securities for quotation on
the Nasdaq Stock Market's National Market under the symbol "FFFLP." See "Risk
Factors--Absence of Prior Public Market for the Preferred Securities; Trading
Price and Tax Considerations."
---------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE __ FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE
NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND
OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
---------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
<PAGE>
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Commission(l) Issuer(2)(3)
----------- --------------- ---------------
<S> <C> <C> <C>
Per Preferred Security $ 10.00 (2) $ 10.00
Total(4) $25,000,000 (2) $25,000,000
</TABLE>
(1) The Trust Issuer and Fidelity have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures of
Fidelity, Fidelity has agreed to pay the Underwriter, as compensation for
its arranging the investment of such proceeds in the Junior Subordinated
Debentures, $____ per Preferred Security, or $_________ in the aggregate
($_________ in the aggregate if the over-allotment option is exercised in
full). See "Underwriting."
(3) Before deducting expenses payable by Fidelity, estimated to be
approximately $_______.
(4) The Trust Issuer and Fidelity have granted the Underwriter a 30-day option
to purchase up to 375,000 additional Preferred Securities on the same terms
and conditions set forth above solely to cover over-allotments, if any. If
this option is exercised in full, the total Price to Public and Proceeds to
Issuer will be $28,750,000. See "Underwriting."
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by it, prior sale and the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Preferred Securities will be made in book-
entry form through the book-entry facilities of The Depository Trust Company on
or about ________________ against payment therefor in immediately available
funds.
RYAN, BECK & CO.
The Date of this Prospectus is ____________, 1998.
---------------
<PAGE>
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depository ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of
Preferred Securities," Preferred Securities in definitive form will not be
issued and owners of beneficial interests in the global securities will not be
considered holders of the Preferred Securities. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and, therefore,
secondary market trading activity for the Preferred Securities will settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from the date of
original issuance and payable quarterly in arrears on __________, __________,
__________, and __________ of each year, commencing __________, 1998, at the
annual rate of ____% of the Liquidation Amount (as defined herein) of $10 per
Preferred Security ("Distributions"). Subject to certain exceptions, Fidelity
has the right to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarters with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the rate of ____%, compounded quarterly, to the extent
permitted by applicable law), Fidelity may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Preferred
Securities also will be deferred, and Fidelity will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to the capital stock of Fidelity or debt securities of Fidelity
that rank pari passu with or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated
Debentures would continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled would accumulate) at the rate
of ____% per annum, compounded quarterly, and holders of the Preferred
Securities would be required to include interest income in their gross income
for United States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. Fidelity
believes that the mere existence of its right to defer interest payments should
not cause the Preferred Securities to be issued with original issue discount for
federal income tax purposes. However, it is possible that the Internal Revenue
Service could take the position that the likelihood of deferral was not a remote
contingency within the meaning of applicable Treasury Regulations. See
"Description of the Junior Subordinated Debentures-Right to Defer Interest
Payment Obligation" and "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
Fidelity and the Trust Issuer believe that, taken together, the
obligations of Fidelity under the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), constitute in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of all of the Trust Issuer's
obligations under the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures, the Expense Agreement
and the Guarantee--Full and Unconditional Guarantee." The Guarantee of Fidelity
(the "Guarantee") guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Trust Issuer, as described herein. See
"Description of the Guarantee." If Fidelity does not make interest payments on
the Junior Subordinated Debentures held by the Trust Issuer, the Trust Issuer
will have insufficient funds to pay Distributions on the Preferred Securities.
The Guarantee does not cover payment of Distributions when the Trust Issuer does
not have sufficient funds to pay such Distributions. In such event, a holder of
the Preferred Securities may institute a legal proceeding directly against
Fidelity to enforce payment of amounts equal to such Distributions to such
holder. See "Description of the Junior Subordinated Debentures-Enforcement of
Certain Rights by Holders of the Preferred Securities."
The Preferred Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Junior Subordinated Debentures at their Stated
Maturity or their earlier redemption. Subject to regulatory approval, if then
ii
<PAGE>
required under applicable capital guidelines or regulatory policies, the Junior
Subordinated Debentures are redeemable prior to their Stated Maturity at the
option of the Company (i) on or after __________, 2003, in whole at any time or
in part from time to time, or (ii) at any time, in whole (but not in part), upon
the occurrence and continuation of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein) at a redemption price (the
"Redemption Price") equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption plus 100%
of the principal amount thereof. Notwithstanding the foregoing, if Fidelity
Bankshares, MHC (the "Mutual Holding Company"), the mutual holding company
parent of Fidelity completes a Conversion Transaction (as defined herein)
pursuant to which Fidelity or its successor sells to eligible subscribers and
the public the shares of common stock currently held by the Mutual Holding
Company, then Fidelity shall have the right to redeem the Junior Subordinated
Debentures, in whole but not in part, prior to __________, 2003, but not prior
to __________, 2000. Under such circumstances the Junior Subordinated
Debentures, may be redeemed at a price equal to the accrued and unpaid interest
to the date fixed for redemption plus 107% of the principal amount thereof. See
"Risk Factors -- Optional Redemption in the Event of a Conversion Transaction,"
and "Description of the Junior Subordinated Debentures- Redemption or Exchange."
The obligations of Fidelity under the Guarantee and the Junior
Subordinated Debentures will be unsecured and are subordinate and junior in
right of payment to all Senior Indebtedness (as defined in "Description of the
Junior Subordinated Debentures--Subordination") of Fidelity. At September 30,
1997, Fidelity had no outstanding Senior Indebtedness. There is no limitation
on Fidelity's ability to incur Senior Indebtedness or additional indebtedness
which is pari passu with the Junior Subordinated Debentures. See "Description
of the Junior Subordinated Debentures--Subordination."
Fidelity, as the holder of the Common Securities, will have the right
at any time to dissolve the Trust Issuer. The ability of Fidelity to do so may
be subject to Fidelity's prior receipt of regulatory approval. In the event of
the dissolution of the Trust Issuer, after satisfaction of liabilities to
creditors of the Trust Issuer as required by applicable law, the holders of the
Preferred Securities will be entitled to receive a Liquidation Amount of $10 per
Preferred Security plus accumulated and unpaid Distributions thereon to the date
of payment, which may be in the form of a distribution of such amount in Junior
Subordinated Debentures, subject to certain exceptions. See "Description of the
Preferred Securities--Liquidation Distribution upon Termination."
----------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
PREFERRED SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. ANY OF
THE FOREGOING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME
WITHOUT NOTICE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
iii
<PAGE>
[MAP INDICATING FIDELITY FEDERAL'S BRANCH OFFICES]
iv
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
The Company and the Trust Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. In addition, certain documents
filed by the Company with the Commission have been incorporated in this
Prospectus by reference. See "Incorporation of Certain Documents by Reference."
For further information with respect to the Company, the Trust Issuer, the
Preferred Securities and the Junior Subordinated Debentures, reference is made
to the Registration Statement, including the exhibits thereto and the documents
incorporated herein by reference. Any statements contained herein concerning
the provisions of any document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission or incorporated by reference herein are
not necessarily complete, and, in each instance, reference is made to the copy
of such document so filed for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such reference.
The Registration Statement may be inspected without charge at the principal
office of the Commission in Washington, D.C., and copies of all or part of it
may be obtained from the Commission upon payment of the prescribed fees.
No separate financial statements of the Trust Issuer have been
included herein. The Company does not consider that such financial statements
would be material to holders of Preferred Securities because (i) all of the
voting securities of the Trust Issuer will be owned by the Company, a reporting
company under the Exchange Act, (ii) the Trust Issuer has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust Issuer and investing
the proceeds thereof in Junior Subordinated Debentures issued by the Company,
and (iii) the obligations of the Company described herein (to provide certain
indemnities in respect of, and be responsible for certain costs, expenses, debts
and liabilities of, the Trust Issuer under the Indenture and pursuant to the
Trust Agreement, the guarantee issued by the Company with respect to the
Preferred Securities, the Junior Subordinated Debentures purchased by the Trust
Issuer, the related Indenture and the Expense Agreement), taken together,
constitute, in the belief of the Company and the Trust Issuer, a full and
unconditional guarantee of payments due on the Preferred Securities. See
"Description of the Junior Subordinated Debentures" and "Description of the
Guarantee."
The Trust Issuer is not currently subject to the information reporting
requirements of the Exchange Act and the Company does not expect that the Trust
Issuer will file reports, proxy statements and other information under the
Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (attached hereto as Appendix A);
v
<PAGE>
2. The Company's Quarterly Reports on Form 10-Q for the quarters
ended September 30, 1997 (attached hereto as Appendix B), June 30,
1997 and March 31, 1997; and
3. The Company's Current Report on Form 8-K dated August 25, 1997,
the Company's Current Report on Form 8 K/A dated October 6, 1997 and
the Company's Current Report on Form 8-K dated December 12, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein, modified or
superseded such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
As used herein, the terms "Prospectus" and "herein" means this
Prospectus, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein do not purport to
be complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (other
than exhibits, unless such exhibits are specifically incorporated by reference
in such documents). Requests for such documents should be directed to Corporate
Secretary, Fidelity Bankshares, Inc., 218 Datura Street, West Palm Beach,
Florida 33401 (Telephone (561) 659-9900).
The Company will provide to the holders of the Preferred Securities
quarterly reports containing unaudited financial statements and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish annual reports on Form 10-K and quarterly reports
on Form 10-Q free of charge to holders of the Preferred Securities who so
request in writing to the Company.
vi
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the underwriters' over-allotment option will not be
exercised.
THE MUTUAL HOLDING COMPANY, THE COMPANY AND THE BANK
The Mutual Holding Company Structure
Fidelity Bankshares, Inc. ("Fidelity" or the "Company") is part of a
mutual holding company structure that is subject to regulation and oversight by
the Office of Thrift Supervision ("OTS"). Fidelity Bankshares, MHC (the "Mutual
Holding Company") owns approximately 52.2% of the common stock of the Company,
and is required to own at least a majority of the voting stock of the Company so
long as the Mutual Holding Company remains in existence. The Company owns 100%
of the common stock of Fidelity Federal Savings Bank of Florida (the "Bank").
The Mutual Holding Company has the authority, subject to regulatory approval; to
engage in a Conversion Transaction which would eliminate the Mutual Holding
Company and result in public stockholders owning 100% of the common stock of the
Company. A Conversion Transaction would also enable the Company to redeem the
Junior Subordinated Debentures prior to __________, 2003 but not prior to
___________, 2000. See "Risk Factors -- Optional Redemption in the Event of a
Conversion Transaction," and "Description of the Junior Subordinated Debentures-
- -Redemption or Exchange." The current mutual holding company structure is as
follows:
---------------------- ----------------------
Fidelity Bankshares, Public
MHC Stockholders
---------------------- ----------------------
52.2% of 47.8% of
the the
Common Common
Stock Stock
----------------------------------------------------
Fidelity Bankshares, Inc.
----------------------------------------------------
100% of the
Common Stock
----------------------------------------------------
Fidelity Federal Savings Bank
----------------------------------------------------
The principal executive offices of the Mutual Holding Company, the
Company and the Bank are located at 218 Datura Street, West Palm Beach, Florida,
and their telephone number at that address is (561) 659-9900.
Fidelity Bankshares, MHC
The Mutual Holding Company is chartered under Federal law by the OTS.
The Mutual Holding Company may engage in any business activity permissible for
Federal mutual holding companies, which generally include all activities
permissible for Federal savings banks (other than accepting deposits), as well
as certain additional activities such as real estate development and investing
in the equity securities of other companies. The primary business activity of
the Mutual Holding Company at the present time is the ownership of a majority of
the Company's common stock.
1
<PAGE>
Fidelity Bankshares, Inc.
The Company is a Delaware corporation which was organized in May 1996.
The only significant asset of Fidelity is its investment in the Bank. A
majority of the Company's common stock is owned by the Mutual Holding Company.
On January 29, 1997 the Company acquired all of the issued and outstanding
common stock of the Bank in connection with the Bank's reorganization into the
two-tier form of mutual holding company ownership. At that time, each share of
Bank common stock was automatically converted into one share of the Company's
common stock, par value $.l0 per share. As part of the two-tier mutual holding
company reorganization, 3,542,000 shares of common stock were issued to the
Mutual Holding Company and 3,206,625 shares of common stock were issued to the
Bank's public stockholders in exchange for the shares of the Bank's common stock
held by them. At September 30, 1997, the Company had total assets of $1.0
billion, total deposits of $791.2 million, and stockholders' equity of $85.8
million.
Fidelity Federal Savings Bank of Florida
The Bank is a federally chartered savings bank headquartered in West
Palm Beach, Florida. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank was chartered originally as a federal
mutual savings and loan association in 1952, and in 1983, amended its charter to
become a federally chartered mutual savings bank. On January 7, 1994, the Bank
completed a reorganization from a mutual savings bank into a federally chartered
mutual holding company with a subsidiary stock savings bank. As part of the
reorganization, the Bank was organized as a federally chartered stock savings
bank and as the successor to the Bank in its previous mutual form. The Bank is
a member of the Federal Home Loan Bank ("FHLB") System.
The Bank is primarily engaged in the business of attracting deposits
from the general public in the Bank's market area, and investing such deposits,
together with other sources of funds, in one- to four-family residential
mortgage loans, consumer loans and commercial business loans. To a lesser
extent, the Bank also originates construction loans and land loans for single-
family properties, and invests in mortgage-backed securities issued or
guaranteed by the United States Government or agencies thereof. In addition,
the Bank invests a portion of its assets in securities issued by the United
States Government, and in cash and cash equivalents including deposits in other
financial institutions, and FHLB stock. The Bank's principal sources of funds
are deposits and principal and interest payments on loans. Principal sources of
income are interest received from loans and investment securities. The Bank's
principal expense is interest paid on deposits and employee compensation and
benefits.
On December 5, 1997 the Bank completed its acquisition of BankBoynton,
a Federal Savings Bank ("BankBoynton"). At December 5, 1997, BankBoynton's
assets, deposits and stockholders' equity were approximately $54.7 million,
$41.7 million and $3.1 million, respectively. The Bank paid an aggregate of
$5.6 million for all the issued and outstanding Common Stock of BankBoynton.
Management believes that the acquisition of BankBoynton will be accretive to
earnings in 1998.
Business Strategy
The Bank's current business strategy is to operate as a well-
capitalized, profitable and independent community-oriented savings bank
dedicated to providing quality customer service. Generally, the Bank has sought
to implement this strategy by emphasizing retail deposits as its primary source
of funds and maintaining a substantial part of its assets in locally-originated
residential first mortgage loans, in mortgage-backed securities and in other
liquid investment securities. Specifically, the goal of the Bank's business
strategy is to address the following: (1) operating as a community-oriented
financial institution, maintaining a strong core customer base by providing
quality service and offering customers the access to senior management and
services that a community-based institution can offer; (2) maintaining high
levels of asset quality by emphasizing residential mortgage lending and
investing in mortgage-backed securities and other securities issued or
guaranteed by the United States Government or agencies thereof; (3) managing
interest rate risk exposure; and (4) maintaining capital in excess of regulatory
requirements and growing only to the extent that adequate capital levels and
asset quality can be maintained.
2
<PAGE>
Highlights of the Bank's business strategy are as follows:
Community-Oriented Institution. The Bank is the second largest savings
institution headquartered in Palm Beach County, which in recent years has
experienced a significant influx of commercial banks and branches of savings
institutions headquartered outside of Florida. The Bank is committed to meeting
the financial needs of the communities in which it operates. The Bank believes
it is large enough to provide a full range of personal and business financial
services, and yet is small enough to be able to provide such services on a
personalized and efficient basis. Management believes that the Bank can be more
effective in servicing its customers than many of its non-local competitors
because of the Bank's ability to quickly and effectively provide senior
management responses to customer needs and inquiries. The Bank's ability to
provide these services is enhanced by the stability of the Bank's senior
management. The Bank intends to maintain its operation as a community-oriented,
independent savings institution.
Asset Quality and Emphasis on Residential Mortgage Lending. Since its
inception, the Bank has emphasized residential real estate lending, and
anticipates a continued commitment to financing the purchase or improvement of
residential real estate in its market area. To supplement local mortgage loan
originations, the Bank also invests in mortgage-backed securities that are
issued or guaranteed by the United States Government or agencies thereof. At
September 30, 1997, 78.3% of the Bank's total gross loan portfolio consisted of
one- to four-family residential mortgage loans, including residential
construction loans, and 18.5% of the Bank's total assets consisted of mortgage-
backed securities and investments that are issued or guaranteed by the United
States government or agencies thereof.
Historically, the percentage of small commercial business loans and
consumer loans in the Bank's portfolio has been below the levels of its peers.
However, the Bank is seeking to expand its offering of commercial business and
consumer loan services while attempting to adhere to its relatively conservative
loan underwriting standards.
Interest Rate Risk Management. Deposit accounts typically react more
quickly to changes in market interest rates than interest-earning assets such as
mortgage loans, because of the relatively shorter maturities of deposits. The
difference between interest-bearing liabilities expressed as a percentage of
total assets, is a measure of interest rate risk and is referred to as an
institution's interest rate gap. A gap is considered negative if interest-
bearing liabilities maturing or repricing in a particular time period exceed
interest-earning assets maturing or repricing within the same time period.
Management seeks to manage the Bank's interest rate risk exposure by monitoring
the levels of interest rate sensitive assets and liabilities while maintaining
an acceptable interest rate spread. At September 30, 1997 total interest-bearing
liabilities maturing or repricing within one year exceeded total interest-
earning assets maturing or repricing in the same period by $17.7 million,
representing a cumulative one-year gap ratio of a negative 9.75%. A negative
gap will generally enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment.
To reduce the potential volatility of the Bank's earnings in a
changing interest rate environment, the Bank has sought to manage interest rate
risk by investing a substantial part of its assets in relatively short- and
medium-term United States Government and agency securities, and in adjustable
rate mortgage ("ARM") loans and mortgage-backed securities with adjustable
interest rates. Of the Bank's total investment of $950.8 million in loans and
mortgage-backed securities at September 30, 1997, $485.3 million, or 47.2%, had
adjustable interest rates. Another aspect of the Bank's interest rate risk
management strategy has been to extend the maturity of interest-bearing
liabilities, including the utilization of FHLB advances as a source of funds.
Additionally, the Bank has classified its mortgage-backed and investment
portfolios as available for sale. As a result, mortgage-backed securities and
investments are carried at fair value based upon market quotations. Management
believes that by classifying its investment and mortgage-backed securities as
available for sale, the Bank will have the flexibility to restructure its
investment and mortgage-backed portfolio in response to changes in interest
rates.
Strong Retail Deposit Base. The Bank has had a relatively strong
retail deposit base drawn from the 21 full-service offices in its market area.
At September 30, 1997, management estimated that 30.6% of the Bank's $791.2
million deposit base consisted of core deposits, which included non-interest
demand accounts, passbook accounts, NOW accounts, and money market demand
deposit accounts. Core deposits are generally considered to be a more stable
and
3
<PAGE>
lower cost source of funds than certificates of deposit or outside borrowings.
The Bank will continue to emphasize retail deposits by maintaining and seeking
to expand its network of full-service offices, providing depositors with a full
range of accounts.
Capital Strength. The Bank's total equity at September 30, 1997 was
$85.8 million, and its ratio of total equity to total assets at that date was
8.20%.
THE TRUST ISSUER
The Trust Issuer is a statutory business trust created under Delaware
law pursuant to (i) the Trust Agreement executed by the Company, as depositor,
Bank of New York, as Property Trustee, Bank of New York (Delaware), as Delaware
Trustee, and the Administrative Trustees named therein, and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on ____________, 1997.
The trust agreement will be amended and restated in its entirety (as so amended,
the "Trust Agreement"). All of the Common Securities will be owned by the
Company. The Company will acquire Common Securities in an aggregate Liquidation
Amount equal to 3% of the total capital of the Trust Issuer. The Trust Issuer
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire Junior Subordinated Debentures issued by the Company and (iii) engaging
in only those other activities necessary, advisable or incidental thereto (such
as registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust Issuer, and
payments under the Junior Subordinated Debentures will be the sole revenue of
the Trust Issuer. The principal executive office of the Trust Issuer is 218
Datura Street, West Palm Beach, Florida 33401 and its telephone number is (561)
659-9900.
THE OFFERING
The Trust Issuer................. Fidelity Capital Trust I, a Delaware
statutory business trust (the "Trust
Issuer"). The sole assets of the Trust Issuer
will be the Junior Subordinated Debentures.
Securities Offered............... 2,500,000 shares of ____% Cumulative Trust
Preferred Securities (the "Preferred
Securities"), evidencing preferred undivided
beneficial interests in the assets of the
Trust Issuer, which will consist only of the
Junior Subordinated Debentures.
Offering Price................... $10 per Preferred Security (Liquidation
Amount $10).
Distributions.................... Holders of the Preferred Securities will be
entitled to receive cumulative cash
Distributions at an annual rate of ____% of
the Liquidation Amount of $10 per Preferred
Security, accumulating from the date of
original issuance and payable quarterly in
arrears on __________, __________, __________
and __________ of each year, commencing on
__________, 1998. The distribution rate and
the distribution and other payment dates for
the Preferred Securities will correspond to
the interest rate and interest and other
payment dates on the Junior Subordinated
Debentures. See "Description of the Preferred
Securities."
Junior Subordinated Debentures... The Trust Issuer will invest the proceeds
from the issuance of the Trust Securities in
an equivalent amount of the Junior
Subordinated Debentures. The Junior
Subordinated Debentures will mature on
__________, 2028. The Junior Subordinated
Debentures will rank subordinate and junior
in right of payment to all Senior
4
<PAGE>
Indebtedness of Fidelity. At September 30,
1997, Fidelity had no outstanding Senior
Indebtedness. There is no limitation on the
amount of Senior Indebtedness, or
Subordinated Debt (as defined in "Description
of Junior Subordinated Debentures-
Subordination") which is pari passu with the
Junior Subordinated Debentures, which
Fidelity may issue. Fidelity may from time to
time, incur indebtedness constituting Senior
Indebtedness. In addition, because Fidelity
is a holding company, Fidelity's obligations
under the Junior Subordinated Debentures will
be subordinated to all existing and future
liabilities and obligations of its
subsidiaries, including the Bank. See "Risk
Factors-- Subordination of the Guarantee and
the Junior Subordinated Debentures," "Risk
Factors--Source of Payments to Holders of
Preferred Securities" and "Description of the
Junior Subordinated Debentures--
Subordination."
Guarantee........................ Payments of Distributions out of funds held
by the Trust Issuer, and payments on
liquidation of the Trust Issuer or the
redemption of the Preferred Securities, are
guaranteed by Fidelity to the extent the
Trust Issuer has funds available therefor.
Fidelity and the Trust Issuer believe that,
taken together, the obligations of Fidelity
under the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures, the Indenture
and the Expense Agreement, constitute, in the
aggregate, a full and unconditional
guarantee, on a subordinated basis, of all of
the Trust Issuer's obligations under the
Preferred Securities. See "Description of the
Guarantee" and "Relationship Among the
Preferred Securities, the Junior Subordinated
Debentures, the Expense Agreement and the
Guarantee." The obligations of Fidelity under
the Guarantee are subordinate and junior in
right of payment to all Senior Indebtedness
of Fidelity. See "Risk Factors--Subordination
of the Guarantee and the Junior Subordinated
Debentures" and "Description of the
Guarantee."
Right to Defer Interest Payments.. So long as no event of default under the
Indenture has occurred and is continuing,
Fidelity has the right under the Indenture at
any time during the term of the Junior
Subordinated Debentures to defer the payment
of interest at any time or from time to time
for a period not exceeding 20 consecutive
quarters with respect to each Extension
Period, provided that no Extension Period may
extend beyond the Stated Maturity of the
Junior Subordinated Debentures. If interest
payments on the Junior Subordinated
Debentures are so deferred, Distributions on
the Preferred Securities also will be
deferred. At the end of such Extension
Period, Fidelity must pay all interest then
accrued and unpaid (together with interest
thereon at the annual rate of ____%,
compounded quarterly, to the extent permitted
by applicable law). During an Extension
Period, interest will continue to accrue on
the Junior Subordinated Debentures (and the
amount of Distributions to which holders of
the Preferred Securities are entitled would
accumulate), and holders of the Junior
Subordinated Debentures (or holders of the
Preferred Securities, while outstanding) will
be required to accrue interest income for
United States federal income tax purposes in
advance of receipt of payment
5
<PAGE>
of such deferred interest. See "Certain
Federal Income Tax Consequences--Interest
Income and Original Issue Discount").
During any such Extension Period, Fidelity
may not, and may not permit any subsidiary of
Fidelity to: (i) declare or pay any dividends
or distributions on, or redeem, purchase,
acquire or make a liquidation payment with
respect to, any of Fidelity's capital stock
(other than (a) the reclassification of any
class of Fidelity's capital stock into
another class of capital stock, (b) dividends
or distributions payable in common stock of
Fidelity, (c) any declaration of a dividend
in connection with the implementation of a
stockholders' rights plan, the issuance of
stock under any such plan in the future or
the redemption or repurchase of any such
rights pursuant thereto, (d) payments under
the Guarantee and (e) purchases of common
stock related to the issuance of common stock
or rights under any of Fidelity's benefit
plans for its directors, officers or
employees); (ii) make any payment of
principal, interest or premium, if any, on,
or repay, repurchase or redeem, any debt
securities of Fidelity that rank pari passu
with or junior in right of payment to the
Junior Subordinated Debentures, or make any
guarantee payments with respect to any
guarantee by Fidelity of the debt securities
of any subsidiary of Fidelity if such
guarantee ranks pari passu with or junior in
right of payment to the Junior Subordinated
Debentures other than payments pursuant to
the Guarantee; or (iii) redeem, purchase or
acquire less than all of the outstanding
Junior Subordinated Debentures or any of the
Preferred Securities. Prior to the
termination of any such Extension Period,
Fidelity may further defer the payment of
interest on the Junior Subordinated
Debentures, provided that no Extension Period
may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Junior
Subordinated Debentures. There is no
limitation on the number of times that
Fidelity may elect to begin an Extension
Period. See "Description of the Junior
Subordinated Debentures--Right to Defer
Interest Payment Obligation" and "Certain
Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
Fidelity has no current intention of
exercising its right to defer payments of
interest by extending the interest payment
period on the Junior Subordinated Debentures.
However, should Fidelity elect to exercise
such right in the future, the market price of
the Preferred Securities is likely to be
adversely affected. As a result of the
existence of Fidelity's 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 do not provide for such
optional deferrals.
Optional Redemption.............. The Junior Subordinated Debentures are
subject to redemption prior to their Stated
Maturity at the option of Fidelity (i) on or
after __________, 2003, in whole at any time
or in part from time to time, or (ii) at any
time, in whole (but not in part), within 180
days following the occurrence and
continuation of a Tax Event, an
6
<PAGE>
Investment Company Event or a Capital
Treatment Event (each as defined herein) in
each case at a redemption price equal to 100%
of the principal amount of the Junior
Subordinated Debentures so redeemed, together
with any accrued and unpaid interest to the
date fixed for redemption.
Redemption of Preferred
Securities....................... If the Junior Subordinated Debentures are
redeemed prior to their Stated Maturity, the
Trust Issuer must apply the proceeds of such
redemption, including premium and accrued and
unpaid interest, if any, to redeem a Like
Amount (as defined herein) of the Preferred
Securities and the Common Securities. The
Preferred Securities will be redeemed upon
repayment of the Junior Subordinated
Debentures at their Stated Maturity. See
"Description of the Preferred Securities--
Redemption."
Optional Redemption Upon
Conversion Transaction........... If the Mutual Holding Company completes a
Conversion Transaction, then Fidelity shall
have the right to redeem the Junior
Subordinated Debentures prior to
________________ 2003, but not prior to
_________________, 2000. Under such
circumstances the Junior Subordinated
Debentures may be redeemed at a price equal
to the accrued and unpaid interest to the
date fixed for redemption plus 107% of the
principal amount thereof and holders of the
Preferred Securities will receive 107% of the
Liquidation Amount plus accumulated and
unpaid Distributions. In addition, under such
circumstances if any Junior Subordinated
Debentures are redeemed all of the Junior
Subordinated Debentures must be redeemed. See
"Risk Factors-Optional Redemption In the
Event of a Conversion Transaction," and
"Description of Junior Subordinated
Debentures--Redemption or Exchange."
Distribution of the Junior....... Fidelity will have the right at any time to
Liquidation of the Trust Issuer dissolve the Trust Issuer and, after
Subordinated Debentures upon satisfaction of creditors of the Trust
Issuer, if any, as provided by applicable
law, cause the Junior Subordinated Debentures
to be distributed to the holders of the
Preferred Securities and the Common
Securities in exchange therefor upon
liquidation of the Trust Issuer. The ability
of Fidelity to do so may be subject to
Fidelity's prior receipt of regulatory
approval.
In the event of the liquidation of the Trust
Issuer, after satisfaction of the claims of
creditors of the Trust Issuer, if any, as
provided by applicable law, the holders of
the Preferred Securities will be entitled to
receive a Liquidation Amount of $10 per
Preferred Security plus accumulated and
unpaid Distributions thereon to the date of
payment, which may be in the form of a
distribution of a Like Amount (as defined
herein) of the Junior Subordinated
Debentures, subject to certain exceptions as
described herein. See "Description of the
Preferred Securities--Liquidation of the
Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders."
7
<PAGE>
Voting Rights.................... Except in limited circumstances, the holders
of the Preferred Securities will have no
voting rights. See "Description of the
Preferred Securities--Voting Rights;
Amendment of Trust Agreement."
Use of Proceeds.................. All of the proceeds from the sale of the
Preferred Securities will be used by the
Trust Issuer to purchase Junior Subordinated
Debentures from Fidelity. Fidelity intends
that the net proceeds from the sale of such
Junior Subordinated Debentures will be used
for general corporate purposes, including,
but not limited to, acquisitions by either
the Company or the Bank (although there
presently exist no agreements or
understandings with respect to any such
acquisitions), capital contributions to the
Bank to support growth and for working
capital, and the possible repurchase of
shares of Fidelity's common stock, subject to
acceptable market conditions.
Risk Factors..................... An investment in the Preferred Securities
involves substantial risks that should be
considered by prospective purchasers. In
addition, because holders of the Preferred
Securities may receive Junior Subordinated
Debentures on termination of the Trust
Issuer, and because payments on the Junior
Subordinated Debentures are the sole source
of funds for Distributions on and redemptions
of the Preferred Securities, prospective
purchasers of the Preferred Securities are
also making an investment decision with
regard to the Junior Subordinated Debentures
and should carefully review all of the
information regarding the Junior Subordinated
Debentures contained herein. See "Risk
Factors" and "Description of the Junior
Subordinated Debentures."
Nasdaq National Market Symbol.... Application has been made to have the
Preferred Securities approved for listing on
The Nasdaq Stock Market's National Market
under the symbol "FFFLP."
ERISA Considerations............. For a discussion of certain restrictions on
purchases, see "ERISA Considerations."
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The Summary Consolidated Financial Data presented below has been
derived in part from the audited Consolidated Financial Statements of the
Company as well as unaudited financial information of the Company and should be
read in conjunction with the Company's consolidated financial statements and
notes. For additional information about the Company, reference is made to
"Managements Discussion and Analysis of Financial Condition and Results of
Operations," contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, copies of which are attached as appendices A and B to
this Prospectus, respectively.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets........................... $ 638,183 $ 680,154 $ 712,643 $ 779,620 $ 873,562
Loans receivable, net.................. 437,564 434,967 456,543 532,333 661,700
Mortgage-backed securities............. 64,558 75,199 126,807 159,761 123,599
Investment securities.................. 95,505 127,154 82,410 43,108 41,740
Deposits............................... 573,493 586,527 538,235 595,180 694,718
Total borrowings....................... 12,412 15,934 88,319 86,549 83,621
Stockholders' equity................... 40,002 46,786 74,404 81,266 81,723
Book value per common share............ N/A N/A 11.11 12.10 12.12
Tangible book value per common share... N/A N/A 11.03 11.56 11.89
<CAPTION>
(unaudited)
At September 30,
----------------------------
1996 1997
---------- ----------
(In thousands, except per share amounts)
<S> <C> <C>
Selected Financial Condition Data:
Total assets........................... $ 857,366 $1,045,692
Loans receivable, net.................. 641,171 769,357
Mortgage-backed securities............. 133,208 181,413
Investment securities.................. 42,786 31,501
Deposits............................... 662,993 791,179
Total borrowings....................... 84,140 143,228
Stockholders' equity................... 80,316 85,774
Book value per common share............ 12.09 12.65
Tangible book value per common share... 11.73 12.15
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------
1992 1993 1994 1995 1996/(1)/
-------- -------- -------- ---------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income........................ $ 50,387 $ 44,755 $ 43,420 $ 53,261 60,240
Interest expense....................... 23,171 18,415 17,776 28,095 32,131
-------- -------- -------- ---------- ------------
Net interest income.................... 27,216 26,340 25,644 25,166 28,109
Provision for loan losses.............. 330 1,236 112 (210) 164
-------- -------- -------- ---------- ------------
Net interest income after
provision for loan losses............. 26,886 25,104 25,532 25,376 27,945
-------- -------- -------- ---------- ------------
Other income:
Service charges...................... 1,924 2,089 2,151 2,669 3,201
Net gain (loss) on sales of
loans and investment securities..... 160 309 15 5 1,215
Miscellaneous........................ 341 285 331 347 460
-------- -------- -------- ---------- ------------
Total non-interest income......... 2,425 2,683 2,497 3,021 4,876
-------- -------- -------- ---------- ------------
Noninterest expenses................... 15,783 16,971 19,375 20,449 26,709/(1)/
-------- -------- -------- ---------- ------------
Income before taxes.................... 13,528 10,816 8,654 7,948 6,112
Income tax expense..................... 4,974 4,319 3,392 3,133 2,562
-------- -------- -------- ---------- ------------
Net income........................... $ 8,554 $ 6,497 $ 5,262 $ 4,815 $ 3,550/(1)/
======== ======== ======== ========== ============
Net income per common share:
Primary................................ N/A/(2)/ N/A/(2)/ $ 0.80 $ 0.73 $ 0.53/(1)/
======== ======== ======== ========== ============
Fully Diluted.......................... N/A/(2)/ N/A/(2)/ $ 0.80 $ 0.73 $ 0.53/(1)/
======== ======== ======== ========== ============
<CAPTION>
(unaudited)
For the Nine Months
Ended September 30,
-------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Selected Operating Data:
Interest income........................ $ 44,419 $ 52,398
Interest expense....................... 23,417 29,716
------------ ----------
Net interest income.................... 21,002 22,682
Provision for loan losses.............. 114 129
------------ ----------
Net interest income after
provision for loan losses............. 20,888 22,553
------------ ----------
Other income:
Service charges...................... 2,381 2,562
Net gain (loss) on sales of
loans and investment securities..... 555 808
Miscellaneous........................ 316 325
------------ ----------
Total non-interest income......... 3,252 3,695
------------ ----------
Noninterest expenses................... 20,786/(1)/ 18,081
------------ ----------
Income before taxes.................... 3,354 8,167
Income tax expense..................... 1,407 3,458
------------ ----------
Net income........................... $ 1,947/(1)/ $ 4,709
============ ==========
Net income per common share:
Primary................................ $ 0.29/(1)/ $ 0.70
Fully Diluted.......................... $ 0.29/(1)/ $ 0.70
</TABLE>
- --------------------
/(1)/ Fiscal 1996 includes the effect of a one-time SAIF recapitalization
assessment of approximately $3.6 million, or $2.2 million net of taxes.
Excluding this non-recurring assessment, total non-interest expenses would
have been $17.2 million, net income would have been $4.1 million, primary
earnings per share would have been $.62 and fully diluted earnings per
share would have been $.62.
/(2)/ The Bank completed its reorganization from a mutual savings bank into a
mutual holding company with a subsidiary stock savings bank and its
minority offering of common stock on January 7, 1994. As a result,
comparative stockholder data is unavailable prior to 1994.
9
<PAGE>
<TABLE>
<CAPTION>
At and for the Nine
At and for the Years ended December 31, Ended September 30,
------------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996/(1)/ 1996/(1)(3)/ 1997/(3)/
--------- -------- -------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios
and Other Data:
Return on average assets
(ratio of net income to
average total assets)........ 1.37% 0.99% 0.79% 0.65% 0.43% 0.32%/(1)/ 0.66%
Return on average stockholders'
equity (ratio of net income
to average stockholders'
equity)...................... 23.94% 14.97% 7.25% 6.22% 4.36% 3.20%/(1)/ 7.53%
Net interest rate spread
during the period............ 4.51% 4.25% 3.76% 3.13% 3.14% 3.19% 2.90%
Net interest margin (net
interest income to average
interest earning assets)..... 4.62% 4.35% 4.08% 3.60% 3.62% 2.75% 2.50%
Ratio of average interest-
earning assets to average
interest-bearing liabilities. 102.94% 103.58% 111.14% 111.61% 111.54% 111.78% 109.89%
Asset Quality Ratios:
Non-accruing loans to total
loans at end of period....... 1.51% 0.88% 0.42% 0.35% 0.46% 0.47% 0.45%
Allowance for loan losses to
non-accruing loans at end of
period....................... 27.58% 74.09% 132.61% 121.45% 74.54% 73.51% 61.59%
Allowance for loan losses to
total loans at end of
period....................... 0.42% 0.66% 0.56% 0.43% 0.34% 0.35% 0.28%
Non-performing assets to
total assets at end of
period....................... 1.54% 0.63% 0.36% 0.32% 0.36% 0.40% 0.38%
Ratio of net charge-offs
during the period to average
loans outstanding during the
period....................... 0.02% 0.08% 0.10% 0.02% 0.03% 0.03% 0.03%
Capital Ratios:
Stockholders' equity to total
assets at end of period...... 6.27% 6.89% 10.44% 10.42% 9.36% 9.37% 8.20%
Average stockholders' equity
to average total assets...... 5.73% 6.59% 10.84% 10.43% 9.87% 10.03% 8.70%
Tangible capital to tangible
assets at end of period/(2)/. 6.24% 6.88% 10.36% 10.04% 9.20% 9.22% 7.91%
Core capital to adjusted
tangible assets at end of
period/(2)/.................. 6.24% 6.88% 10.36% 10.04% 9.20% 9.22% 7.91%
Risk-based capital to risk-
weighted assets at end of
period/(2)/.................. 14.37% 15.18% 23.20% 21.44% 18.26% 18.42% 15.76%
Other Data:
Number of branch offices at
end of period................ 16 18 19 20 20 20 21
Number of deposit accounts at
end of period................ 61,119 62,344 61,950 64,262 69,833 68,227 76,334
</TABLE>
- -----------------
/(1)/ Fiscal 1996 includes the effect of a one-time SAIF recapitalization
assessment of approximately $3.6 million, or $2.2 million net of taxes.
Excluding this non-recurring assessment, return on average assets would
have been .68% and return on average stockholders' equity would have been
6.73%.
/(2)/ Represents regulatory capital ratios for the Bank only.
/(3)/ Ratios are annualized where appropriate.
10
<PAGE>
RISK FACTORS
An investment in the Preferred Securities involves a high degree of
risk. Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following factors in evaluating the Company, its business and the Trust Issuer
before purchasing the Preferred Securities offered hereby. Prospective
investors should note, in particular, that this Prospectus contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial
risks and uncertainties. When used in this Prospectus, or in the documents
incorporated by reference herein, the words "anticipate," "believe," "estimate,"
"may," "intend" and "expect" and similar expressions identify certain of such
forward-looking statements. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied by the forward-
looking statements contained herein. The considerations listed below represent
certain important factors the Company believes could cause such results to
differ. These considerations are not intended to represent a complete list of
the general or specific risks that may affect the Company and the Trust Issuer.
It should be recognized that other risks, including general economic factors and
expansion strategies, may be significant, presently or in the future, and the
risks set forth below may affect the Company and the Trust Issuer to a greater
extent than indicated.
RISK FACTORS RELATING TO THE OFFERING
Subordination of the Guarantee and the Junior Subordinated Debentures
The obligations of Fidelity under the Guarantee issued by Fidelity for
the benefit of the holders of the Preferred Securities and under the Junior
Subordinated Debentures issued to the Trust Issuer will be unsecured and will
rank subordinate and junior in right of payment to all Senior Indebtedness of
Fidelity. At September 30, 1997, Fidelity had no outstanding Senior
Indebtedness. There is no limitation on the amount of Senior Indebtedness, or
subordinated debt which is pari passu with the Junior Subordinated Debentures,
which Fidelity may issue. Because Fidelity is a holding company, the right of
Fidelity to participate in any distribution of assets of any subsidiary,
including the Bank, upon such subsidiary's liquidation or reorganization or
otherwise (and thus the ability of holders of the Preferred Securities to
benefit indirectly from such distribution), is subject to the prior claims of
creditors of that subsidiary (including depositors in the Bank), except to the
extent that Fidelity may itself be recognized as a creditor of that subsidiary.
If Fidelity is a creditor of a subsidiary, the claims of Fidelity would be
subject to any prior security interest in the assets of the subsidiary and any
indebtedness of the subsidiary senior to that of Fidelity. Accordingly, the
Junior Subordinated Debentures and the Guarantee will be subordinated to all
existing and future liabilities of Fidelity's subsidiaries, including the Bank.
At September 30, 1997 the Bank had liabilities of $959.9 million (including
$791.2 million of deposits). Only the capital stock of Fidelity is currently
junior in right of payment to the Junior Subordinated Debentures to be issued to
the Trust Issuer. Holders of the Junior Subordinated Debentures will be able to
look only to the assets of Fidelity for payments on the Junior Subordinated
Debentures. None of the Indenture, the Guarantee, the Expense Agreement or the
Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Indebtedness, that may be incurred by Fidelity. Fidelity
may, from time to time, incur indebtedness constituting Senior Indebtedness or
indebtedness which is pari passu with the Junior Subordinated Debentures. See
"Description of the Guarantee--Status of the Guarantee" and "Description of the
Junior Subordinated Debentures--Subordination."
Source of Payments to Holders of Preferred Securities
As a savings and loan holding company, Fidelity conducts its
operations principally through its subsidiaries and, therefore, its principal
source of cash, other than its investing and financing activities, is the
receipt of dividends from the Bank. Since Fidelity is without significant
assets other than the capital stock of the Bank, the ability of Fidelity to pay
interest on the principal of the Junior Subordinated Debentures to the Trust
Issuer (and consequently, the Trust Issuer's ability to pay Distributions on the
Preferred Securities and Fidelity's ability to pay its obligations under the
Guarantee) will be dependent on the ability of the Bank to pay dividends to
Fidelity in amounts sufficient to service
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Fidelity's obligations. Fidelity may become obligated to make other payments
with respect to securities issued by Fidelity in the future which are pari passu
or have a preference over the Junior Subordinated Debentures issued to the Trust
Issuer with respect to the payment of principal, interest or dividends. There
is no restriction on the ability of Fidelity to issue, or limitations on the
amount of securities which Fidelity may issue, which are pari passu or have a
preference over the Junior Subordinated Debentures issued to the Trust Issuer,
nor is there any restriction on the ability of the Bank to issue additional
capital stock or incur additional indebtedness.
There are legal limitations on the source and amount of dividends that
a savings bank such as the Bank is permitted to pay. The current OTS regulation
applicable to the payment of dividends or other capital distributions by savings
institutions imposes limits on capital distributions based on an institution's
regulatory capital levels and net income. A savings bank that meets or exceeds
all of its capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association." A Tier 1 association generally may make capital
distributions during a calendar year of up to the greater of (i) 100% of net
income for the current calendar year plus 50% of the amount by which the lesser
of the association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the
beginning of the calendar year or (ii) 75% of its net income over the most
recent four quarters. At September 30, 1997, the Bank could have paid dividends
totaling approximately $25.0 million. Any additional capital distributions
would require prior regulatory approval. The Bank currently exceeds its fully
phased-in capital requirements and qualifies as a Tier 1 association under the
regulation, but there is no assurance that the Bank will continue to so qualify.
See "Regulation-Regulatory Capital Requirements."
An institution that meets the minimum regulatory capital requirements
but does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days
written notice before making any capital distributions. All such capital
distributions are also subject to the OTS' right to object to a distribution on
safety and soundness grounds.
Right to Defer Interest Payment Obligation; Tax Consequences; Market Price
Consequences
So long as no event of default under the Indenture has occurred and is
continuing, Fidelity has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures, at any time or from time to
time, for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Preferred Securities by the Trust
Issuer also would be deferred (and the amount of Distributions to which holders
of the Preferred Securities are entitled would accumulate additional
Distributions thereon at the rate of ____% per annum, compounded quarterly from
the relevant payment date for such Distributions) during any such Extension
Period. During any such Extension Period, Fidelity may not, and may not permit
any subsidiary of Fidelity to: (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of Fidelity's capital stock, (other than (a) the reclassification of
Fidelity's capital stock into another class of capital stock, (b) dividends or
distributions on common stock of Fidelity, (c) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (d) payments under the Guarantee
and (e) purchases of common stock related to the issuance of common stock or
rights under any of Fidelity's benefit plans for its directors, officers or
employees); (ii) make any payment of principal, interest or premium on, or
repay, repurchase or redeem any debt securities of Fidelity that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by Fidelity of the debt
securities of any subsidiary of Fidelity if such guarantee ranks pari passu with
or junior in interest to the Junior
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Subordinated Debentures other than payments pursuant to the Guarantee; or (iii)
redeem, purchase or acquire less than all of the outstanding Junior Subordinated
Debentures or any of the Preferred Securities. Prior to the termination of any
such Extension Period, Fidelity may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all interest then accrued
and unpaid on the Junior Subordinated Debentures (together with interest thereon
at the annual rate of ____%, compounded quarterly from the relevant payment date
for such interest, to the extent permitted by applicable law), Fidelity may
elect to begin a new Extension Period subject to the above requirements. There
is no limitation on the number of times that Fidelity may elect to begin an
Extension Period so long as no event of default under the Indenture has occurred
and is continuing. See "Description of the Preferred Securities--Distributions"
and "Description of the Junior Subordinated Debentures--Right to Defer Interest
Payment Obligation."
If an Extension Period were to occur, a holder of the Preferred
Securities would continue to accrue income (in the form of original issue
discount) for United States federal income tax purposes in respect of its pro
rata share of the interest accruing on the Junior Subordinated Debentures held
by the Trust Issuer. As a result, a holder of the Preferred Securities would be
required to include such income in gross income for United States federal income
tax purposes in advance of the receipt of cash and would not receive the cash
related to such income from the Trust Issuer if the holder disposed of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount" and "--Sales or Redemption of the Preferred Securities."
Fidelity has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures. However, should
Fidelity elect to exercise such right in the future, the market price of the
Preferred Securities would likely be affected adversely. A holder that disposed
of its Preferred Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continued to hold its
Preferred Securities. In addition, as a result of the existence of Fidelity's
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 such deferrals.
Optional Redemption After 2003
Fidelity has the right to redeem the Junior Subordinated Debentures
prior to their stated Maturity on or after __________, 2003 in whole at one time
or in part from time to time. The exercise of such right may be subject to
Fidelity having received prior regulatory approval. See "Description of the
Junior Subordinated Debentures--General."
Optional Redemption in the Event of a Conversion Transaction
The Mutual Holding Company is a mutual corporation that owns a
majority of the common stock of the Company. Under Federal law and regulations
of the OTS, the Mutual Holding Company may, subject to receipt of prior
regulatory approval, convert to stock form (a "Conversion Transaction"). In a
Conversion Transaction, the Mutual Holding Company would be eliminated by
merging into the Company, the Bank or a successor to the Company, and all of the
shares of common stock of the Company held by the Mutual Holding Company would
be cancelled and depositors and others will be offered shares on a priority
basis in a subscription and community offering at a price based on their
aggregate pro forma market value as determined by an independent appraisal at
the time the Conversion Transaction is completed.
In the event of a Conversion Transaction, the Company has the right to
redeem the Junior Subordinated Debentures prior to _______________ 2003 but not
prior to _______________ 2000. In the event that Fidelity chooses to redeem the
Junior Subordinated Debentures, such redemption shall be at 107% of the
principal amount of the Junior Subordinated Debentures plus accrued and unpaid
interest thereon, and holders of the Preferred Securities would have
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their securities redeemed at a price equal to 107% of the Liquidation Amount
plus accumulated and unpaid Distributions. See "Description of the Junior
Subordinated Debentures--Redemption or Exchange."
Redemption Due to Tax Event, Investment Company Event or Capital Treatment Event
Fidelity has the right, but not the obligation, to redeem the Junior
Subordinated Debentures in whole (but not in part) within 180 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital Treatment
Event (whether occurring before or after __________, 2003), and, therefore,
cause a mandatory redemption of the Preferred Securities. The exercise of such
right may be subject to Fidelity having received prior regulatory approval.
A "Tax Event" means the receipt by the Trust Issuer 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 such 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 Issuer is, or will be within 90 days of the date of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by Fidelity on the Junior Subordinated Debentures is not, or within 90 days of
the date of such opinion will not be, deductible by Fidelity, in whole or in
part, for United States federal income tax purposes or (iii) the Trust Issuer
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. The
Trust Issuer or Fidelity must request and receive an opinion with regard to such
matters within a reasonable period of time after it becomes aware of the
possible occurrence of any of the events described in clauses (i) through (iii)
above.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of 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, the Trust Issuer is or will be considered an "investment company"
that is required to be registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which change occurs or becomes effective
on or after the date of original issuance of the Preferred Securities.
"Capital Treatment Event" means the receipt by the Trust Issuer 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)
applied as if Fidelity (or its successor) were a bank holding company for
purposes of applicable 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 Fidelity.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as are being opined upon.
Exchange of Preferred Securities for Junior Subordinated Debentures; Redemption
and Tax Consequences
Fidelity has the right at any time to dissolve the Trust Issuer and,
after the satisfaction of liabilities to creditors of the Trust Issuer as
required by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities in exchange therefor in
liquidation of the Trust Issuer. The exercise of such right may be subject to
Fidelity having received prior regulatory approval. Fidelity will also have the
right, in certain
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circumstances, to redeem the Junior Subordinated Debentures in whole or in part,
in which event the Trust Issuer will redeem the Preferred Securities on a pro
rata basis to the same extent as the Junior Subordinated Debentures are redeemed
by Fidelity. Any such distribution or redemption prior to the Stated Maturity
will be subject to prior regulatory approval if then required under applicable
capital guidelines or regulatory policies. See "Description of the Preferred
Securities--Liquidation of the Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders" and "Description of the Junior Subordinated
Debentures--Redemption or Exchange."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust Issuer would
not be a taxable event to holders of the Preferred Securities. If, however, the
Trust Issuer were characterized as an association taxable as a corporation at
the time of the dissolution of the Trust Issuer, the distribution of the Junior
Subordinated Debentures would constitute a taxable event to holders of Preferred
Securities. Moreover, any redemption of the Preferred Securities for cash would
be a taxable event to such holders. See "Certain Federal Income Tax
Consequences--Distribution of the Junior Subordinated Debentures to Holders of
the Preferred Securities" and "--Sales or Redemption of the Preferred
Securities."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of the Trust
Issuer. The Preferred Securities or the Junior Subordinated Debentures may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of Preferred Securities
may receive Junior Subordinated Debentures as a result of the liquidation of the
Trust, and because payments on the Junior Subordinated Debentures are the sole
source of funds for Distributions and redemptions of the Preferred Securities,
prospective purchasers of Preferred Securities are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein.
If the Junior Subordinated Debentures are distributed to the holders
of Preferred Securities upon the liquidation of the Trust Issuer, Fidelity will
use its reasonable efforts to list the Junior Subordinated Debentures on the
Nasdaq Stock Market's National Market or SmallCap Market or such stock
exchanges, if any, on which the Preferred Securities are then listed.
Rights under the Guarantee
The Guarantee guarantees to the holders of the Preferred Securities
the following payments, to the extent not paid by the Trust Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust Issuer has funds on hand available
therefor at such time, (ii) the redemption price with respect to any Preferred
Securities called for redemption, to the extent that the Trust Issuer has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust Issuer (unless
the Junior Subordinated Debentures are distributed to holders of the Preferred
Securities in exchange therefor), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Trust Issuer has funds on hand available
therefor at such time, and (b) the amount of assets of the Trust Issuer
remaining available for distribution to holders of the Preferred Securities
after payment of creditors of the Trust Issuer as required by applicable law.
If Fidelity were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Trust Issuer would lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts. 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 Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred
Securities may institute a legal proceeding directly against Fidelity to enforce
its rights under the Guarantee without first instituting a legal proceeding
against the
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Trust Issuer, the Guarantee Trustee or any other person or entity. In the event
an event of default under the Indenture shall have occurred and be continuing
and such event is attributable to the failure of Fidelity to pay interest on or
principal of the Junior Subordinated Debentures on the applicable payment date,
a holder of the Preferred Securities may institute a legal proceeding directly
against Fidelity for enforcement of payment to such 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 (a "Direct Action"). The exercise by Fidelity of its right, as described
herein, to defer the payment of interest on the Junior Subordinated Debentures
does not constitute an event of default under the Indenture. In connection with
any Direct Action, Fidelity will have a right of set-off under the Indenture to
the extent of any payment made by Fidelity to such holder of the Preferred
Securities in the Direct Action. Except as described herein, holders of the
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated Debentures. Bank
of New York will act as the guarantee trustee under the Guarantee (the
"Guarantee Trustee") and will hold the Guarantee for the benefit of the holders
of the Preferred Securities. Bank of New York will also act as Debenture
Trustee for the Junior Subordinated Debentures and as Property Trustee, and Bank
of New York (Delaware) will act as Delaware Trustee under the Trust Agreement.
See "Description of the Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of the Preferred Securities," "Description of the Junior
Subordinated Debentures--Debenture Events of Default" and "Description of the
Guarantee." The Trust Agreement provides that each holder of the Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee and
the Indenture.
Limited Covenants
The covenants in the Indenture are limited and there are no covenants
in the Trust Agreement. As a result, neither the Indenture nor the Trust
Agreement protects holders of Junior Subordinated Debentures or Preferred
Securities, respectively, in the event of a material adverse change in
Fidelity's financial condition or results of operations or limits the ability of
Fidelity or any subsidiary to incur or assume additional indebtedness or other
obligations. Additionally, neither the Indenture nor the Trust Agreement
contains any financial ratios or specified levels of liquidity to which Fidelity
must adhere. Therefore, the provisions of these governing instruments should
not be considered a significant factor in evaluating whether Fidelity will be
able to or will comply with its obligations under the Junior Subordinated
Debentures or the Guarantee.
Limited Voting Rights
Holders of the Preferred Securities will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the Trust Issuer's rights as holder of the Junior Subordinated
Debentures and the Guarantee. Holders of the Preferred Securities will not be
entitled to vote to appoint, remove or replace the Property Trustee, the
Delaware Trustee or the Administrative Trustees, as such voting rights are
vested exclusively in Fidelity, as the holder of the Common Securities (except,
with respect to the Property Trustee and the Delaware Trustee, upon the
occurrence of certain events described herein). The Property Trustee, the
Administrative Trustees and Fidelity may amend the Trust Agreement without the
consent of holders of the Preferred Securities to ensure that the Trust Issuer
will be classified for United States federal income tax purposes as a grantor
trust even if such action adversely affects the interests of such holders. See
"Description of the Preferred Securities--Voting Rights; Amendment of the Trust
Agreement" and "--Removal of the Trust Issuer Trustees."
Absence of Prior Public Market for the Preferred Securities; Trading Price and
Tax Considerations
There is no current public market for the Preferred Securities.
Application has been made to list the Preferred Securities on the Nasdaq Stock
Market's National Market. However, one of the requirements for listing and
continued listing is the presence of two market makers for the Preferred
Securities. Fidelity has been advised that the Underwriter intends to make a
market in the Preferred Securities. However, the Underwriter is not obligated
to do so and such market making may be discontinued at any time. Therefore,
there is no assurance that an active trading market will develop for the
Preferred Securities or, if such market develops, that it will be maintained or
that the market price will
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equal or exceed the public offering price set forth on the cover page of this
Prospectus. Accordingly, holders of Preferred Securities may experience
difficulty reselling them or may be unable to sell them at all. The public
offering price for the Preferred Securities has been determined through
negotiations between Fidelity and the Underwriter. Prices for the Preferred
Securities will be determined in the marketplace and may be influenced by many
factors, including prevailing interest rates, the liquidity of the market for
the Preferred Securities, investor perceptions of Fidelity and general industry
and economic conditions.
Further, should Fidelity exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, the Preferred Securities would
be likely to trade at prices that do not fully reflect the value of accrued but
unpaid interest with respect to the underlying Junior Subordinated Debentures.
In the event of such a deferral, a holder of Preferred Securities that disposed
of its Preferred Securities between record dates for payments of Distributions
(and consequently did not receive a Distribution from the Trust Issuer for the
period prior to such disposition) would nevertheless be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income and to add such amount to the
adjusted tax basis of the Preferred Securities disposed of. Upon disposition of
the Preferred Securities, such holder would recognize a capital loss to the
extent the selling price (which might not fully reflect the value of accrued but
unpaid interest) was less than its adjusted tax basis (which would include all
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes. See "Certain Federal Income Tax Consequences--Sales or
Redemption of the Preferred Securities."
Possible Tax Law Changes Affecting the Preferred Securities
Under current law, Fidelity will be able to deduct interest on the
Junior Subordinated Debentures. However, there is no assurance that future
legislation will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change would give rise to a Tax Event.
A Tax Event would permit Fidelity, upon receipt of regulatory approval if then
required under applicable capital guidelines or regulatory policies, to cause a
redemption of the Preferred Securities before, as well as after, __________,
2003. See "Description of the Junior Subordinated Debentures--Redemption or
Exchange."
RISK FACTORS RELATING TO THE COMPANY
Growth of the Bank
The Bank has experienced significant growth over the past five years.
Net assets have increased $361.8 million, or 56.7% from $638.2 million at
December 31, 1992 to $1.0 billion at September 30, 1997. As part of its growth,
the Bank has expanded its branch network. Within the past two years the Bank
has opened two loan production offices and one branch office, and on December 5,
1997, the Bank completed its acquisition of BankBoynton, a Federal Savings Bank.
The Bank is currently constructing a branch facility and expects to
significantly increase its branch network through the construction or purchase
of two additional branches over the next 18 months. There can be no assurance
that the Bank will be able to adequately and profitably manage such growth. The
costs incurred to start-up the new branch facilities, as well as the additional
costs associated with operating the additional branch facilities, are expected
to significantly increase the Bank's noninterest expense and decrease earnings
in the short-term.
Costs to Modernize Computer Technology
Like many companies, the Bank relies on computers for the daily
conduct of business and for data processing generally. There is concern that on
January 1, 2000 computers will be unable to "read" the new year and as a
consequence there may be widespread computer malfunctions. Management has
reviewed this issue, established internal committees to implement necessary
changes, and has been advised by the Bank's data processing service center that
this issue has been addressed but will require the Bank to update and modernize
its data processing hardware and software. This modernization is being
accelerated in light of the need to address year 2000 issue. Management has
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concluded that the cost of modernizing the Bank's computer hardware and software
will cost approximately $2.5 million. It is expected that this cost will be
capitalized and expensed in conformity with generally accepted accounting
principles.
Potential Impact of Changes in Interest Rates
The Bank's profitability is dependent to a large extent on its net
interest income, which is the difference between its income on interest-earning
assets and its expense on interest-bearing liabilities. The Bank, like most
financial institutions, is affected by changes in general interest rate levels
and by other economic factors beyond its control. Interest rate risk arises in
part from mismatches (i.e., the interest sensitivity gap) between the dollar
amount of repricing or maturing interest earning assets and liabilities, and is
measured in terms of the ratio of the interest rate sensitivity gap to total
assets. More interest earning assets than interest bearing liabilities
repricing or maturing over a given time period is considered asset-sensitive and
is reflected as a positive gap, and more liabilities than assets repricing or
maturing over a given time period is considered liability-sensitive and is
reflected as a negative gap. A liability-sensitive position (i.e., a negative
gap) may generally enhance earnings in a falling interest rate environment and
reduce earnings in a rising interest rate environment, while an asset-sensitive
position (i.e., a positive gap) may generally enhance earnings in a rising
interest rate environment and will reduce earnings in a falling interest rate
environment. Fluctuations in interest rates are not predictable or
controllable. Periodically, but not less than annually, management calculates
the decay rates of the Bank's core deposits based upon the Bank's actual
experience. Similarly, management calculates the prepayment rates of all loans
in the Bank's loan and mortgage-backed securities portfolios on a quarterly
basis. These factors are then used to calculate the Bank's gap position. At
September 30, 1997, based on management's assumptions derived from its
experience, the Bank had a one year cumulative negative gap of 9.75%. This
negative one year gap position may, as noted above, have a negative impact on
earnings in a rising interest rate environment. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Interest Rate Risk
Management" in Fidelity's Annual Report on Form 10-K, a copy of which is
attached as Appendix A to this Prospectus and "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations-Asset and
Liability Management-Interest Rate Sensitivity Analysis" in Fidelity's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, a copy of which is
attached hereto as Appendix B.
Changes in interest rates also affect the average life of loans and
mortgage-backed securities. The relatively lower interest rates in recent
periods have resulted in increased prepayments of loans and mortgage-backed
securities, as borrowers have refinanced their mortgages to reduce their
borrowing costs. Under these circumstances, the Bank is subject to reinvestment
risk to the extent that it is not able to reinvest such prepayments at rates
which are comparable to the rates on the prepaid loans or securities.
Allowance for Loan Losses
Industry experience indicates that a portion of the Company's loans
will become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria used by the Company, losses
may be experienced as a result of various factors beyond the Company's control,
including, among other things, changes in market conditions affecting the value
of properties and problems affecting the credit of the borrower. The Company's
determination of the adequacy of its allowance for loan losses is based on
various considerations, including an analysis of the risk characteristics of
various classifications of loans, previous loan loss experience, specific loans
which would have loan loss potential, delinquency trends, estimated fair value
of the underlying collateral, current economic conditions, the views of the
Company's regulators (who have the authority to require additional reserves),
and geographic and industry loan concentration. However, if delinquency levels
were to increase as a result of adverse general economic conditions, the loan
loss reserve so determined by the Company may not be adequate. Although
management believes the allowance to be adequate, there can be no assurance that
the allowance will be adequate to cover loan losses or that the Company will not
experience significant losses in its loan portfolios which may require
significant increases to the allowance for loan losses in the future. At
September 30, 1997, the Company's allowance for loan losses totaled $2.1 million
which was 0.26% of total gross loans. See "Management's Discussion and Analysis
18
<PAGE>
of Financial Condition and Results of Operations-Provision for Loan Losses" in
Appendix A and "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Provision for Loan Losses" in Fidelity's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, included
as Appendix B.
Risks Associated with Increased Consumer and Commercial Lending
The Bank has attempted to diversify its loan portfolio by originating
loans secured by collateral other than one-to four-family real estate. In
particular, the Bank is currently seeking to emphasize the origination of
consumer loans and commercial business loans. At September 30, 1997, $44.8
million, or 5.82% of the Bank's total loan portfolio consisted of consumer
loans, and $44.7 million, or 5.81% of the Bank's total loan portfolio consisted
of commercial business loans. Consumer loans and commercial business loans
typically have higher interest rates than one-to four-family mortgage loans
because of the higher credit risks associated with such loans. Consumer loans
may be unsecured or secured by rapidly depreciating assets. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide adequate
sources of repayment for the outstanding loan balance. In addition, consumer
loan collections are dependent upon the borrower's financial stability and are
more likely to be affected by adverse personal circumstances. Repayment of
commercial business loans is dependent upon the successful operation of the
borrower's business. Consequently if the cash flow from the borrower's business
is reduced, the ability to repay the loan may be impaired.
Geographic Concentration of Loans
The Bank's real estate mortgage loans are secured by properties
located primarily in South Florida. Moreover, substantially all of the Bank's
consumer loans and commercial business loans are made to borrowers who live or
conduct business in Florida. A weakening of the South Florida real estate
market or in the local or national economy could result in an increase in the
number of borrowers who default on their loans and a reduction in the value of
the collateral securing the loans, which in turn could have a material adverse
effect on the Bank and its results of operations.
Regulatory Oversight
The Bank is subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
The Bank is a member of the FHLB of Atlanta and is subject to certain limited
regulation by the Federal Reserve Board. As the holding company of the Bank,
Fidelity is also subject to regulation and oversight by the OTS. Such
regulation and supervision governs the activities in which a savings bank or
holding company may engage and is intended primarily for the protection of the
FDIC insurance funds and depositors. Regulatory authorities also have extensive
discretion in connection with their supervisory and enforcement activities. Any
change in the regulatory structure or the applicable statutes or regulations
could have a material adverse impact on the Company, the Bank and their
operations and financial condition. See "Business-Regulation" in Fidelity's
Annual Report on Form 10-K for the year ended December 31, 1996, included as
Appendix A.
Competition
The Company faces substantial competition in purchasing and
originating real estate loans and in attracting deposits. The Company's
competition in originating real estate loans is principally from banks, other
savings institutions, mortgage banking companies, real estate financing
conduits, and small insurance companies. In purchasing real estate loans the
Company competes with other participants in the secondary mortgage market. Many
entities competing with the Company have competitive advantages over the Company
in terms of prior business relationships, wide geographic presence or more
accessible branch office locations, the ability to offer additional services or
more favorable pricing alternatives, or a lower origination and operating cost
structure. The Company does not have a significant market share of the real
estate lending activities in the areas in which it conducts operations.
Increased competition in those areas from traditional or new competitors may
result in a decrease in the origination or purchase of mortgage loans, and may
adversely affect the Company's results of operations and financial condition.
In its deposit
19
<PAGE>
gathering activities, the Company competes with insured depository institutions
such as savings institutions, credit unions, and banks, as well as uninsured
investment alternatives including money market funds. These competitors may
offer higher interest rates than the Company, which could result in the Company
either attracting fewer deposits or in requiring the Company to increase the
rates it pays to attract deposits. Increased deposit competition may adversely
affect the Company's ability to generate the funds necessary for its lending
operations and may adversely affect the Company's results of operations.
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities will be
invested by the Trust Issuer in Junior Subordinated Debentures. The net
proceeds to the Company from the sale of the Junior Subordinated Debentures are
estimated to be approximately $____ million ($____ million if the Underwriter's
over-allotment option is exercised in full), after deduction of the underwriting
discount and estimated expenses. Fidelity intends to use the net proceeds from
the sale of the Junior Subordinated Debentures for general corporate purposes,
including, but not limited to, acquisitions by either the Company or the Bank
(although there presently exist no agreements or understandings with respect to
any such acquisitions), capital contributions to the Bank to support growth and
for working capital, and possible repurchase of shares of Fidelity's common
stock, subject to acceptable market conditions.
MARKET FOR THE PREFERRED SECURITIES
Application has been made to list the Preferred Securities on the
Nasdaq Stock Market's National Market under the symbol "FFFLP." Although the
Underwriter has informed the Company that it presently intends to make a market
in the Preferred Securities, the Underwriter is not obligated to do so and any
such market making may be discontinued at any time. Accordingly, there is no
assurance that an active and liquid trading market will develop or, if
developed, that such a market will be sustained. The offering price and
distribution rate have been determined by negotiations among representatives of
the Company and the Underwriter, and the offering price of the Preferred
Securities may not be indicative of the market price following the offering. See
"Underwriting."
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust Issuer will be treated as
a subsidiary of the Company and, accordingly, the Trust Issuer's financial
statements will be included in the consolidated financial statements of the
Company. The Preferred Securities will be presented as a separate line item in
the consolidated statements of financial condition of the Company under the
caption "Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures" and appropriate disclosures about the Preferred
Securities will be included in the notes to the consolidated financial
statements. For financial reporting purposes, the Company will record
distributions payable on the Preferred Securities as an interest expense in the
consolidated statements of operations.
In its future financial reports, the Company will: (i) present the
Preferred Securities on the Company's statements of financial condition as a
separate line item entitled "Guaranteed Preferred Beneficial Interests in the
Company's Junior Subordinated Debentures;" (ii) include in a footnote to the
financial statements disclosure that the sole assets of the Trust Issuer are the
Junior Subordinated Debentures specifying the principal amount, interest rate
and maturity date of Junior Subordinated Debentures held; and (iii) if Staff
Accounting Bulletin No. 53 treatment is sought, include, in an audited footnote
to the financial statements, disclosure that (a) the Trust Issuer is wholly
owned, (b) the sole assets of the Trust Issuer are its Junior Subordinated
Debentures, and (c) the obligations of the Company under the Junior Subordinated
Debentures, the Indenture, the Trust Agreement and the Guarantee, in the
aggregate, constitute a full and unconditional guarantee by the Company of the
Trust Issuer's obligations under the Preferred Securities.
20
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets for the Company's consolidated ratios of
earnings to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended December 31, September 30,
------------------------------------ ---------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges:
Including interest on deposits.. 1.58x 1.59x 1.49x 1.28x 1.19x 1.14x 1.27x
Excluding interest on deposits.. 25.78x 12.10x 6.04x 2.42x 2.04x 1.75x 2.63x
</TABLE>
For purposes of computing the ratios of earnings to fixed charges,
earnings represent income from continuing operations before income taxes plus
fixed charges. Fixed charges represent total interest expense, including and
excluding interest on deposits, as applicable, as well as the interest component
of rental expense.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, as adjusted to give effect to the consummation
of the offering of the Preferred Securities. The following data should be read
in conjunction with the Consolidated Financial Statements and Notes thereto of
the Company included at Appendices A and B.
<TABLE>
<CAPTION>
Actual As Adjusted
----------- ------------
(In thousands)
<S> <C> <C>
Deposits............................................ $ 791,179 $ 791,179
Borrowings:
FHLB of Atlanta advances............................ 139,689 139,689
Other borrowings.................................... 3,539 3,539
---------- ----------
Total deposits and borrowed funds.................. 934,407 934,407
---------- ----------
Guaranteed Preferred Beneficial Interests in the
Company's Junior Subordinated Debentures/(1)/...... -- 25,000
---------- ----------
Stockholders' equity:
Serial Preferred Stock, $.01 par value; 2,000,000
authorized shares; no shares issued................ -- --
Common stock, $.10 par value, 8,200,000 shares
authorized, 6,782,879 shares issued and
outstanding at September 30, 1997.................. 678 678
Additional paid-in capital.......................... 37,932 37,932
Retained earnings, partially restricted............. 46,942 46,942
Reduction for Employee Stock Ownership Plan Trust
debt............................................... (1,068) (1,068)
Net unrealized increase in fair value of assets
available for sale (net of applicable income taxes) 1,290 1,290
---------- ----------
Total stockholders' equity......................... $ 85,774 $ 85,774
========== ==========
Total capitalization............................... $1,020,181 $1,045,181
========== ==========
</TABLE>
- ------------------
(1) Preferred Securities of the Trust Issuer representing beneficial interests
in $25,000,000 aggregate principal amount of the Junior Subordinated
Debentures issued by the Company to the Trust Issuer. The Junior
Subordinated Debentures will bear interest at the annual rate of ____% of
the principal amount thereof, payable quarterly and will mature on
_________1, 2028. The Company owns all of the Common Securities of the
Trust Issuer.
21
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
General
The following is a summary of certain terms and provisions of the
Preferred Securities. This summary of certain terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Trust Agreement. The form of the
Trust Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Unless otherwise expressly stated or the
context otherwise requires, all references to the "Company" appearing under this
caption "Description of the Preferred Securities" and under the caption
"Description of the Junior Subordinated Debentures" shall mean Fidelity
Bankshares, Inc. excluding its consolidated subsidiaries.
Distributions
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust Issuer. Distributions on such Preferred
Securities will be payable at the annual rate of ____% of the stated Liquidation
Amount of $10, payable quarterly in arrears on __________, ________, _______ and
__________ 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 __________, 1998. The amount of Distributions payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which Distributions are payable on the
Preferred Securities is not a Business Day, then payment of the Distributions
payable on such date will be made on the next succeeding day that is a Business
Day (and without any additional Distributions 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, in each case with the same force and effect as if made on the date such
payment was originally payable (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or a day on which the principal corporate trust
office of the Property Trustee or the Debenture Trustee is closed for business.
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral of interest, quarterly Distributions on the Preferred Securities by the
Trust Issuer will also be deferred during any such Extension Period.
Distributions to which holders of the Preferred Securities are entitled will
accumulate additional Distributions thereon at the rate per annum of ____%
thereof, compounded quarterly from the relevant payment date for such
Distributions. The term "Distributions" as used herein, shall include any such
additional Distributions. During any such Extension Period, the Company may
not, and may not permit any subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock (other
than (a) the reclassification of any class of the Company's capital stock into
another class of capital stock, (b) dividends or distributions in common stock
of the Company, (c) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future or the redemption or repurchase of any such rights
pursuant thereto, (d) payments under the Guarantee and (e) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its directors, officers or employees); (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu with or junior in
interest to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures other than payments pursuant to
the Guarantee or (iii)
22
<PAGE>
redeem, purchase or acquire less than all the outstanding Junior Subordinated
Debentures or any of the Preferred Securities. Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest on
the Junior Subordinated Debentures, provided that no Extension Period may exceed
20 consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then accrued and unpaid (together with interest
thereon at the rate of _____%, compounded quarterly, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period. There
is no limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of the Junior Subordinated Debentures--Right
to Defer Interest Payment Obligation" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The revenue of the Trust Issuer available for distribution to holders
of its Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust Issuer will invest the proceeds from
the issuance and sale of its Trust Securities. See "Description of the Junior
Subordinated Debentures." If the Company does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (if and to the extent the Trust Issuer has funds legally available
for the payment of such Distributions and cash sufficient to make such payments)
is guaranteed by the Company on a limited basis as set forth herein under
"Description of the Guarantee."
The Company has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures.
Subordination of the Common Securities
Payment of Distributions on, and the Redemption Price of, the
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amount of the Preferred Securities and the Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date an event of default under the Indenture shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, any of
the Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Preferred Securities for all Distribution periods terminating on
or prior thereto, or, in the case of payment of the Redemption Price, the full
amount of such Redemption Price on all of the outstanding Preferred Securities
then called for redemption shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Preferred
Securities then due and payable.
In the case of any event of default under the Trust Agreement
resulting from an event of default under the Indenture, the Company as holder of
the Common Securities will be deemed to have waived any right to act with
respect to any such event of default under the Trust Agreement until the effect
of all such events of default with respect to the Preferred Securities shall
have been cured, waived or otherwise eliminated. Until any such events of
default under the Trust Agreement 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 on behalf of the Company as holder of the
Common Securities, and only the holders of the Preferred Securities will have
the right to direct the Property Trustee to act on their behalf.
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 or earlier redemption as provided in the Indenture. The proceeds from
such repayment or redemption shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Preferred Securities upon not less than
30 nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price equal to the aggregate Liquidation Amount of
such Preferred Securities plus accumulated and unpaid Distributions thereon (the
"Redemption Price") to the date of redemption (the "Redemption
23
<PAGE>
Date"); provided, however, that in the event the Preferred Securities are
redeemed following a Conversion Transaction the holders of the Preferred
Securities shall receive 107% of the Liquidation Amount plus accumulated and
unpaid Distributions thereon. 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."
The Company has the option to redeem the Junior Subordinated
Debentures prior to maturity on or after __________, 2003, in whole at any time
or in part from time to time, and thereby cause a mandatory redemption of a Like
Amount of the Preferred Securities. See "Description of the Junior Subordinated
Debentures--Redemption or Exchange." Any time that a Tax Event, an Investment
Company Event or a Capital Treatment Event (each as defined below) shall occur
and be continuing, the Company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of the Preferred Securities in whole (but not in part). See "Description of the
Junior Subordinated Debentures--Redemption or Exchange."
In addition, in the event that the Mutual Holding Company completes a
Conversion Transaction, Fidelity shall have the right to redeem the Junior
Subordinated Debentures prior to _____________, 2003, but not prior to
_______________, 2000 in whole (but not in part) and thereby cause a mandatory
redemption of the Preferred Securities in whole (but not in part). Under such
circumstances the Junior Subordinated Debentures may be redeemed at a price
equal to 107% of the principal amount thereof plus the amount of accrued and
unpaid interest. See "Description of the Junior Subordinated Debentures--
Redemption or Exchange."
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of a Like Amount of the Junior Subordinated
Debentures. Redemptions of the Preferred Securities shall be made and the
Redemption Price shall be paid on each Redemption Date only to the extent that
the Trust Issuer has funds on hand available for the payment of such Redemption
Price. See also "Description of the Preferred Securities--Subordination of the
Common Securities."
If the Trust Issuer gives a notice of redemption in respect of the
Preferred Securities, then, by 10:00 a.m., New York City time, on the Redemption
Date, to the extent funds are available, the Property Trustee will deposit
irrevocably with the DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
such Preferred Securities. Notwithstanding the foregoing, Distributions payable
on or prior to the Redemption Date for the Preferred Securities called for
redemption shall be payable to the holders of the Preferred Securities on the
relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then, upon the
date of such deposit, all rights of the holders of such Preferred Securities so
called for redemption will cease, except the right of the holders of such
Preferred Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Preferred Securities will cease to be
outstanding.
In the event that any date fixed for redemption of the Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of
the Redemption Price in respect of the Preferred Securities called for
redemption is improperly withheld or refused and not paid either by the Trust
Issuer or by the Company pursuant to the Guarantee as described under
"Description of the Guarantee," Distributions on such Preferred Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Trust Issuer for such Preferred Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
24
<PAGE>
Subject to applicable law (including, without limitation, United
States federal securities law), the Company or its subsidiaries may at any time
and from time to time purchase outstanding Preferred Securities by private
agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of the Junior Subordinated Debentures to holders of the Preferred
Securities shall be made to the applicable recordholders thereof as they appear
on the register for the Preferred Securities on the relevant record date, which
date shall be one business day prior to the relevant Redemption Date, however,
in the event the Preferred Securities do not remain in book entry form, the
relevant record date shall be the date at least 15 days prior to the Redemption
Date or liquidation date, as applicable.
If less than all of the Preferred Securities and Common Securities
issued by the Trust Issuer are to be redeemed on a Redemption Date, then the
aggregate Liquidation Amount of the Preferred Securities and Common Securities
to be redeemed shall be allocated pro rata to the Preferred Securities and the
Common Securities based upon the relative Liquidation Amounts of such classes.
The particular Preferred Securities to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, or if the
Preferred Securities are then held in the form of a global preferred security in
accordance with DTC's customary procedures. The Property Trustee shall 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 thereof 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 shall 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.
Notice of any redemption will be mailed at least 30 days 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 the Company
defaults in payment of the Redemption Price on the Junior Subordinated
Debentures, on and after the Redemption Date interest will cease to accrue on
the Junior Subordinated Debentures or portions thereof called for redemption.
Liquidation of the Trust Issuer and Distribution of the Junior Subordinated
Debentures to Holders
The Company has the right at any time to dissolve the Trust Issuer
and, after satisfaction of the liabilities of creditors of the Trust Issuer as
provided by applicable law, cause Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities and Common Securities in
exchange therefor upon liquidation of the Trust Issuer.
After the liquidation date fixed for any distribution of the Junior
Subordinated Debentures for Preferred Securities (i) such Preferred Securities
will no longer be deemed to be outstanding, and (ii) DTC or its nominee, as
the registered holder of Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution with respect to Preferred Securities held by
DTC or its nominee, (iii) 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
such 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 current 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. Should there be a
change in law, a change in legal interpretation, a Tax Event or other
circumstances, however, the distribution could be a taxable event to holders of
the Preferred Securities. See "Certain Federal Income Tax Consequences--
Distribution of the Junior Subordinated Debentures to Holders of the Preferred
Securities."
25
<PAGE>
Liquidation Distribution upon Dissolution
Pursuant to the Trust Agreement, the Trust Issuer shall automatically
dissolve upon expiration of its term and shall dissolve on the first to occur of
(i) certain events of bankruptcy, dissolution or liquidation of the Company,
subject in certain instances to any such event remaining in effect for a period
of 90 consecutive days; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holders of its Preferred Securities, if the
Company, as depositor, has given written direction to the Property Trustee to
dissolve the Trust Issuer (which direction is optional and wholly within the
discretion of the Company, as depositor); (iii) redemption of all of the
Preferred Securities as described under "Description of the Preferred
Securities-Redemption;" and (iv) the entry of an order for the dissolution of
the Trust Issuer by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or
(iv) of the preceding paragraph, the Trust Issuer shall be liquidated by the
Trust Issuer Trustees as expeditiously as the Trust Issuer Trustees determine to
be possible by distributing, after satisfaction of liabilities to creditors of
the Trust Issuer, if any, as provided by applicable law, to the holders of the
Preferred Securities a Like Amount of the Junior Subordinated Debentures, unless
such distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of the
Trust Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of the Trust Issuer, if any, as provided by applicable
law, an amount equal to, in the case of holders of the Preferred Securities, the
aggregate of the Liquidation Amount plus accrued and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust Issuer has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust Issuer on Preferred Securities shall be paid on a pro rata basis. The
Company, as the holder of the Common Securities, will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if an event of default under the Indenture has
occurred and is continuing, the Preferred Securities shall have a priority over
the 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 (an "Event of Default") with respect to the Preferred
Securities issued thereunder (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):
(i) the occurrence of an event of default under the Indenture
(see "Description of the Junior Subordinated Debentures--Debenture
Events of Default"); or
(ii) default in the payment of any Distribution when it becomes
due and payable, and continuation of such default for a period of 30
days; or
(iii) default in the payment of any Redemption Price of any
Preferred Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trust Issuer Trustees in
the Trust Agreement (other than a covenant or warranty a default in
the performance of which or the breach of which is dealt with in
clause (ii) or (iii) above), and 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 Trust Issuer 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
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(v) the occurrence of certain events of bankruptcy or insolvency
with respect to the Property Trustee and the failure by the Company to
appoint a successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default shall have been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If an event of default under the Indenture has occurred and is
continuing, the Preferred Securities shall have a preference over the Common
Securities as described above. See "Description of the Preferred Securities--
Subordination of the Common Securities" and "--Liquidation Distribution Upon
Termination". The existence of an event of default does not entitle the holders
of the Preferred Securities to accelerate the payment thereof.
Removal of the Trust Issuer Trustees
Unless an event of default under the Indenture shall have occurred and
be continuing, any Trust Issuer Trustee may be removed at any time by the holder
of the Common Securities. If an event of default under the Indenture has
occurred and is continuing, the Property Trustee and the Delaware Trustee may be
removed at such time by the holders of a majority in Liquidation Amount of the
outstanding Preferred Securities. In no event will the holders of the Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities. No resignation or removal of
any Trust Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
Co-trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act, if applicable, or of any jurisdiction in which any part of
the Trust Property (as defined in the Trust Agreement) may at the time be
located, the Company, as the holder of the Common Securities, shall have power
to appoint one or more persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or persons
in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. In the event an
event of default under the Indenture has occurred and is continuing, the
Property Trustee alone shall have power to make such appointment.
Merger or Consolidation of the Trust Issuer Trustees
Any entity into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any entity resulting from any
merger, conversion or consolidation to which such Trustee shall be a party or
any entity succeeding to all or substantially all the corporate trust business
of such Trustee, shall be the successor of such Trustee under the Trust
Agreement, provided such entity shall be otherwise qualified and eligible.
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Mergers, Consolidations, Amalgamations or Replacements of the Trust Issuer
The Trust Issuer 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 Issuer may,
at the request of the Company, with the consent of the Administrative Trustees
and without the consent of the holders of the Preferred Securities, the Property
Trustee or the Delaware 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:
provided, that (i) such successor entity either (a) expressly assumes all of the
obligations of the Trust Issuer 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, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Junior Subordinated Debentures, (iii) 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
(including, if applicable, the Nasdaq Stock Market's National 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 Issuer, (vii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Company has received an opinion from independent counsel to the Trust Issuer
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust Issuer nor such successor entity will be
required to register as an investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act") and (viii) the Company or any
permitted successor or assignee owns all of the common securities or its
equivalent 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 Issuer shall not,
except with the consent of holders of 100% in Liquidation Amount of the
Preferred Securities, consolidate, amalgamate, merge with or into or be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust Issuer or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
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 the Company,
the Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities, (i) with respect to acceptance of
appointment of a successor trustee, (ii) 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 shall not be inconsistent
with the other provisions of the Trust Agreement or (iii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that the Trust Issuer 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 Issuer will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (ii), such
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action shall not adversely affect in any material respect the interests of any
holder of the Preferred Securities, and any such amendments of the Trust
Agreement shall become effective when notice thereof is given to the holders of
the Preferred Securities. The Trust Agreement may be amended by the Trust
Issuer Trustees and the Company with (i) the consent of holders representing not
less than a majority (based upon Liquidation Amounts) of the outstanding
Preferred Securities and (ii) receipt by the Trust Issuer Trustees of an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to the Trust Issuer Trustees in accordance with such amendment will not
affect the Trust Issuer's status as a grantor trust for United States federal
income tax purposes or the Trust Issuer's exemption from status as an
"investment company" under the Investment Company Act, provided that without the
consent of each holder of the Preferred Securities, the Trust Agreement may not
be amended to (a) 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 or (b) 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.
So long as the Junior Subordinated Debentures are held by the Property
Trustee, the Trust Issuer 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 Property Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Indenture or the Junior Subordinated Debentures, where such consent shall
be required, without, in each case, obtaining the prior approval of the holders
of a majority in aggregate Liquidation Amount of all outstanding Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of the Junior Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of the Preferred Securities. The Trust Issuer
Trustees shall 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 shall notify each
holder of the Preferred Securities of any notice of default with respect to the
Junior Subordinated Debentures. In addition to obtaining the foregoing
approvals of the holders of the Preferred Securities, prior to taking any of the
foregoing actions, the Trust Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust Issuer 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 convened for such
purpose or pursuant to written consent. The Property Trustee will cause a
notice of any meeting at which holders of the Preferred Securities are entitled
to vote, or of any matter upon which action by written consent of such holders
is to be taken, to be given to each holder of record of the Preferred Securities
in the manner set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be
required for the Trust Issuer 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 the Company, the Trust Issuer Trustees or
any affiliate of the Company or the Trust Issuer Trustees shall, 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 Issuer is $10 per Preferred Security plus accumulated
and unpaid Distributions, which may be in the form of a distribution of such
amount in Junior Subordinated Debentures, subject to certain exceptions. See
"Description of the Preferred Securities--Liquidation Distribution Upon
Termination."
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Expenses and Taxes
In the Indenture, the Company, as borrower, has agreed to pay all
debts and other obligations (other than with respect to the Preferred
Securities) and all costs and expenses of the Trust Issuer (including costs and
expenses relating to the organization of the Trust Issuer, the fees and expenses
of the Trust Issuer Trustee and the costs and expenses relating to the operation
of the Trust Issuer) and to pay any and all taxes and all costs and expenses
with respect thereto (other than United States withholding taxes) to which the
Trust Issuer might become subject. The foregoing obligations of the Company
under the Indenture are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice thereof. Any
such Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Trust Issuer or any other
person before proceeding against the Company. The Company has also agreed in
the Indenture to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more
fully registered global securities which will be deposited with, or on behalf
of, DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole on in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited
to persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects that,
upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests will be accomplished by entries
on the books of Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Trust Agreement and the Junior Subordinated Debenture
Indenture. Except as provided below, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of the Preferred
Securities in definitive form and will not be considered the owners or holders
thereof under the Trust Agreement and the Junior Subordinated Debenture
Indenture. Accordingly, each person owning a beneficial interest in such a
global security must rely on the procedures of DTC and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights of a holder of Preferred Securities under
the Trust Agreement and the Junior Subordinated Debenture Indenture. The
Company understands that, under DTC's existing practices, in the event that the
Company requests any action of holders, or an owner of a beneficial interest in
such a global security desires to take any action which a holder is entitled to
take under the Junior Subordinated Indenture, DTC would authorize the
Participants holding the relevant beneficial interests to take such action, and
such Participants would authorize beneficial owners owning through such
Participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them. Redemption notices will also be sent to
DTC. If less than all of the Preferred Securities are being redeemed, the
Company understands that it is DTC's existing practice to determine by lot the
amount of the interest of each Participant to be redeemed.
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Distributions on the Preferred Securities registered in the name of
DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner of the global security representing such Preferred
Securities. None of the Company, the Trust Issuer Trustee, the Administrators,
any Paying Agent or any other agent of the Company or the Trust Issuer Trustees
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date.
Payments by Participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Company, the
Trust Issuer Trustees, the Paying Agent or any other agent of the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Securities at any time by giving reasonable notice
to the Company or the Trust Issuer Trustees. If DTC notifies the Company that
it is unwilling to continue as such, or if it is unable to continue or ceases to
be a clearing agency registered under the Exchange Act and a successor
depository is not appointed by the Company within ninety days after receiving
such notice or becoming aware that DTC is no longer so registered, the Company
will issue the Preferred Securities in definitive form upon registration of
transfer of, or in exchange for, such global security. In addition, the Company
may at any time and in its sole discretion determine not to have the Preferred
Securities represented by one or more global securities and, in such event, will
issue Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Trust Issuer as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the
Underwriter in immediately available funds.
Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the
Preferred Securities will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity in the Preferred Securities will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The paying
agent (the "Paying Agent") will initially be the Property Trustee and any co-
paying
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agent chosen by the Property Trustee and acceptable to the Administrative
Trustees. The Paying Agent will be permitted to resign as Paying Agent upon 30
days' written notice to the Property Trustee and the Administrative Trustees.
If the Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably acceptable
to the Administrative Trustees) to act as Paying Agent.
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 Issuer, except for
the payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. In the event of any redemption, the
Trust Issuer will 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 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 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.
Information Concerning the Property Trustee
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. 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 and will have no liability except for
its own bad faith, negligence or willful misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust Issuer in such a way that the Trust Issuer
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. In this connection, the Company and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Trust Issuer or the Trust
Agreement, that the Company 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 THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued as an unsecured
debt obligation under an Indenture (the "Indenture") between the Company and
Bank of New York, as trustee (the "Debenture Trustee"). The Indenture will be
qualified as an Indenture under the Trust Indenture Act. This summary of
certain terms and provisions of the Junior
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Subordinated Debentures and the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Indenture, and
to the Trust Indenture Act. Wherever particular defined terms of the Indenture
are referred to, but not defined herein, such defined terms are incorporated
herein by reference. The form of the Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
General
Concurrently with the issuance of the Preferred Securities, the Trust
Issuer will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures.
The Junior Subordinated Debentures will bear interest at the annual rate of
____%, payable quarterly in arrears on __________, ________, _______, and
__________ of each year (each, an "Interest Payment Date"), commencing
__________, 1998, 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 next preceding such Interest Payment Date. It is anticipated that,
until the liquidation, if any, of the Trust Issuer, the Junior Subordinated
Debentures will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Preferred Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of ____% thereof, compounded
quarterly from the relevant Interest Payment Date. The term "interest" as used
herein shall include quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional
Interest (as defined below), as applicable.
The Junior Subordinated Debentures will mature on __________, 2028
(the "Stated Maturity"). 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 Senior Debt and
Subordinated Debt (collectively "Senior Indebtedness") of the Company. Because
the Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary, including the 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 the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Junior Subordinated Debentures will be effectively subordinated to all existing
and future liabilities of the Company's subsidiaries, and holders of the Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. The Indenture does not limit
the incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt and Subordinated Debt, whether under the Indenture or any
existing or other indenture that the Company may enter into in the future or
otherwise.
Right to Defer Interest Payment Obligation
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture at any time or from
time to time during the term of the Junior Subordinated Debentures to defer the
payment of interest on the Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end of each Extension Period, the
Company 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
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holders of the Junior Subordinated Debentures would be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not
permit any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions in common stock of the Company,
(c) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (d)
payments under the Guarantee and (e) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans for
its directors, officers or employees); (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures other than payments pursuant to
the Guarantee; or (iii) redeem, purchase or acquire less than all the
outstanding Junior Subordinated Debentures or any of the Preferred Securities.
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then accrued and unpaid (together with interest
thereon at the rate of ____%, compounded quarterly, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period subject
to the above requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of such Extension Period at least one Business Day prior to the earlier
of (i) the date interest on the Junior Subordinated Debentures would have been
payable except for the election to begin such Extension Period or (ii) 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 Market's National
Market 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 prior to such record
date. The Debenture Trustee shall give notice of the Company's election to
begin a new Extension Period to the holders of the Preferred Securities. There
is no limitation on the number of times that the Company may elect to begin an
Extension Period.
Additional Interest
If the Trust Issuer or the Property Trustee is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay such additional amounts (the "Additional Interest")
on the Junior Subordinated Debentures as shall be required so that the
Distributions payable by the Trust Issuer shall not be reduced as a result of
any such additional taxes, duties or other governmental charges.
Redemption or Exchange
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after __________, 2003, in whole at any
time or in part from time to time, or (ii) at any time in whole (but not in
part), within 180 days following the occurrence of a Tax Event, an Investment
Company Event or a Capital Treatment Event, in each case at a redemption price
equal to the accrued and unpaid interest on the Junior Subordinated Debentures
so redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. Any such redemption prior to the Stated Maturity will be subject to
prior regulatory approval if then required.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of 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, the Trust Issuer is or will be
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considered an "investment company" that is required to be registered under the
Investment Company Act, which 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)
applied as if the Company (or its successor) were a bank holding company 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
Company. There are currently no capital adequacy guidelines applicable to
savings bank holding companies such as the Company.
"Tax Event" means the receipt by the Trust Issuer 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 (i) the Trust Issuer 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, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the date of such opinion will not be, deductible by the Company, in whole or
in part, for United States federal income tax purposes or (iii) the Trust
Issuer 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 such matters as being opined upon, that is delivered to
the Trustee.
"Additional Interest" means the additional amounts as may be necessary
in order that the amount of Distributions then due and payable by the Trust
Issuer on the 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 Issuer has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of the Preferred
Securities, Preferred Securities having a Liquidation Amount equal to that
portion of the principal amount of the Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities pro rata based upon the
relative Liquidation Amounts of such Preferred Securities and the proceeds of
which will be used to pay the Redemption Price of such Preferred Securities and
(ii) with respect to a distribution of the Junior Subordinated Debentures to
holders of the Preferred Securities in exchange therefor in connection with a
dissolution or liquidation of the Trust Issuer, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Preferred
Securities of the holder to whom such Junior Subordinated Debentures would be
distributed.
In addition, the Company will have the right to redeem the Junior
Subordinated Debentures prior to __________ 2003, but not prior to __________
2000 following a Conversion Transaction at a redemption price equal the accrued
but unpaid interest on the Junior Subordinated Debentures, plus 107% of the
principal amount thereof. Under such circumstances the Junior Subordinated
Debentures may be redeemed in whole but not in part. Any such redemption will
be subject to prior regulatory approval if then required.
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Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of the Junior
Subordinated Debentures to be redeemed at its registered address. Unless the
Company defaults 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.
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Trust Issuer. If the Junior Subordinated Debentures are distributed
to holders of Preferred Securities, it is anticipated that the depository
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
Preferred Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in New York, New
York or at the offices of any Paying Agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Indenture or at the office of any transfer agent designated by the Company for
such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. The Company will appoint
the Debenture Trustee as securities registrar under the Indenture. The Company
may at any time designate additional transfer agents with respect to the Junior
Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent,
or then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
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remaining unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable shall, at the request of the Company, be
repaid to the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
Restrictions on Certain Payments
The Company will also covenant, as to the Junior Subordinated
Debentures, that it will not, and will not permit any subsidiary of the Company
to, (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock (other than (a) the reclassification of any class of the Company's
capital stock into another class of capital stock, (b) dividends or
distributions in common stock of the Company, (c) any declaration of a dividend
in connection with the implementation of a stockholders' rights plan, the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (d) payments under the Guarantee
and (e) purchases of common stock related to the issuance of common stock or
rights under any of the Company's benefit plans for its directors, officers or
employees), (ii) make any payment of principal, interest or premium, if any, on
or repay or repurchase or redeem any debt securities of the Company that rank
pari passu with or junior in interest to the Junior Subordinated Debentures or
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company if such guarantee ranks pari
passu with or junior in right of payment to the Junior Subordinated Debentures
other than payments pursuant to the Guarantee or (iii) redeem, purchase or
acquire less than all the outstanding Junior Subordinated Debentures or any of
the Preferred Securities if at such time (i) there shall have occurred an Event
of Default under the Indenture with respect to the Junior Subordinated
Debentures, (ii) if the Junior Subordinated Debentures are held by the Trust
Issuer, the Company shall be in default with respect to its payment of any
obligations under the Guarantee relating to such Preferred Securities or (iii)
the Company 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 the Company and the Debenture Trustee may, without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, provided that any such
action does not materially adversely affect the interest of the holders of the
Junior Subordinated Debentures or the ability to qualify, or maintain the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures affected, to modify the Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
provided that no such modification may, without the consent of the holder of
each outstanding Subordinated Debenture so affected, (i) extend the Stated
Maturity of the Junior Subordinated Debentures, reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest thereon or
(ii) 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 described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default":
(i) 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); or
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(ii) failure to pay any principal on the Junior Subordinated
Debentures when due, whether at maturity, upon declaration of
acceleration of maturity or otherwise; or
(iii) failure to observe or perform certain other covenants
contained in the Indenture for 90 days after written notice to the
Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or
reorganization of the Company, 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 have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
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) has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures affected thereby may, on behalf of the
holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Subordinated Debenture. The Company is required to
file annually with the Debenture Trustee a certificate as to whether or not the
Company is in compliance with all the conditions and covenants applicable to it
under the Indenture.
Enforcement of Certain Rights by Holders of the Preferred Securities
If a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of the Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on the Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). The Company may not amend the Indenture to remove the foregoing right
to bring a Direct Action without the prior written consent of the holders of all
of the Preferred Securities. If the right to bring a Direct Action is removed,
the Trust Issuer may become subject to the reporting obligations under the
Exchange Act. The Company shall have the right under the Indenture to set-off
any payment made to such holder of the Preferred Securities by the Company in
connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding 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 the Company shall not consolidate with or
merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, and no entity shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the
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Company, unless: (i) in the event the Company consolidates with or merges into
another entity or conveys or transfers its properties and assets substantially
as an entirety to any entity, the successor entity is organized under the laws
of the United States or any state or the District of Columbia, and such
successor entity expressly assumes the Company's obligations on the Junior
Subordinated Debentures issued under the Indenture; (ii) immediately after
giving effect thereto, 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; and (iii) certain other conditions as
prescribed by the Indenture are met.
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 transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
Satisfaction and Discharge
The Indenture provides that when, among other things, all of the
Junior Subordinated Debentures not previously delivered to the Debenture Trustee
for cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount 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 Debenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Indenture will cease to be of further effect (except as to the Company's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Indenture.
Subordination
In the Indenture, the Company has covenanted and agreed that the
Junior Subordinated Debentures issued thereunder will be subordinate and junior
in right of payment to all Senior Indebtedness 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 the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full of principal of (and premium, if
any) and interest, if any, on such Senior Indebtedness before the holders of the
Junior Subordinated Debentures, or the Property Trustee on behalf of the
holders, will be entitled to 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 Senior Indebtedness outstanding at
the time of such acceleration will first be entitled to receive payment in full
of all amounts due thereon (including any amounts due upon acceleration) before
the holders of the Junior Subordinated Debentures will be entitled to 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 Senior Indebtedness or an
event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"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
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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 payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"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 Company 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 Company which when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, and (iii) any Debt to any employee of the Company.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other Debt of the Company (other than the Junior Subordinated Debentures),
except that Subordinated Debt shall not include debentures sold by the Company
to the Trust.
The Indenture places no limitation on the amount of Senior
Indebtedness, that may be incurred by the Company. The Company may from time to
time incur indebtedness constituting Senior Indebtedness.
Governing Law
The Indenture and the Junior Subordinated Debentures will be governed
by and construed in accordance with the laws of the State of New York, without
regard to conflicts of laws principles thereof.
Information Concerning the Debenture Trustee
The Debenture Trustee shall 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 Debenture Trustee 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 Debenture Trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Distribution of the Junior Subordinated Debentures
As described under "Description of the Preferred Securities--
Liquidation of the Trust Issuer and Distribution of the Junior Subordinated
Debentures to Holders," under certain circumstances involving the termination of
the Trust Issuer, Junior Subordinated Debentures may be distributed to the
holders of the Preferred Securities in exchange therefor
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upon liquidation of the Trust Issuer, after satisfaction of liabilities to
creditors of the Trust Issuer as provided by applicable law. Any such
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 Issuer, the Company
will use its best efforts to list the Junior Subordinated Debentures on the
Nasdaq Stock Market's National Market or such stock exchanges, if any, on which
the Preferred Securities are then listed. There can be 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 the Debenture Trustee in the city of
New York or at the offices of such Paying Agent or Paying Agents as the Company
may designate from time to time, except that at the option of the Company
payment of any interest may be made (i) by check mailed to the address of the
Person entitled thereto as such address shall appear in the Securities Register
or (ii) by transfer to an account maintained by the Person entitled thereto as
specified in the Securities Register, provided that proper transfer instructions
have been received by the Regular Record Date. 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 Defaulted Interest.
The Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent; however, the Company will at all times be
required to maintain a Paying Agent in each Place of Payment for the Junior
Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent,
or then held by the Company 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 shall be
repaid to the Company upon written request of the Company on May 31 of each year
or (if then held in trust by the Company) will be discharged from such trust and
the holders of the Junior Subordinated Debentures shall thereafter look, as
general unsecured creditors, only to the Company for payment thereof.
Registrar and Transfer Agent
The Debenture Trustee 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. The Company 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; provided that the Company maintains a transfer agent
in the Place of Payment. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures. In the
event of any redemption, neither the Company nor the Debenture Trustee will be
required to (i) issue, register the transfer of or exchange Junior Subordinated
Debentures during a period beginning at the opening of business 15 days before
the day of selection for redemption of Junior Subordinated Debentures and ending
at the close of business on the day of mailing of the relevant notice of
redemption, or (ii) transfer or exchange any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
DESCRIPTION OF THE GUARANTEE
A Guarantee will be executed and delivered by the Company concurrently
with the issuance of the Preferred Securities for the benefit of the holders
from time to time of such Preferred Securities (the "Guarantee"). Bank of New
York will act as trustee ("Guarantee Trustee") under the Guarantee. This
summary of certain provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee. Wherever particular defined terms of the Guarantee
are referred to, but not defined herein,
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such defined terms are incorporated herein by reference. The form of the
Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined below)
to the holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust Issuer may have or
assert other than the defense of payment. The following payments with respect
to the Preferred Securities, to the extent not paid by or on behalf of the Trust
Issuer (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accrued and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust Issuer has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption, to the extent that the Trust Issuer has funds
on hand available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or termination of the Trust Issuer (unless
the Junior Subordinated Debentures are distributed to holders of the Preferred
Securities), the lesser of (a) the Liquidation Distribution, to the extent that
the Trust Issuer has funds available therefor at such time, and (b) the amount
of assets of the Trust Issuer remaining available for distribution to holders of
the Preferred Securities after satisfaction of liabilities to creditors of the
Trust Issuer as required by applicable law. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to the holders of the Preferred Securities or by causing the Trust
Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis
of the Trust Issuer's obligations under the Preferred Securities, but will apply
only to the extent that the Trust Issuer has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Junior
Subordinated Debentures held by the Trust Issuer, the Trust Issuer will not be
able to pay Distributions on the Preferred Securities and will not have funds
legally available therefor. The Guarantee will rank subordinate and junior in
right of payment to all Senior Indebtedness of the Company. See "Description of
the Guarantee--Status of the Guarantee." Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise is subject to the prior claims of creditors of that subsidiary, except
to the extent the Company may itself be recognized as a creditor of that
subsidiary. Accordingly, the Company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. The Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, including Senior Indebtedness,
whether under the Indenture, any other indenture that the Company may enter into
in the future, or otherwise. The Company may from time to time to incur
indebtedness constituting Senior Indebtedness.
The Company and the Trust Issuer believe that the Company has, through
the Guarantee, the Trust Agreement, the Junior Subordinated Debentures, the
Indenture and the Expense Agreement, taken together, fully, irrevocably and
unconditionally guaranteed all of the Trust Issuer's obligations under the
Preferred Securities, on a subordinated basis. 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 Issuer'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 the Company
and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as the Junior Subordinated
Debentures.
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The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Trust
Issuer or upon distribution to the holders of the Preferred Securities of the
Junior Subordinated Debentures.
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 Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its 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 Guarantee Trustee in
respect of such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and
continuance of a default by the Company in the performance of the Guarantee,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after default with respect to the Guarantee, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Preferred Securities unless it is
offered reasonable indemnity by such holder against the costs, expenses and
liabilities that might be incurred thereby. The Guarantee Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Guarantee Trustee 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 (a) full payment of the Redemption Price of the Preferred Securities, (b)
full payment of the amounts payable upon liquidation of the Trust Issuer, or (c)
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities in exchange therefor. 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.
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Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of laws principles
thereof.
The Expense Agreement
Pursuant to the Expense Agreement entered into by the Company under
the Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust Issuer
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust Issuer, other than obligations of the Trust Issuer 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 Issuer may proceed directly against the Company under the Expense
Agreement, regardless of whether such creditors had notice of the Expense
Agreement.
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 Issuer has funds available for the payment
of such Distributions) are irrevocably guaranteed by the Company as and to the
extent set forth under "Description of the Guarantee." The Company and the
Trust Issuer believe that, taken together, the Company's obligations under the
Junior Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Preferred Securities, on a subordinated basis. 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 Issuer's obligations under the Preferred Securities. If
and to the extent that the Company does not make payments on the Junior
Subordinated Debentures, the Trust Issuer will not pay Distributions or other
amounts due on its Preferred Securities. The Guarantee does not cover payment
of Distributions when the Trust Issuer 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 Direct Action against the Company for enforcement
of payment of such Distributions to such holder. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
Sufficiency of Payments
As long as 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, primarily
because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Preferred Securities; (iii) the Company shall pay for all and any costs,
expenses and liabilities of the Trust Issuer except the Trust Issuer's
obligations to holders of its Preferred Securities; and (iv) the Trust Agreement
further provides that the Trust Issuer will not engage in any activity that is
not consistent with the limited purposes of the Trust Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company
has the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of making such payment, a payment under the Guarantee.
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Enforcement Rights of Holders of the Preferred Securities
A holder of a Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Trust
Issuer or any other person or entity.
A default or event of default under any Senior Indebtedness of the
Company would not constitute a default or event of default under the Indenture.
However, in the event of payment defaults under, or acceleration of, Senior
Indebtedness of the Company, the subordination provisions of the Indenture
provide that no payments may be made in respect of the Junior Subordinated
Debentures until such Senior Indebtedness has been paid in full or any payment
default thereunder has been cured or waived. Failure to make required payments
on the Junior Subordinated Debentures would constitute an event of default under
the Indenture.
Limited Purpose of the Trust Issuer
The Preferred Securities evidence a preferred undivided beneficial
interest in the Trust Issuer, and the Trust Issuer exists for the sole purpose
of issuing its Preferred Securities and Common Securities and investing the
proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Preferred Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company 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 Issuer (or from
the Company under the Guarantee) if, and to the extent, the Trust Issuer 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 Issuer involving the liquidation of the Junior
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Trust Issuer, if any, as provided by applicable law, the holders of the
Preferred Securities will be entitled to receive, out of assets held by the
Trust Issuer, the Liquidation Distribution in cash. See "Description of the
Preferred Securities-Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the Property
Trustee, as holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Indebtedness as set forth in the Indenture, but entitled to receive
payment in full of principal and interest, before any stockholders of the
Company receive payments or distributions. Since the Company is the guarantor
under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Trust Issuer (other than the Trust Issuer'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 stockholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities. This summary addresses only the tax consequences to a
person that acquires Preferred Securities on their original issue at the stated
offering price and 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, insurance companies, savings 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
"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.
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The statements of law or legal conclusions set forth in this summary
constitute the opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., special
tax counsel to the Company and the Trust Issuer. This summary 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 summary 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.
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.
Classification of the Trust Issuer and the Junior Subordinated Debentures
In the opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. for
United States federal income tax purposes under current law, (i) the Trust
Issuer will not be classified as an association taxable as a corporation, and
(ii) 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. This opinion is based in part upon certain factual
assumptions and upon certain representations made by the Company, which
representations Luse Lehman Gorman Pomerenk & Schick, P.C. has relied upon and
assumed to be true, correct and complete. If such 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"). The Company believes that the
likelihood of its exercising its option to defer payments of interest on the
Junior Subordinated Debentures is remote, since exercising that option would
prevent it from declaring dividends on any class of its stock. Based on the
foregoing, the Company intends to take the position that the Junior Subordinated
Debentures were not issued with OID and, accordingly, a Securityholder
purchasing the Preferred Securities at 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.
The Regulations have not yet been addressed in any rulings or other
published interpretations by the Internal Revenue Service (the "IRS"). In the
opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., it is not unreasonable
for the Company to take the position that the Junior Subordinated Debentures
will not be issued with OID. 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.
Under the Regulations, if the Company were to exercise its option to
defer payments of interest after treating the Junior Subordinated Debentures as
issued without OID, the Junior Subordinated Debentures would be treated as re-
issued with OID at that time, and all stated interest (and de minimis OID, if
any) on the Junior Subordinated Debentures would thereafter be treated as OID as
long as the Junior Subordinated Debentures remained outstanding. In such event,
all of a Securityholder's interest income with respect to the Junior
Subordinated Debentures would be
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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
the Company would not make and the Securityholder would not receive any actual
cash payments during an Extension Period.
A Securityholder that disposed of Preferred Securities prior to 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 Issuer. 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 Issuer is not treated as an association taxable as a corporation, a
distribution by the Trust Issuer of the Junior Subordinated Debentures as
described under the caption "Description of the Preferred Securities-Liquidation
of the Trust Issuer and Distribution of the Junior Subordinated Debentures to
Holders" will be nontaxable to the Securityholders and will result in a
Securityholder receiving its pro rata share of the Junior Subordinated
Debentures previously held indirectly through the Trust Issuer, with a holding
period and aggregate tax basis equal to the holding period and aggregate tax
basis such Securityholder had in its Preferred Securities before such
distribution. If, however, the Trust Issuer were characterized as an
association taxable as a corporation at the time of the dissolution of the Trust
Issuer and distribution of the Junior Subordinated Debentures, such distribution
would constitute a taxable event to holders of Preferred Securities. A
Securityholder will account for interest in respect of the Junior Subordinated
Debentures received from the Trust Issuer in the manner described above under
"Certain Federal Income Tax Consequences--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. Pursuant to the Taxpayer Relief Act of 1997,
Preferred Securities constituting a capital asset which are acquired by an
individual after July 28, 1997, and held for more than 18 months 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.
Preferred Securities held by an individual for more than one year, but not more
than 18 months, are accorded a United States federal capital gains tax rate of
28%.
If the Company were to exercise its option to defer payments of
interest on the Junior Subordinated Debentures, 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 Issuer for the period prior to 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 and to add such amount to its adjusted tax basis in its Preferred
Securities disposed of. 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). Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
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United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust.
Under current United States federal income tax law: (i) payments by
the Trust Issuer or any of its paying agents to any Securityholder who or which
is a United States Alien Holder will not be subject to United States federal
withholding tax provided that (a) the Securityholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (b) the Securityholder is not a
controlled foreign corporation that is related to the Company through stock
ownership and (c) either (A) the Securityholder certifies to the Trust Issuer or
its agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) 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 Issuer or its agent, under penalties of perjury, that such statement has
been received from the Securityholder by it or by a Financial Institution
holding such security for the Securityholder and furnishes the Trust Issuer or
its agent with a copy thereof, and (ii) a United States Alien Holder of a
Preferred Security will not be subject to United States federal withholding tax
on any gain realized upon the sale or other disposition of a Preferred Security.
Proposed Treasury regulations (the "Proposed Regulations") would
provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The Proposed Regulations also would require,
in the case of Preferred Securities held by a foreign partnership, that (x) the
certification described in clause (i)(c) above be provided by the partners
rather than by the foreign partnership and (y) the partnership provide certain
information, including a United States taxpayer identification number. A look-
through rule would apply in the case of tiered partnerships. The Proposed
Regulations are proposed to be effective for payments made after December 31,
1997. There can be no assurance that the Proposed Regulations will be adopted
or as to the provisions that they will include if and when adopted in temporary
or final form. The Trust Issuer will issue a Form 1042 or Form 1042-S, where
appropriate.
Information Reporting to Securityholders
Generally, income on the Preferred Securities will be reported to
Securityholders on Forms 1099-INT, which will be mailed to Securityholders by
January 31 following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the Securityholder
complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the Securityholder's United States federal income
tax, provided the required information is provided to the Internal Revenue
Service on a timely basis.
ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be
considered a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or a "disqualified person"
within the meaning of Section 4975 of the Code with respect to many employee
benefit plans ("Plans") that are subject to ERISA. The purchase of the
Preferred Securities by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section
4975(e)(1) of the Code and with respect to which the Company, or any affiliate
of the Company, is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless the
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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.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated __________, 1997, among the Company, the Trust
Issuer and Ryan, Beck & Co., Inc. (the "Underwriter"), the Trust Issuer has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the Trust Issuer, 2,500,000 Preferred Securities at the public offering
price subject to the underwriting commissions set forth on the cover page of
this Prospectus.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all of the Preferred Securities offered hereby if any of such
Preferred Securities are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Preferred Securities to the public and other dealers at
the public offering price set forth on the cover page of this Prospectus and
will share with certain dealers from its commission a concession not in excess
of $___ per Preferred Security. After the public offering, the offering price
and such concessions terms may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional 375,000 of the Preferred Securities at the public offering price.
The Underwriter may exercise such option only to cover over-allotments made in
connection with the sale of the Preferred Securities offered hereby. To the
extent that the Underwriter exercises its option to purchase additional
Preferred Securities, the Trust Issuer will issue and sell to the Company
additional Common Securities and the Company will issue and sell to the Trust
Issuer Junior Subordinated Debentures in an aggregate principal amount equal to
the total aggregate Liquidation Amount of the additional Preferred Securities
being purchased pursuant to the option and the additional Common Securities.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $____ per Preferred Security. The Company has also agreed
to reimburse the Underwriter for its reasonable out-of-pocket expenses,
including legal fees and expenses relating to the Offering of the Preferred
Securities.
In connection with the offering of the Preferred Securities, the
Underwriter and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriter
creates a short position for its own account by selling more Preferred
Securities than it is committed to purchase from the Trust Issuer. In such a
case, to cover all or part of the short position, the Underwriter may exercise
the over-allotment option described above or may purchase Preferred Securities
in the open market following completion of the initial offering of the Preferred
Securities. The Underwriter also may engage in stabilizing transactions in
which it bids for, and purchases, shares of the Preferred Securities at a level
above that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Preferred
Securities. The Underwriter also may reclaim any selling concessions allowed to
a dealer if the Underwriter repurchases shares distributed by the dealer. Any of
the foregoing transactions may result in the maintenance of a price for the
Preferred Securities at a level above that which might otherwise prevail in the
open market. Neither the Company 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.
The Underwriter is not required to engage in any of the foregoing transactions
and, if commenced, such transactions may be discontinued at any time without
notice.
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Because the National Association of Securities Dealers, Inc. ("NASD")
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
The Preferred Securities are a new issue of securities with no
established trading market. The Company and the Trust Issuer have been advised
by the Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion of
the Underwriter. Application has been made by the Company to list the Preferred
Securities on the Nasdaq National Market, but one of the requirements for
listing and continuing listing is the presence of two market makers for the
Preferred Securities, and the presence of a second market maker cannot be
assured. Accordingly, no assurance can be given as to the development or
liquidity of any market for the Preferred Securities.
The Company and the Trust Issuer have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
The Underwriter has in the past and may in the future perform various
services for the Company, including investment banking services, for which it
has and will receive customary fees for such services.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the
Preferred Securities, and the creation of the Trust Issuer will be passed upon
by Morris, Nichols, Arsht & Tunnell, special Delaware counsel to the Company and
the Trust Issuer. The validity of the Guarantee and the Junior Subordinated
Debentures will be passed upon for the Company by Luse Lehman Gorman Pomerenk &
Schick, P.C. Certain legal matters will be passed upon for the Underwriters by
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., Miami, Florida.
Certain matters relating to the United States federal income tax considerations
will be passed upon for the Company by Luse Lehman Gorman Pomerenk & Schick,
P.C.
EXPERTS
The consolidated financial statements of the Company included and
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K and Annual Report to Security Holders for the year ended December 31,
1996 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports (which express an unqualified opinion and include an
explanatory paragraph referring to the adoption of Statement of Financial
Accounting Standard No. 122, "Accounting for Mortgage Servicing Rights"), which
are included and incorporated herein by reference, and have been so included and
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
50
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal
Year Ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transaction period from to
-------------- ----------------
Commission File Number: 0-29040
FIDELITY BANKSHARES, INC.
------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 65-0717085
-------------------------- ------------------
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
218 Datura Street, West Palm Beach, Florida 33401
- ----------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
(561) 659-9900
------------------------------------------------------
(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
------
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
--------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days. YES NO
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of February 28, 1997, there were issued and outstanding 6,755,491 shares
of the Registrant's Common Stock. The aggregate value of the voting stock held
by non-affiliates of the Registrant, computed by reference to the average bid
and asked prices of the Common Stock as of February 28, 1997 ($18.56) was
$48,702,925.
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (Parts II and IV).
2. Proxy Statement for the 1997 Annual Meeting of Stockholders (Parts I
and III).
<PAGE>
PART I
ITEM 1. BUSINESS
- ------------------
General
Fidelity Bankshares, Inc.
Fidelity Bankshares, Inc. (the "Company") is a Delaware corporation which
was organized in May 1996. The only significant asset of the Company is its
investment in Fidelity Federal Savings Bank of Florida (the "Bank"). The Company
is majority owned by Fidelity Bankshares, M.H.C., a federally-chartered mutual
holding company (the "MHC"). On January 29, 1997 the Company acquired all of the
issued and outstanding common stock of the Bank in connection with the Bank's
reorganization into the two-tier form of mutual holding company ownership. At
that time, each share of Bank common stock was automatically converted into one
share of Company common stock, par value $.l0 per share (the "Common Stock").
3,542,000 shares of Common Stock were issued to the MHC and 3,206,625 shares of
Common Stock were issued to the Bank's public stockholders.
Fidelity Federal Savings Bank of Florida
The Bank is a federally chartered savings bank headquartered in West Palm
Beach, Florida. The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank was chartered originally as a federal mutual
savings and loan association in 1952, and in 1983, amended its charter to become
a federally chartered mutual savings bank. On January 7, 1994, the Bank
completed a reorganization into a federally chartered mutual holding company. As
part of the reorganization, the Bank organized a new federally chartered stock
savings bank and transferred substantially all of its assets and liabilities to
the stock savings bank in exchange for a majority of the common stock of the
stock savings bank. The Bank is a member of the Federal Home Loan Bank ("FHLB")
System. At December 31, 1996, the Bank had total assets of $873.6 million, total
deposits of $694.7 million, and stockholders' equity of $81.7 million.
The Bank is primarily engaged in the business of attracting deposits from
the general public in the Bank's market area, and investing such deposits,
together with other sources of funds, in loans secured by one- to four-family
residential real estate. To a lesser extent, the Bank also originates
construction loans and land loans for single-family properties and invests in
mortgage-backed securities issued or guaranteed by the United States Government
or agencies thereof. In addition, the Bank invests a portion of its assets in
securities issued by the United States Government, cash and cash equivalents
including deposits in other financial institutions, and FHLB stock. The Bank's
principal sources of funds are deposits and principal and interest payments on
loans. Principal sources of income are interest received from loans and
investment securities. The Bank's principal expense is interest paid on deposits
and employee compensation and benefits.
The Company's and the Bank's principal executive office is located at 218
Datura Street, West Palm Beach, Florida, and its telephone number at that
address is (561) 659-9900.
Market Area
The Bank is headquartered in West Palm Beach, Florida, and operates in Palm
Beach and Martin Counties in Florida. The Bank has 20 offices in its market
area, three of which are located in Martin County, and 17 of which are located
in Palm Beach County. Palm Beach and Martin Counties, located in Southeastern
Florida, have experienced considerable growth and development since the 1960s,
and had a total population of approximately one million as of 1990 and 1.1
million as of 1995. Due to significant
<PAGE>
growth controls established at the state and local governmental levels, as well
as a moderation of economic growth and migration in the Bank's market area,
management believes growth of the local market area may be more moderate in the
future.
The Bank's business and operating results are significantly affected by the
general economic conditions prevalent in its market areas. The southeast Florida
economy is significantly dependent upon government, foreign trade, tourism, and
its attraction as a retirement area. Unemployment in Palm Beach County is higher
than the national and State of Florida averages. Major employers in the Bank's
market area include Pratt & Whitney, Motorola, St. Mary's Medical Center,
Florida Power and Light, Bell South and the Palm Beach County School Board.
Lending Activities
General. Historically, the principal lending activity of the Bank has been
the origination of fixed and adjustable rate mortgage loans collateralized by
one- to four-family residential properties located in its market area. The Bank
currently originates adjustable rate mortgage (ARM) loans for retention in its
portfolio, and fixed rate loans, the majority of which are eligible for sale in
the secondary mortgage market. To a lesser extent, the Bank also originates
loans secured by commercial real estate and multi-family residential real
estate, construction loans, commercial business loans and consumer loans.
In an effort to manage interest rate risk, the Bank has sought to make its
interest-earning assets more interest rate sensitive by originating adjustable
rate loans, such as ARM loans, home equity loans, and short- and medium-term
consumer loans. The Bank also purchases mortgage-backed securities which
generally are secured by ARM loans. At December 31, 1996, approximately $365.7
million, or 52.2%, of the Bank's total gross loan portfolio, and $47.4 million,
or 38.4%, of the Bank's mortgage-backed securities portfolio, consisted of loans
or securities with adjustable interest rates. The Bank originates fixed rate
mortgage loans generally with 15- to 30-year terms to maturity, collateralized
by one- to four-family residential properties. One- to four-family fixed rate
residential mortgage loans generally are originated and underwritten according
to standards that allow the Bank to resell such loans in the secondary mortgage
market for purposes of managing interest rate risk and liquidity. The Bank
periodically sells a portion of its fixed-rate loans which have terms to
maturity exceeding fifteen years. The Bank retains in its portfolio all
consumer, commercial real estate and multi-family residential real estate loans.
2
<PAGE>
Analysis of Loan Portfolio. Set forth below are selected data relating to
the composition of the Bank's loan portfolio by type of loan as of the dates
indicated. Also set forth below is the aggregate amount of the Bank's investment
in mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- ---------------- --------------- --------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family (1)........ $364,741 83.4% $363,229 83.5% $373,407 81.8% $432,387 81.2% $528,689 79.9%
Construction loans............. 13,272 3.0 14,678 3.4 24,086 5.3 40,522 7.6 58,493 8.8
Land loans..................... 10,295 2.4 8,202 1.9 10,865 2.4 10,769 2.0 11,875 1.8
Commercial..................... 34,292 7.8 34,091 7.8 32,773 7.2 31,359 5.9 29,030 4.4
Multi-family................... 11,579 2.6 12,300 2.8 13,081 2.8 13,748 2.6 13,781 2.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans...... 434,179 99.2 432,500 99.4 454,212 99.5 528,785 99.3 641,868 97.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Non-real estate loans:
Consumer (2)................... 12,448 2.8 13,085 3.0 18,343 4.0 26,855 5.0 39,478 6.0
Commercial business............ 2,531 0.6 2,621 0.6 2,776 0.6 5,834 1.1 18,585 2.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total non-real estate loans.. 14,979 3.4 15,706 3.6 21,119 4.6 32,689 6.1 58,063 8.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans receivable....... 449,158 102.6 448,206 103.0 475,331 104.1 561,474 105.4 699,931 105.8
Less:
Undisbursed loan proceeds...... 8,399 1.9 9,314 2.1 15,463 3.4 27,261 5.1 37,575 5.7
Unearned discount and
net deferred fees............ 1,371 0.3 1,060 0.2 759 0.2 (385) (0.1) (1,607) (0.2)
Allowance for loan losses...... 1,824 0.4 2,865 0.7 2,566 0.5 2,265 0.4 2,263 0.3
-------- ---- -------- ----- -------- ----- -------- ----- -------- -----
Total loans receivable-net... $437,564 100.0% $434,967 100.0% $456,543 100.0% $532,333 100.0% $661,700 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Mortgage-backed securities....... $ 64,558 $ 75,199 $126,807 $159,761 $123,599
======== ======== ======== ======== ========
</TABLE>
_____________________________
(1) Includes participations of $13.4 million, $8.9 million, $6.6 million, $5.6
million, and $4.3 million at December 31, 1992, 1993, 1994, 1995, and 1996,
respectively.
(2) Includes primarily home equity lines of credit, automobile loans, boat
loans and passbook loans. At December 31, 1996, the disbursed portion of equity
lines of credit totalled $13.7 million.
3
<PAGE>
Loan and Mortgage-Backed Securities Maturity Schedule. The following table
sets forth certain information as of December 31, 1996, regarding the dollar
amount of loans and mortgage-backed securities maturing in the Bank's portfolio
based on their contractual terms to maturity. The amounts shown represent
outstanding principal balances less loans in process and are not adjusted for
premiums, discounts, reserves, and unearned fees. Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Adjustable and floating rate loans are
included in the period in which interest rates are next scheduled to adjust
rather than in which they contractually mature, and fixed rate loans and
mortgage-backed securities are included in the period in which the final
contractual repayment is due. Fixed rate mortgage-backed securities are assumed
to mature in the period in which the final contractual payment is due on the
underlying mortgage.
<TABLE>
<CAPTION>
Over 1 Over 3 Over 5 Over 10 Beyond
Within Year to 3 Years to 5 Years to 10 Years to 20 20
1 Year Years Years Years Years Years Total
-------- ------- ------- ------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential (1).... $145,662 $74,152 $36,511 $55,645 $129,101 $109,151 $550,222
Commercial, multi-family and land...... 31,298 13,580 4,976 2,033 1,173 1,676 54,736
Consumer loans (2)....................... 23,338 7,362 24,239 1,900 551 8 57,398
-------- ------- ------- ------- -------- -------- --------
Total loans receivable................. $200,298 $95,094 $65,726 $59,578 $130,825 $110,835 $662,356
======== ======= ======= ======= ======== ======== ========
Mortgage-backed securities............. $ 46,808 $ 2,783 $ - $ 18 $ 42,485 $ 30,012 $122,106
======== ======= ======= ======= ======== ======== ========
</TABLE>
(1) Includes construction loans.
(2) Includes commercial business loans of $18.5 million.
The following table sets forth at December 31, 1996, the dollar amount of all
fixed rate and adjustable rate loans due or repricing after December 31, 1997.
<TABLE>
<CAPTION>
Fixed Adjustable Total
--------- ------------ -------
(In Thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family residential................. $271,809 $132,751 $404,560
Commercial, multi-family and land............... 6,046 17,392 23,438
Consumer loans (1)................................ 26,441 7,619 34,060
-------- -------- --------
Total $304,296 $157,762 $462,058
======== ======== ========
Mortgage-backed securities $ 75,298 $ - $ 75,298
======== ======== ========
</TABLE>
- -------------------------------------
(1) Includes commercial business loans of $11.0 million.
One- to Four-Family Residential Real Estate Loans. The Bank's primary
lending activity consists of the origination of one- to four-family, owner-
occupied, residential mortgage loans secured by properties located in the Bank's
market area. During 1995, the Bank began to originate one- to four-family
residential loans on properties outside of its market area. These loans which
were originated through a network of brokers throughout Florida, are subject to
internal controls established by the Bank, as well as the Bank's customary
underwriting standards. At December 31, 1996, $587.2 million, or 83.9%, of the
Bank's total gross loan portfolio consisted of one- to four-family residential
mortgage loans, including residential construction loans of which $26.0 million
were originated outside the Bank's market area.
The Bank currently offers one- to four-family residential mortgage loans
with terms typically ranging from 15 to 30 years, and with adjustable or fixed
interest rates. Originations of fixed rate mortgage loans versus ARM loans are
monitored on an ongoing basis and are affected significantly by the level of
4
<PAGE>
market interest rates, customer preference, the Bank's interest rate gap
position, and loan products offered by the Bank's competitors. ARM loan
originations totalled $107.5 million during the year ended December 31, 1996.
Therefore, even if management's strategy is to emphasize ARM loans, market
conditions may be such that there is greater demand for fixed rate mortgage
loans.
The Bank's fixed rate loans generally are originated and underwritten
according to standards that permit sale in the secondary mortgage market.
Whether the Bank can or will sell fixed rate loans into the secondary market,
however, depends on a number of factors including the yield and the term of the
loan, market conditions, and the Bank's current gap position. The Bank's fixed
rate mortgage loans are amortized on a monthly basis with principal and interest
due each month. One- to four-family residential real estate loans often remain
outstanding for significantly shorter periods than their contractual terms
because borrowers may refinance or prepay loans at their option.
The Bank currently offers ARM loans with initial interest rate adjustment
periods of one, five and seven years, based on changes in a designated market
index. After the initial interest rate adjustment, each one year ARM loan
adjusts annually with an annual interest rate adjustment limitation of 200 basis
points and with a maximum interest rate of 11.5%, or 600 basis points above the
initial rate, whichever is greater. Interest rates on the Bank's ARM loans
originated prior to December 31, 1993 currently adjust with changes in the
FHLB's Fourth District Cost of Funds Index. ARM loans, through December 31,
1993, were priced at 275 basis points above the Fourth District Cost of Funds
Index for owner-occupied one- to four-family mortgage loans. Higher interest
margins may be required on loans in excess of $500,000. The interest rate on all
non-owner-occupied one- to four-family mortgage loans is 300 basis points above
the Fourth District Cost of Funds Index. Subsequent to December 31, 1993, the
Bank began to use U.S. Treasury securities for indices on newly originated ARMs.
The Bank originates ARM loans with initially discounted rates, which vary
depending upon whether the initial interest rate adjustment period is one,
three, five or seven years. The Bank determines whether a borrower qualifies for
an ARM loan based on the fully indexed rate of the ARM loan at the time the loan
is originated. One- to four-family residential ARM loans totalled $281.9
million, or 40.2%, of the Bank's total gross loan portfolio at December 31,
1996.
The primary purpose of offering ARM loans is to make the Bank's loan
portfolio more interest rate sensitive. However, as the interest income earned
on ARM loans varies with prevailing interest rates, such loans may not offer the
Bank as predictable cash flows as long-term, fixed rate loans. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Asset
and Liability Management-Interest Rate Sensitivity Analysis" contained in the
Bank's 1996 Annual Report to Stockholders (the "Annual Report"). ARM loans carry
increased credit risk associated with potentially higher monthly payments by
borrowers as general market interest rates increase. It is possible, therefore,
that during periods of rising interest rates, the risk of default on ARM loans
may increase due to the upward adjustment of interest costs to the borrower.
The Bank's one- to four-family residential first mortgage loans customarily
include due-on-sale clauses, which are provisions giving the Bank the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells or otherwise disposes of the underlying real property
serving as security for the loan. Due-on-sale clauses are an important means of
adjusting the rates on the Bank's fixed rate mortgage loan portfolio, and the
Bank has generally exercised its rights under these clauses.
Regulations limit the amount that a savings association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Appraisals are generally performed by
the Bank's service corporation subsidiary. Such regulations permit a maximum
5
<PAGE>
loan-to-value ratio of 97% for residential property and 85% for all other real
estate loans. The Bank's lending policies generally limit the maximum loan-to-
value ratio on both fixed rate and ARM loans without private mortgage insurance
to 80% of the lesser of the appraised value or the purchase price of the
property to serve as collateral for the loan.
The Bank makes one- to four-family real estate loans with loan-to-value
ratios in excess of 80%. For one- to four-family real estate loans with loan-to-
value ratios of between 80% and 90%, the Bank generally requires the borrower to
obtain private mortgage insurance. For loans in excess of 90% the Bank requires
the borrower to obtain private mortgage insurance. The Bank requires fire and
casualty insurance, as well as a title guaranty regarding good title, on all
properties securing real estate loans made by the Bank.
In the past, the Bank has entered into loan participations secured by one-
to four-family residences. At December 31, 1996, the Bank's loan portfolio
included $4.3 million of loan participations.
Construction and Land Loans. The Bank currently offers fixed rate and
adjustable rate residential construction loans primarily for the construction of
owner-occupied single-family residences to builders who have a contract for sale
of the property or owners who have a contract for construction. In addition, the
Bank makes construction loans to builders for homes held for sale which totalled
$17.2 million at December 31, 1996. Construction loans are generally structured
to become permanent loans, and are originated with terms of up to 30 years with
an allowance of up to one year for construction. During the construction phase
the loans made prior to December 31, 1996 predominately had an adjustable
interest rate that adjusted annually and converted into either a fixed rate or
remained an adjustable rate mortgage loan at the end of the construction period.
Subsequent to December 31, 1996, the Bank began making construction loans with
fixed rates of interest. Such loans become permanent one- to four-family loans
upon completion of construction. Advances are made as construction is completed.
In addition, the Bank originates loans which are secured by individual
unimproved or improved lots. At December 31, 1996, $58.5 million, or 8.4%, and
$11.9 million, or 1.7%, of the Bank's total loan portfolio consisted of
construction loans and land loans, respectively. Land loans are currently
offered with one-year adjustable rates for terms of up to 15 years. The maximum
loan-to-value ratio for the Bank's land loans is 75%. Through December 31, 1993,
land loans were offered at 300 to 350 basis points over the Fourth District Cost
of Funds Index with an annual interest rate cap of 200 basis points and a
lifetime interest rate cap of the greater of 600 basis points over the initial
interest rate, or 6%. Subsequent to December 31, 1993 the Bank began using the
applicable U.S. Treasury securities as its index on newly originated loans.
Initial interest rates may be below the fully indexed rate.
Construction lending generally involves a greater degree of credit risk
than one- to four-family residential mortgage lending. The repayment of the
construction loan is often dependent upon the successful completion of the
construction project. Construction delays or the inability of the borrower to
sell the property once construction is completed may impair the borrower's
ability to repay the loan.
Multi-Family Residential Real Estate Loans. Loans securing multi-family
real estate constituted approximately $13.8 million, or 2.0%, of the Bank's
total loan portfolio at December 31, 1996. At December 31, 1996, the Bank had a
total of 77 loans secured by multi-family properties. The Bank's multi-family
real estate loans are secured by multi-family residences, such as rental
properties. At December 31, 1996, substantially all of the Bank's multi-family
loans were secured by properties located within the Bank's market area. At
December 31, 1996, the Bank's multi-family real estate loans had an average
principal balance of $179,000 and the largest multi-family real estate loan had
a principal balance of $1.5 million. Multi-family
6
<PAGE>
real estate loans currently are offered with adjustable interest rates, although
in the past the Bank originated fixed rate multi-family real estate loans. The
terms of each multi-family loan are negotiated on a case-by- case basis. Such
loans typically have adjustable interest rates tied to a market index with a 600
basis point lifetime interest rate cap and an interest rate floor equal the
initial rate, and amortize over 15 to 25 years. An origination fee of 1 to 2% is
usually charged on multi-family loans. The Bank generally makes multi-family
mortgage loans up to 80% of the appraised value of the property securing the
loan. The Bank may choose to offer initial discount rates depending on market
conditions, but generally the initial interest rate on multi-family real estate
loans has been priced at the applicable U.S. Treasury securities as its index on
newly originated loans. The Bank's originations of multi-family loans have been
limited in recent years.
Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one- to four-family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family and
commercial real estate is typically dependent upon the successful operation of
the related real estate property. If the cash flow from the project is reduced,
the borrower's ability to repay the loan may be impaired.
Commercial Real Estate Loans. Loans secured by commercial real estate
constituted approximately $29.0 million, or 4.1%, of the Bank's total loan
portfolio at December 31, 1996. The Bank's commercial real estate loans are
secured by improved property such as offices, small business facilities, strip
shopping centers, warehouses and other non-residential buildings. At December
31, 1996, substantially all of the Bank's commercial real estate loans were
secured by properties located within the Bank's market area. At December 31,
1996, the Bank's commercial real estate loans had an average principal balance
of $196,000. At that date, the largest commercial real estate loan had a
principal balance of $2.5 million, secured by an office and retail building
located in Palm Beach, Florida and was currently performing. This was the
largest commercial real estate lending relationship at the Bank and was within
the current loans-to-one borrower limits. Commercial real estate loans currently
are offered with adjustable rates, although in the past the Bank has originated
fixed rate commercial real estate loans. The terms of each commercial real
estate loan are negotiated on a case-by-case basis, although such loans
typically have adjustable interest rates tied to a market index, with a 600
basis point lifetime interest rate cap, and a 200 basis point interest rate
floor below the initial interest rate. The Bank may choose to offer initial
discount rates depending on market conditions. Through December 31, 1993,
commercial real estate loans generally have been priced at the Fourth District
Cost of Funds Index plus 325 basis points. Subsequent to December 31, 1993, the
Bank began using the applicable U.S. Treasuries as its index on newly originated
loans. An origination fee of up to 1 to 2% of the principal balance of the loan
is typically charged on commercial real estate loans. Commercial real estate
loans originated by the Bank generally amortize over 15 to 25 years.
The Bank's policy is generally to limit commercial real estate loans to
principal balances not exceeding $5.0 million, subject to limited exceptions.
Loans secured by commercial real estate generally involve a greater degree
of risk than one- to four-family residential mortgage loans and carry larger
loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by commercial
7
<PAGE>
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired.
Consumer Loans. As of December 31, 1996, consumer loans totalled $39.5
million, or 5.6%, of the Bank's total gross loan portfolio. The principal types
of consumer loans offered by the Bank are home equity lines of credit,
adjustable and fixed rate second mortgage loans, automobile loans, unsecured
personal loans, and loans secured by deposit accounts. Consumer loans are
offered on a fixed rate and adjustable rate basis with maturities generally of
less than ten years. The Bank's home equity lines of credit are secured by the
borrower's principal residence with a maximum loan-to-value ratio, including the
principal balances of both the first and second mortgage loans, of 80% or less
(up to 90% if the Bank has a first mortgage on the property). Such loans are
offered on an adjustable rate basis with terms of up to ten years. At December
31, 1996, the disbursed portion of home equity lines of credit totalled $13.7
million, or 34.7% of consumer loans. During 1996 the Bank sought to increase its
consumer loan portfolio primarily by emphasizing the origination of automobile
loans.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's credit history and an assessment of ability
to meet existing obligations and payments on the proposed loan. The stability of
the applicant's monthly income may be determined by verification of gross
monthly income from primary employment, and additionally from any verifiable
secondary income. Creditworthiness of the applicant is of primary consideration;
however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount, and in the case of home
equity lines of credit, the Bank obtains a title guarantee or an opinion as to
the validity of title.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreational vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. The Bank adds a general provision on a regular basis to its
consumer loan loss allowance, based on general economic conditions and prior
loss experience. See "-Delinquencies and Classified Assets-Non-Performing
Assets," and "Delinquent Loans and Non-Performing Assets-Classification of
Assets" for information regarding the Bank's loan loss experience and reserve
policy.
Commercial Business Loans. The Bank currently offers commercial business
loans to finance small businesses in its market area. Historically, the Bank
offered commercial business loans as a customer service to business account
holders. At December 31, 1996, the Bank had 293 commercial business loans
outstanding with an aggregate balance of $18.5 million. The average commercial
business loan balance was approximately $63,000. Commercial business loans are
generally offered with adjustable interest rates only, which are tied to The
Wall Street Journal prime rate, plus up to 300 basis points. The loans are
offered with prevailing terms of five years but which may range up to 15 years.
In addition, the Bank offers Small Business Administration loans.
Underwriting standards employed by the Bank for commercial business loans
include a determination of the applicant's ability to meet existing obligations
and payments on the proposed loan for normal cash flows generated by the
applicant's business. The financial strength of each applicant also is assessed
through a review of financial statements provided by the applicant.
8
<PAGE>
Commercial business loans generally bear higher interest rates than
residential loans, but they also may involve a higher risk of default since
their repayment is generally dependent on the successful operation of the
borrower's business. The Bank generally obtains personal guarantees from the
borrower or a third party as a condition to originating its commercial business
loans.
Loan Originations, Solicitation, Processing, and Commitments. Loan
originations are derived from a number of sources such as real estate broker
referrals, existing customers, borrowers, builders, attorneys, and walk-in
customers. Upon receiving a loan application, the Bank obtains a credit report
and employment verification to verify specific information relating to the
applicant's employment, income, and credit standing. In the case of a real
estate loan, an appraiser approved by the Bank appraises the real estate
intended to secure the proposed loan. A loan processor in the Bank's loan
department checks the loan application file for accuracy and completeness, and
verifies the information provided. All loans of up to $214,600 may be approved
by any one of the Bank's senior lending officers; loans between $214,600 and
$400,000 must be approved by any one of the Bank's designated senior officers;
loans between $400,000 and $650,000 must be approved by at least two of the
Bank's designated senior officers which includes the Chief Executive Officer;
and loans in excess of $650,000 must be approved by at least three members of
the Board of Directors acting as a loan committee. The loan committee meets as
needed to review and verify that management's approvals of loans are made within
the scope of management's authority. Fire and casualty insurance is required at
the time the loan is made and throughout the term of the loan, and upon request
of the Bank, flood insurance may be required. After the loan is approved, a loan
commitment letter is promptly issued to the borrower. At December 31, 1996, the
Bank had commitments to originate $21.8 million of loans.
If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral, and required
insurance coverage. The borrower must provide proof of fire and casualty
insurance on the property (and, as required, flood insurance) serving as
collateral, which insurance must be maintained during the full term of the loan.
Title insurance or an opinion of title, based on a title search of the property,
is required on all loans secured by real property.
Borrowers who refinance must satisfy the Bank's underwriting criteria at
the time they apply to refinance their loan and have been current in their loan
payments for a minimum of one year. Approximately 20% of the Bank's loan
originations during the year ended December 31, 1996 represented the refinancing
of the Bank's existing loans. Refinancings have resulted in a decrease in the
Bank's interest rate spread. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 1996 Annual Report to
Stockholders.
During 1996, the Bank in connection with local mortgage brokers began a
mortgage loan broker solicitation program to supplement the Bank's internal
originations of one- to four-family residential loans. Under this program, which
is limited to the origination of one- to four-family residential loans,
prospective borrowers complete loan applications which are provided by mortgage
brokers. The completed applications are forwarded to the Bank. All loans
obtained in this manner are reviewed in accordance with the Bank's customary
underwriting standards. Total originations from all sources under the mortgage
loan broker solicitation program during 1996 were $87.0 million. The Bank may
expand this program in the future.
During 1994, the Bank entered into an agreement with the wholly-owned
mortgage subsidiary of a major South Florida builder-developer, who has
substantial operations in the Bank's local service area. Under the terms of this
agreement, the mortgage company originates, processes and closes home mortgages
9
<PAGE>
resulting from the sale of the developer's inventory of homes. The mortgage
files are sent to the Bank by the mortgage company for review and, if approved
by the Bank, it issues a commitment to purchase the loan from the mortgage
company. Purchases are accomplished by assignment of the mortgage from the
mortgage company to the Bank. The Bank purchased $20.8 million loans from this
provider in 1996.
The Bank's recently purchased loans are collateralized by properties
located primarily in Florida, although the Bank has in the past purchased loans
collateralized by properties located outside the State of Florida. At December
31, 1996, $36.8 million, or 5.3%, of all loans in the Bank's portfolio, were
purchased from others. Of this amount, $4.3 million represented the Bank's
interest in purchased participations. The Bank's largest loan participation was
a $635,000 interest in a loan secured by one- to four-family residences. The
remaining loan participations consisted of loans secured by one- to four-family
residential properties with an average balance of $14,000.
Origination, Purchase and Sale of Loans. The table below shows the Bank's
loan origination, purchase and sales activity for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1995 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Loan receivable-gross, beginning of period................. $448,206 $475,331 $561,474
Originations:
Real estate:
One- to four-family residential (1).................... 81,935 121,457 187,851
Land loans............................................. 2,896 3,096 3,207
Commercial............................................. 5,992 1,082 390
Multi-family........................................... 1,339 1,611 1,869
Non-real estate loans:
Consumer............................................... 12,674 19,185 23,761
Commercial Business..................................... 2,791 6,838 33,276
-------- -------- --------
Total originations....................................... 107,627 153,269 250,354
Transfer of mortgage loans to foreclosed real estate
and in-substance foreclosure............................. (2,190) (1,318) (593)
Loan purchases............................................. 4,045 12,398 21,153
Repayments................................................. (79,545) (75,275) (115,440)
Loan sales................................................. (2,812) (2,931) (17,017)
-------- -------- --------
Net loan activity.......................................... 27,125 86,143 138,457
-------- -------- --------
Total loans receivable-gross, end of period................ $475,331 $561,474 $699,931
======== ======== ========
</TABLE>
______________________________________
(1) Includes loans to finance the construction of one- to four-
family residential properties, and loans originated for sale in the
secondary market.
(2) This table is being presented on a gross loan receivable basis.
Loan Origination Fees and Other Income. In addition to interest earned on
loans, the Bank generally receives loan origination fees. To the extent that
loans are originated or acquired for the Bank's portfolio, SFAS 91 requires that
the Bank defer loan origination fees and costs and amortize such amounts as an
adjustment of yield over the life of the loan by use of the level yield method.
Fees and costs deferred under SFAS 91 are recognized into income immediately
upon prepayment or the sale of the related loan. At December 31, 1996, the Bank
had $1.1 million of deferred loan origination fees and $2.7 million of deferred
loan origination costs. Such fees vary with the volume and type of loans and
commitments made and purchased, principal repayments, and competitive conditions
in the mortgage markets, which in turn respond to the demand and availability of
money.
10
<PAGE>
The Bank also receives other fees, service charges, and other income that
consist primarily of deposit transaction account service charges, late charges,
credit card fees, and income from REO operations. The Bank recognized fees and
service charges of $2.2 million, $2.7 million and $3.2 million for the fiscal
years ended December 31, 1994, 1995, and 1996, respectively.
Loans-to-One Borrower. Savings associations are subject to the same loans-
to-one borrower limits as those applicable to national banks, which under
current regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired capital and unimpaired surplus on an unsecured basis, and an
additional amount equal to 10% of unimpaired capital and unimpaired surplus if
the loan is secured by readily marketable collateral (generally, financial
instruments and bullion, but not real estate). At December 31, 1996, the Bank's
largest outstanding loan balance to one borrower totalled $4.3 million which was
secured by various residential properties located primarily in Broward County,
Florida. At that date, the Bank's second largest lending relationship totalled
$4.0 million and was secured by various residential properties. The Bank's third
largest lending relationship totalled $3.2 million and was secured by various
residential properties. The Bank's fourth largest lending relationship totalled
$3.0 million and was secured by various residential properties. The Bank's fifth
largest lending relationship totalled $2.8 million and was secured by various
commercial properties. The Bank's regulatory limit on loans-to-one borrower was
$12.3 million at December 31, 1996.
Mortgage-Backed Securities
The Bank also invests in mortgage-backed securities issued or guaranteed by
the United States Government or agencies thereof. These securities consist
primarily of fixed-rate mortgage-backed securities issued or guaranteed by the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). Mortgage-backed securities totaled $122.3 million at
December 31, 1996 and had a market value of $123.6 million. Effective December
31, 1993, the Bank implemented SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities." As a result of the adoption of this accounting
principle, the Bank declared its investment in adjustable rate, mortgage-backed
securities as available for sale. In November 1995, FASB issued "A Guide to
Implementation of SFAS 115 on Accounting for Certain Investments in Debt and
Equity Securities - Questions and Answers" ("SFAS 115 Q & A Guide"). SFAS 115 Q
& A Guide permits an entity to conduct a one time reassessment of the
classifications of all securities held at that time. On November 28, 1995, in
conformity with the SFAS 115 Q & A Guide, management of the Bank classified all
securities as "Available for Sale". As a result, all such securities are now
presented at fair value, as determined by market quotations. Since the SFAS 115
Q & A Guide cannot be retroactively applied, these fixed-rate securities are
presented at amortized cost for the year ended 1994.
11
<PAGE>
The Bank's objectives in investing in mortgage-backed securities varies
from time to time depending upon market interest rates, local mortgage loan
demand, and the Bank's level of liquidity. The Bank's mortgage-backed securities
are more liquid than whole loans and can be readily sold in response to market
conditions and interest rates. Mortgage-backed securities purchased by the Bank
also have lower credit risk than mortgage loans because principal and interest
are either insured or guaranteed by the United States Government or agencies
thereof.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1995 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning of period........... $ 75,199 $126,807 $159,761
Purchases................................................... 68,133 45,625 9,962
Sales....................................................... -- -- (19,641)
Repayments.................................................. (14,510) (17,796) (23,608)
Discount (premium) amortization............................. (579) (79) 3
Increase (decrease) in market value of securities held for
sale in accordance with SFAS 115........................ (1,436) 5,204 (2,878)
-------- -------- --------
Mortgage-backed securities at end of period................. $126,807 $159,761 $123,599
======== ======== ========
</TABLE>
The following table sets forth the allocation of fixed and adjustable rate
mortgage-backed securities for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
$ % $ % $ %
--- --- --- --- --- ---
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities, net:
Adjustable:
FHLMC.............................................. $ 15,799 12.38% $ 13,244 8.24% $ 15,900 12.78%
FNMA............................................... 35,533 27.84 31,250 19.43 29,576 23.76
GNMA............................................... -- -- -- -- 1,963 1.58
-------- -------- -------- -------- -------- --------
Total adjustable................................. 51,332 40.22 44,494 27.67 47,439 38.12
-------- -------- -------- -------- -------- --------
Fixed:
FHLMC.............................................. 32,546 25.50 74,052 46.04 56,245 45.20
FNMA............................................... 15,674 12.28 14,019 8.72 11,771 9.46
GNMA............................................... 27,255 21.35 27,196 16.91 8,144 6.54
-------- -------- -------- -------- -------- --------
Total fixed...................................... 75,475 59.13 115,267 71.67 76,160 61.20
-------- -------- -------- -------- -------- --------
Accrued interest....................................... 834 0.65 1,067 0.66 842 0.68
-------- ------- -------- -------- -------- --------
Total mortgage-backed securities, net................ $127,641 100.0% $160,828 100.00% $124,441 100.00%
======== ======== ======== ======== ======== ========
</TABLE>
Delinquencies and Classified Assets
Delinquencies. The Bank's collection procedures provide that when a loan
is 15 days past due, a computer-generated late charge notice is sent to the
borrower requesting payment, plus a late charge. If delinquency continues, at 30
days a delinquent notice is sent and personal contact efforts are attempted,
either in person or by telephone, to strengthen the collection process and
obtain reasons for the delinquency. Also, plans to arrange a repayment plan are
made. If a loan becomes 60 days past due, a collection letter is sent, personal
contact is attempted, and the loan becomes subject to possible legal action if
suitable arrangements to repay have not been made. In addition, the borrower is
given information which provides access to consumer counseling services, to the
extent required by regulations of the Department of Housing and Urban
Development ("HUD"). When a loan continues in a delinquent status for 90 days or
more, and a repayment schedule has not been made or kept by the borrower,
generally a notice of intent to foreclose
12
<PAGE>
is sent to the borrower, giving 30 days to cure the delinquency. If not cured,
foreclosure proceedings are initiated.
Impaired Loans. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
Non-Performing Assets. Loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, the
collection of additional interest is doubtful. Loans are placed on non-accrual
status when either principal or interest is 90 days or more past due. Interest
accrued and unpaid at the time a loan is placed on a non-accrual status is
charged against interest income. At December 31, 1996, the Bank had non-
performing loans of $3.3 million, and a ratio of non-performing loans to net
loans receivable of .50%.
Real estate acquired by the Bank as a result of foreclosure or by the deed
in lieu of foreclosure is classified as real estate owned ("REO") until such
time as it is sold. When real estate is acquired through foreclosure or by deed
in lieu of foreclosure, it is recorded at
its fair value, less estimated costs of disposal. If the value of the property
is less than the loan, less any related specific loan loss provisions, the
difference is charged against the Bank's earnings. Any subsequent write-down of
REO is also charged against earnings. At December 31, 1996, the Bank had
approximately $93,000 of property acquired as the result of foreclosure and
classified as REO. At December 31, 1996, the Bank had non-performing assets of
$3.4 million and a ratio of non-performing assets to total assets of .39%.
Delinquent Loans and Non-Performing Assets
The following table sets forth information regarding the Bank's non-accrual
loans delinquent 90 days or more, and real estate acquired or deemed acquired by
foreclosure at the dates indicated. When a loan is delinquent 90 days or more,
the Bank fully reserves all accrued interest thereon and ceases to accrue
interest thereafter. For all the dates indicated, the Bank did not have any
material restructured loans within the meaning of SFAS 15.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Delinquent Loans:
One- to four-family residential (1)..................... $1,966 $3,091 $1,299 $1,513 $2,637
Commercial and multi-family real estate................. 1,070 379 335 201 461
Land.................................................... -- -- 159 10 84
Consumer and commercial business loans.................. 263 347 135 140 108
-------- -------- -------- -------- --------
Total Delinquent loans.................................... 3,299 3,817 1,928 1,864 3,290
Total REO and loans foreclosed in-substance............... 3,226 463 608 643 93
-------- -------- -------- -------- --------
Total nonperforming assets (2)........................ $6,525 $4,280 $2,536 $2,507 $3,383
======== ======== ======== ======== ========
Total loans delinquent 90 days or more to net
loans receivable........................................ 0.75% 0.88% 0.42% 0.35% 0.50%
Total loans delinquent 90 days or more to
total assets............................................ 0.52% 0.56% 0.27% 0.24% 0.38%
Total nonperforming loans, loans foreclosed
in substance and REO to total assets.................... 1.02% 0.63% 0.36% 0.32% 0.39%
</TABLE>
____________________________________
(1) At December 31, 1996, the Bank had no delinquent or non-performing
construction loans.
(2) Net of specific valuation allowances.
13
<PAGE>
During the year ended December 31, 1996, gross interest income of
approximately $192,000 would have been recorded on loans accounted for on a non-
accrual basis if the loans had been current throughout the period. No interest
income on non-accrual loans was included in income during 1996.
The following table sets forth information with respect to loans past due
60-89 days in the Bank's portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 60-89 days:
One- to four-family residential (1)......... $ 4,496 $ 1,929 $ 1,554 $ 1,272 $ 2,038
Commercial real estate and multi-family..... 159 219 100 106 55
Consumer and commercial business loans...... 54 50 7 106 19
Land loans.................................. - 97 48 1 -
-------- -------- -------- -------- --------
Total past due 60-89 days................. $ 4,709 $ 2,295 $ 1,709 $ 1,485 $ 2,112
======== ======== ======== ======== ========
</TABLE>
_____________________________________
(1) (Includes construction loans)
Classification of Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that these weaknesses make "collection or liquidation in full,"
on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are designated "special mention" by management.
When a savings institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances that have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified, or
to charge off such amount. A savings institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which can order the establishment of additional
general or specific loss allowances. The Bank regularly reviews the problem
loans in its portfolio to determine whether any loans require classification in
accordance with applicable regulations.
14
<PAGE>
The following table sets forth the aggregate amount of the Bank's
classified assets at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------
1994 1995 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Substandard assets (1)(2)............................. $ 5,227 $ 5,106 $ 3,207
Doubtful assets (2)................................... - - -
Loss assets (2)....................................... 24 58 -
-------- -------- --------
Total classified assets (2)........................ $ 5,251 $ 5,164 $ 3,207
======== ======== ========
</TABLE>
___________________________________________________
(1) Includes REO and in-substance foreclosures.
(2) Net of specific valuation allowances.
The following table sets forth information regarding the Bank's delinquent
loans, REO and loans foreclosed in-substance at December 31, 1996.
<TABLE>
<CAPTION>
Balance Number
------- ------
(Dollars In Thousands)
<S> <C> <C>
Residential real estate:
Loans 60 to 89 days delinquent................. $ 2,038 34
Loans more than 89 days delinquent............. 2,637 32
Commercial and multi-family real estate:
Loans 60 to 89 days delinquent................. 55 1
Loans more than 89 days delinquent............. 461 1
Land loans:
Loans 60 to 89 days delinquent................. - -
Loans more than 89 days delinquent............. 84 3
Consumer and commercial business loans
60 days or more delinquent.................... 127 12
REO................................................. 93 3
------- -------
Total..................................... $ 5,495 86
======= =======
</TABLE>
Allowance for Loan Losses. Management's policy is to provide for estimated
losses on the Bank's loan portfolio based on management's evaluation of the
potential losses that may be incurred. The Bank regularly reviews its loan
portfolio, including problem loans, to determine whether any loans require
classification or the establishment of appropriate reserves or allowances for
losses. Such evaluation, which includes a review of all loans of which full
collectibility of interest and principal may not be reasonably assured,
considers, among other matters, the estimated net realizable value (or fair
value, where appropriate) of the underlying collateral. Other factors considered
by management include the size and risk exposure of each segment of the loan
portfolio, present indicators such as delinquency rates and the borrower's
current financial condition, and the potential for losses in future periods.
Management calculates the general allowance for loan losses in part based on
past experience, and in part based on specified percentages of loan balances.
While both general and specific loss allowances are charged against earnings,
general loan loss allowances are added back to capital in computing risk-based
capital under OTS regulations.
Management will continue to review the entire loan portfolio to determine
the extent, if any, to which further additional loan loss provisions may be
deemed necessary. Management believes that the Bank's current allowance for loan
losses is adequate; however, there can be no assurance that the allowance for
loan losses will be adequate to cover losses that may in fact be realized in the
future or that additional provisions for loan losses will not be required.
15
<PAGE>
Analysis of the Allowance For Loan Losses. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total net loans receivable outstanding............... $ 437,564 $ 434,967 $ 456,543 $ 532,333 $ 661,700
========= ========= ========= ========= =========
Average net loans receivable outstanding............. $ 449,264 $ 434,522 $ 441,573 $ 490,088 $ 605,507
========= ========= ========= ========= =========
Allowance balance (at beginning of period)........... $ 1,600 $ 1,824 $ 2,865 $ 2,566 $ 2,265
Reclassification of valuation allowances
on in-substance foreclosure........................ - 169 - - -
Provision for losses:
Real estate..................................... 299 1,201 73 (199) 133
Consumer and commercial business loans.......... 31 35 39 (11) 31
Charge-offs:
Real estate..................................... (97) (362) (229) (89) (145)
Consumer and commercial business loans.......... (9) (2) (182) (2) (21)
Recoveries:
Real estate..................................... - - - - -
Consumer and commercial business loans.......... - - - - -
--------- --------- --------- --------- ---------
Allowance balance (at end of period).. $ 1,824 $ 2,865 $ 2,566 $ 2,265 $ 2,263
========= ========= ========= ========= =========
Allowance for loan losses as a percent of net
loans receivable at end of period............. 0.42% 0.66% 0.56% 0.43% 0.34%
Net loans charged off as a percent of average
loans outstanding............................... 0.02% 0.08% 0.10% 0.02% 0.03%
Ratio of allowance for loan losses to total
non-performing loans at end of period (1)....... 55.29% 75.06% 132.61% 121.51% 68.78%
Ratio of allowance for loan losses to total
non-performing loans, REO and in-substance
foreclosures at end of period (1)............... 27.95% 66.94% 100.90% 90.35% 66.89%
</TABLE>
- ---------------------------------
(1) Net of specific reserves.
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of allowance for loan losses by loan category for the periods
indicated. Management believes that the allowance can be allocated by category
only on an approximate basis. The allocation of the allowance by category is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
% of Loans % of Loans % of Loans
In Each In Each In Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
One- to four-family residential mortgage....... $ 1,462 83.62% $ 1,351 84.23% $ 1,095 83.89%
Commercial real estate and
multi-family residential.................. 860 9.65 574 8.03 596 6.12
Land loans..................................... 84 2.29 91 1.92 119 1.70
Other.......................................... 160 4.44 249 5.82 453 8.29
------- ------- ------- ------- ------- -------
Total allowance for loan losses........... $ 2,566 100.00% $ 2,265 100.00% $ 2,263 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
16
<PAGE>
Investment Activities
In prior years, the Bank had increased the percentage of its assets held in
its investment portfolio as part of its strategy of maintaining higher levels of
liquidity which improve the Bank's interest rate risk position. During 1995, in
a declining interest rate environment, the Bank began using this excess
liquidity to fund a portion of its loan production. The Bank's investment
portfolio comprises investment securities, FHLB Stock and interest earning
deposits. The carrying value of the Bank's investment securities totaled $41.7
million at December 31, 1996, compared to $43.1 million at December 31, 1995.
The Bank's interest-bearing deposits due from other financial institutions with
original maturities of three months or less, totaled $27.1 million at December
31, 1996, compared to $10.0 million at December 31, 1995.
The Bank is required under federal regulations to maintain a minimum amount
of liquid assets that may be invested in specified short term securities and
certain other investments. See "Regulation-Federal Regulations-Liquidity
Requirements" below and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" in the
Annual Report. The Bank generally has maintained a portfolio of liquid assets
that exceeds regulatory requirements. Liquidity levels may be increased or
decreased depending upon the yields on investment alternatives and upon
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities and its expectation of the level of yield that
will be available in the future, as well as management's projections as to the
short term demand for funds to be used in the Bank's loan origination and other
activities.
Investment Portfolio. The following tables set forth the carrying value of
the Bank's investments at the dates indicated. At December 31, 1996, the market
value of the Bank's investments was approximately $41.7 million. As allowed by
SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities,"
the Bank declared its investment in U.S. Government and agency obligations as
available for sale. As a result, such securities are now presented at fair
value, as determined by market quotations. The market value of investments
includes interest-earning deposits and FHLB stock at book value, which
approximates market value.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1994 1995 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
U.S. Government and agency obligations............ $ 50,777 $ 26,546 $ 8,035
Municipal bonds................................... 422 440 430
Interest-earning deposits......................... 25,063 9,974 27,127
FHLB stock........................................ 6,148 6,148 6,148
-------- -------- --------
Total investments....................... $ 82,410 $ 43,108 $ 41,740
======== ======== ========
</TABLE>
17
<PAGE>
Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, amortized cost, market values and average yields for the
Bank's investment securities at December 31, 1996. At December 31, 1996, the
Bank did not have any investment securities maturing after three years.
<TABLE>
<CAPTION>
At December 31, 1996
------------------------------------------------------------------------------------------
One Year or Less One to Three Years
---------------------- ----------------------
Annualized Annualized Annualized
Weighted Weighted Average Weighted
Amortized Average Amortized Average Amortized Market Life in Average
Cost Yield Cost Yield Cost Value Years (1) Yield
------- --------- ------- --------- --------- ------ ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government agency securities.. $ 2,000 5.82% $ 6,024 6.71% $ 8,024 $ 8,035 1.92 6.49%
Municipal bonds.................... - - 419 5.49 419 430 2.66 5.49
FHLB stock......................... 6,148 7.25 - - 6,148 6,148 - 7.25
Interest-earning deposits.......... 27,127 5.20 - - 27,127 27,127 - 5.20
--------- --------- --------- --------- --------- --------- ------ -------
Total.................... $ 35,275 5.59% $ 6,443 6.63% $ 41,718 $ 41,740 1.96 5.75%
========= ========= ========= ========= ========= ======== ====== =======
</TABLE>
- ----------------------------------------------------------------------
(1) Total weighted average life in years calculated only on United States
Government agency securities and municipal bonds.
18
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
the amortization and prepayment of loans and mortgage-backed securities, the
maturity of investment securities, operations and, if needed, advances from the
FHLB. Scheduled loan principal repayments are a relatively stable source of
funds, while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and market conditions. Borrowings may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources or on a longer term basis for general business
purposes.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's market area through the offering of a broad selection of
deposit instruments including non-interest-bearing demand accounts, NOW
accounts, passbook savings, money market deposits, term certificate accounts and
individual retirement accounts. Deposit account terms vary according to the
minimum balance required, the period of time during which the funds must remain
on deposit, and the interest rate, among other factors. The Bank regularly
evaluates its internal cost of funds, surveys rates offered by competing
institutions, reviews the Bank's cash flow requirements for lending and
liquidity, and executes rate changes when deemed appropriate. The Bank does not
obtain funds through brokers.
Deposit Portfolio. The following table sets forth information regarding
interest rates, terms, minimum amounts and balances of the Bank's deposit
portfolio as of December 31, 1996.
<TABLE>
<CAPTION>
Weighted Percentage
Average of Total
Interest Rate Minimum Term Checking and Savings Deposits Amount Balances Deposits
------------- ------------ ----------------------------- ------ -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
0.00 % None Non-interest-bearing demand $1,000 $ 26,406 3.80%
1.01 None NOW accounts 100 70,558 10.16
2.00 None Passbooks 100 87,534 12.60
2.50 None Money market accounts 2,500 44,012 6.34
Certificates of Deposit
-----------------------
4.75 0 - 3 months Fixed term, fixed rate 1,000 140,670 20.25
5.15 3 - 6 months Fixed term, fixed rate 1,000 90,970 13.09
5.50 6 - 12 months Fixed term, fixed rate 1,000 127,272 18.32
5.81 12 - 36 months Fixed term, fixed rate 1,000 79,894 11.50
6.00 36 - 60 months Fixed term, fixed rate 1,000 27,323 3.93
6.10 Over 60 months Fixed term, fixed rate 1,000 79 .01
--------- ---------
$ 694,718 100.00%
========= =========
</TABLE>
19
<PAGE>
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by the Bank between
the dates indicated.
<TABLE>
<CAPTION>
Balance Balance Deposit Incr. Balance Deposit Incr.
12/31/92 12/31/93 % (Decr) 12/31/94 % (Decr)
-------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
accounts...................... $ 11,043 $ 14,630 2.5% $ 3,587 $ 19,551 3.6% $ 4,921
NOW, Super NOW and funds
transfer accounts............. 65,598 68,380 11.7 2,782 65,025 12.1 (3,355)
Passbook and statement accounts. 101,684 128,530 21.9 26,846 99,198 18.4 (29,332)
Variable rate money market
accounts...................... 68,107 67,661 11.5 (446) 55,516 10.3 (12,145)
Time Deposits:
Maturing within 12 months..... 279,895 256,560 43.7 (23,335) 243,557 45.3 (13,003)
Maturing within 12-36 months.. 47,290 23,388 4.0 (23,902) 34,405 6.4 11,017
Maturing beyond 36 months..... 6 27,378 4.7 27,372 20,983 3.9 (6,395)
--------- --------- --------- --------- --------- -------- ---------
Total..................... $ 573,623 $ 586,527 100.00% $ 12,904 $ 538,235 100.00% $ (48,292)
========= ========= ========= ========= ========= ========= =========
<CAPTION>
Balance Deposit Incr. Balance Deposit Incr.
12/31/95 % (Decr) 12/31/96 % (Decr)
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
accounts...................... $ 21,430 3.6% $ 1,879 $ 26,406 3.8% $ 4,976
NOW, Super NOW and funds
transfer accounts............. 67,886 11.4 2,861 70,558 10.2 2,672
Passbook and statement accounts. 86,471 14.5 (12,727) 87,534 12.6 1,063
Variable rate money market
accounts...................... 44,677 7.5 (10,839) 44,012 6.3 (665)
Time Deposits:
Maturing within 12 months..... 294,202 47.4 38,676 358,912 51.7 64,710
Maturing within 12-36 months.. 57,236 12.7 41,018 79,894 11.5 22,658
Maturing beyond 36 months..... 23,278 2.9 (3,923) 27,402 3.9 4,124
--------- --------- --------- --------- --------- ---------
Total..................... $ 595,180 100.00% $ 56,945 $ 694,718 100.00% $ 99,538
========= ========= ========= ========= ========= =========
</TABLE>
20
<PAGE>
The following table sets forth the certificates of deposit in the Bank
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------
1994 1995 1996
--------- --------- ---------
Rate (In Thousands)
- ----
<S> <C> <C> <C>
1.01 - 2.00%....................................... $ 1,590 $ 834 $ 949
2.01 - 3.00%....................................... 1,699 2 2
3.01 - 4.00%....................................... 62,823 1,198 20
4.01 - 5.00%....................................... 137,818 49,308 34,308
5.01 - 6.00%....................................... 63,804 205,595 333,998
6.01 - 7.00%....................................... 24,998 109,737 93,788
7.00 - 8.00%....................................... 6,141 8,025 3,079
8.01 - 9.00%....................................... 72 17 64
--------- --------- ---------
$ 298,945 $ 374,716 $ 466,208
========= ========= =========
</TABLE>
The following table sets forth the amount and maturities of certificates of
deposit at December 31, 1996.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------
Less Than 1-2 2-3 3-4 4-5 After 5
One Year Years Years Years Years Years Total
-------- -------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Rate
1.01 - 2.00%...... $ 934 $ 15 $ - $ - $ - $ - $ 949
2.01 - 3.00%...... - 2 - - - - 2
3.01 - 4.00%...... 15 - 5 - - - 20
4.01 - 5.00%...... 32,673 610 945 48 - 32 34,308
5.01 - 6.00%...... 255,478 58,482 11,010 3,888 4,247 893 333,998
6.01 - 7.00%...... 30,047 15,739 16,643 13,095 17,620 644 93,788
7.01 - 8.00%...... 2,865 161 - - - 53 3,079
8.01 - 9.00%...... 30 34 - - - - 64
--------- --------- --------- -------- --------- --------- ---------
$ 322,042 $ 75,043 $ 28,603 $ 17,031 $ 21,867 $ 1,622 $ 466,208
========= ========= ========== ======== ========= ========= =========
</TABLE>
The following table indicates the amount of the Bank's negotiable
certificates of deposit of $100,000 or more by time remaining until maturity as
of December 31, 1996.
<TABLE>
<CAPTION>
Remaining Maturity Amounts
------------------ --------------
(In Thousands)
<S> <C>
Three months or less........................... $ 12,849
Three through six months....................... 8,871
Six through twelve months...................... 12,720
Over twelve months............................. 19,240
------------
Total...................................... $ 53,680
============
</TABLE>
21
<PAGE>
The following table sets forth the net changes in the deposit activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1995 1996
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Deposits..................................................... $ 1,903,691 $ 2,114,143 $ 2,557,621
Withdrawals.................................................. 1,966,162 2,076,361 2,480,059
----------- ------------ ------------
Net increase (decrease) before interest credited............. (62,471) 37,782 77,562
Interest credited............................................ 14,179 19,163 21,976
----------- ------------ ------------
Net increase (decrease) in deposits.......................... $ (48,292) $ 56,945 $ 99,538
=========== ============ ============
</TABLE>
Borrowings
Savings deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. If the need arises,
the Bank, may rely upon advances from the FHLB and the Federal Reserve Bank
discount window to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB typically are collateralized by
the Bank's stock in the FHLB and a portion of the Bank's first mortgage loans.
At December 31, 1996, the Bank had $82.5 million in FHLB advances outstanding.
The FHLB functions as a central reserve bank providing credit for the Bank
and other member savings institutions and financial institutions. As a member,
the Bank is required to own capital stock in the FHLB and is authorized to apply
for advances on the security of such stock and certain of its home mortgages and
other assets (principally, securities that are obligations of, or guaranteed by,
the United States) provided certain standards related to creditworthiness have
been met. Advances are made pursuant to several different programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based either on a fixed
percentage of a member institution's net worth or on the FHLB's assessment of
the institution's creditworthiness. All FHLB advances have fixed interest rates
and mature between two and 10 years.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1994 1995 1996
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances:
Maximum month-end balance............................... $ 86,659 $ 86,168 $ 91,135
Balance at end of period................................ 86,659 85,169 82,517
Average balance......................................... 28,259 78,368 84,351
Weighted average interest rate on:
Balance at end of period................................ 6.94% 6.86% 6.74%
Average balance for period.............................. 6.54% 7.00% 6.79%
</TABLE>
22
<PAGE>
Competition
The Bank's market area in Southeast Florida has a large concentration of
financial institutions, many of which are significantly larger and have greater
financial resources than the Bank, and all of which are competitors of the Bank
to varying degrees. As a result, the Bank encounters strong competition both in
attracting deposits and in originating real estate and other loans. Its most
direct competition for deposits has come historically from commercial banks,
brokerage houses, other savings associations, and credit unions in its market
area, and the Bank expects continued strong competition from such financial
institutions in the foreseeable future. The Bank's market area includes branches
of several commercial banks that are substantially larger than the Bank in terms
of state-wide deposits. The Bank competes for savings by offering depositors a
high level of personal service and expertise together with a wide range of
financial services.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies, and other savings associations.
This competition for loans has increased substantially in recent years as a
result of the large number of institutions competing in the Bank's market area
as well as the increased efforts by commercial banks to expand mortgage loan
originations.
The Bank competes for loans primarily through the interest rates and loan
fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers, and builders. Factors that affect competition
include general and local economic conditions, current interest rate levels, and
volatility of the mortgage markets.
Based on total assets as of June 1996, the Bank was the second largest
savings institution headquartered in Palm Beach County, and the Bank held
approximately 3.5% of all financial institution deposits in Palm Beach County.
Subsidiary Activities
The Bank has one active wholly owned subsidiary, Fidelity Realty
and Appraisal Service, Inc., a Florida corporation ("FRAS"). FRAS is primarily
engaged in providing appraisal services for the Bank and selling the Bank's REO.
At December 31, 1996, the Bank had an equity investment in FRAS of $207,000. For
the year ended December 31, 1996, FRAS had a net loss of $8,000.
Under FIRREA, SAIF-insured institutions are required to provide 30 days
advance notice to the OTS and FDIC before establishing or acquiring a subsidiary
or conducting a new activity in a subsidiary. The insured institution must also
provide the FDIC and the OTS such information as may be required by applicable
regulations and must conduct the activity in accordance with the rules and
orders of the OTS. In addition to other enforcement and supervision powers, the
OTS may determine after notice and opportunity for a hearing that the
continuation of a savings association's ownership of or relation to a subsidiary
(i) constitutes a serious risk to the safety, soundness or stability of the
savings association, or (ii) is inconsistent with the purposes of FIRREA. Upon
the making of such a determination, the OTS may order the savings association to
divest the subsidiary or take other actions.
Personnel
As of December 31, 1996, the Bank had 267 full-time and 31 part-time
employees. None of the Bank's employees is represented by a collective
bargaining group. The Bank believes its relationship with its employees to be
good.
23
<PAGE>
Regulation
As a federally chartered, SAIF-insured savings association the Bank is
subject to examination, supervision and extensive regulation by the OTS, and the
FDIC. The Bank is a member of and owns stock in the FHLB of Atlanta, which is
one of the twelve regional banks in the Federal Home Loan Bank System. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors.
The Bank also is subject to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") governing reserves to be
maintained against deposits and certain other matters. The Holding Company will
be subject to supervision and regulation by the OTS.
The OTS regularly examines the Bank and prepares reports for the
consideration of the Bank's Board of Directors on any deficiencies that they may
find in the Bank's operations. The FDIC also examines the Bank in its role as
the administrator of the SAIF. The Bank's relationship with its depositors and
borrowers also is regulated to a great extent by both federal and state laws
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents. Any change in such regulation, whether
by the FDIC, OTS, or Congress, could have a material adverse impact on the
Holding Company and the Bank and their operations.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
primarily addresses the recapitalization of the BIF, which insures the deposits
of commercial banks and savings banks. In addition, FDICIA established a number
of new mandatory supervisory measures for savings associations and banks.
Standards for Safety and Soundness. FDICIA requires the federal bank
regulatory agencies to prescribe regulatory standards for all insured depository
institutions and depository institution holding
companies relating to: (i) internal controls, information systems and audit
systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate
risk exposure; (v) asset growth; and (vi) compensation, fees and benefits. The
compensation standards would prohibit employment contracts, compensation or
benefit arrangements, stock option plans, fee arrangements or other compensatory
arrangements that provide excessive compensation, fees or benefits or could lead
to material financial loss. In addition the federal banking regulatory agencies
are required to prescribe by regulation standards specifying: (i) maximum
classified assets to capital ratios; (ii) minimum earnings sufficient to absorb
losses without impairing capital; and (iii) to the extent feasible, a minimum
ratio of market value to book value for publicly traded shares of depository
institutions and depository institution holding companies.
Financial Management Requirements. Pursuant to FDICIA, in May 1993, the
FDIC adopted rules establishing annual independent audits and financial
reporting requirements for all depository institutions with assets of more than
$500 million, their management and their independent auditors. The rules also
establish new requirements for the composition, duties, and authority of such
institutions' audit committees and boards of directors, effective in fiscal
years beginning after December 31, 1992. Among other things, all depository
institutions with assets in excess of $500 million are required to prepare and
make available to the public annual reports on their financial condition and
management, including statements of management's responsibility under
regulations relating to safety and soundness, and an assessment of the
institution's compliance with internal controls, laws and regulations. The
institution's independent auditors are required to attest to these management
assessments. Each such institution also is required to have an audit committee
composed of independent directors. Audit Committees of large institutions
(institutions with
24
<PAGE>
assets exceeding $3.0 billion) must: (i) include members with banking or related
financial management experience; (ii) have the ability to engage their own
independent legal counsel; and (iii) must not include any large customers (as
defined) of the institution.
Prompt Corrective Action Regulation. FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, the OTS and the other banking regulators are required to
establish five capital categories ("well-capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") and to take certain mandatory supervisory actions (and are
authorized to take other discretionary actions) with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, FDICIA
requires the requisite banking regulator to appoint a receiver or conservator
for an institution that is critically undercapitalized.
Under the OTS rule implementing the prompt corrective action provisions, a
savings institution that: (i) has a total risk-based capital ratio of 10.0% or
greater, a Tier I (core) risk-based capital ratio of 6.0% or greater and a
leverage ratio of 5.0% or greater; and (ii) is not subject to any written
agreement, order, capital directive or prompt corrective action directive issued
by the OTS, is deemed to be well-capitalized. An institution with a total risk-
based capital ratio of 8.0% or greater, a Tier I risk-based capital ratio of
4.0% or greater and a leverage ratio of 4.0% or greater, is considered to be
adequately capitalized. A savings institution that has a total risk-based
capital ratio of less than 8.0%, a Tier I risk-based capital ratio of less than
4.0%, or a leverage ratio that is less than 4.0% is considered to be
undercapitalized. A savings institution that has a total risk-based capital
ratio of less than 6.0%, a Tier I risk-based capital ratio of
less than 3.0% or a leverage ratio that is less than 3.0%, is considered to be
significantly undercapitalized. A savings institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier I capital for purposes of the
risk-based capital standards plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible assets except
certain purchased mortgage servicing rights and qualifying supervisory goodwill.
FDICIA authorizes the appropriate federal banking agency, after notice and
an opportunity for a hearing, to treat a well-capitalized, adequately
capitalized or undercapitalized insured depository institution as if it had a
lower capital classification if it is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. Thus, an adequately capitalized
institution can be subjected to the restrictions on undercapitalized
institutions (provided that a capital restoration plan cannot be required of the
institution) described below and an undercapitalized institution can be
subjected to the restrictions applicable to significantly undercapitalized
institutions described below.
Under FDICIA, an insured depository institution cannot make a capital
distribution (as broadly defined to include, among other things, dividends,
redemptions and other repurchases of stock) or pay management fees to any person
that controls the institution if thereafter it would be undercapitalized. The
appropriate federal banking agency, however, may (after consultation with the
FDIC) permit an insured depository institution to repurchase, redeem, retire or
otherwise acquire its shares if such action: (i) is taken in connection with the
issuance of additional shares or obligations in at least an equivalent amount;
and (ii) will reduce the institution's financial obligations or otherwise
improve its financial condition. An undercapitalized institution generally is
prohibited form increasing its average total assets. An undercapitalized
institution also generally is prohibited from making acquisitions, establishing
any branches or engaging in any new line of business except in accordance with
an accepted capital restoration plan or with the approval of the FDIC. In
addition, the appropriate federal banking agency is given authority with respect
25
<PAGE>
to any undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines that such actions are necessary
to carry out the purpose of FDICIA.
Federal Regulations
Regulatory Capital. The capital requirements consist of a "tangible capital
requirement," a "leverage limit" and a "risk-based capital requirement."
Under the tangible capital requirement, a savings association must maintain
tangible capital in an amount equal to at least 1.5% of adjusted total assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus a specified amount of purchased mortgage
servicing rights. Further, the valuation allowance applicable to the write-down
of investments and mortgage-backed securities in accordance with SFAS 115 is
excluded from the regulatory capital calculation.
The leverage limit adopted by the OTS requires that savings associations
maintain "core capital" in an amount equal to at least 3% of adjusted total
assets. The OTS, however, has proposed an amendment to this requirement that
would increase core capital requirements for nearly all savings associations, as
discussed below. Core capital is defined as common stockholders' equity
(including retained earnings), non-cumulative perpetual preferred stock, and
minority interests in the equity accounts of consolidated subsidiaries, plus
purchased mortgage servicing rights valued at the lower of 90% of fair market
value, 90% of original cost or the current amortized book value as determined
under generally accepted accounting principles ("GAAP"), and "qualifying
supervisory goodwill," less non-qualifying intangible assets.
In addition, the OTS has proposed a rule that would limit the amount of
purchased mortgage servicing rights includable as core capital to 50% of such
capital. No assurance can be given as to the final form of such regulation, the
date of its effectiveness, or whether it will differ materially from the
proposal. The proposal, if adopted as proposed, is not anticipated to have any
immediate effect on the Bank.
In April 1991, the OTS published a proposed amendment to the regulatory
capital requirements applicable to all savings associations to conform to Office
of the Comptroller of the Currency ("OCC") capital regulations applicable to
national banks. Under the OTS proposal, those savings associations receiving a
CAMEL rating of "1", the best possible rating on a scale of 1 to 5, will be
required to maintain a ratio of core capital to adjusted total assets of 3%. All
other savings associations will be required to maintain minimum core capital of
4% to 5% of total adjusted assets. In determining the required minimum core
capital ratio, the OTS will assess the quality of risk management and the level
of risk in each savings association on a case-by-case basis. The OTS did not
indicate in the proposed regulation the standards it will use in establishing
the appropriate core capital requirement for savings associations not rated "1"
under the CAMEL rating system. At December 31, 1996, the Bank's ratio of core
capital to total adjusted assets was 9.2%. The OTS prohibits savings
associations from disclosing their CAMEL ratings.
A savings association that does not meet the minimum regulatory capital
requirements because of the new core capital requirement will be required to
submit a capital restoration plan to the OTS that sets forth in reasonable
detail the steps the association will take to be in compliance. The capital
plans will be required to be filed within 60 days of the effective date of the
new regulation. If the OTS rejects a savings association's capital plan, the OTS
may require an amended capital plan to be filed, or the OTS can take supervisory
action against the association. The Bank is unable to predict when such
regulation will be adopted, or, if adopted, the final form that such regulation
will take.
26
<PAGE>
Under the risk-based capital requirement, a savings association must
maintain total capital (which is defined as core capital plus supplementary
capital) equal to at least 8.0% of risk-weighted assets. A savings association
must calculate its risk-weighted assets by multiplying each asset and off-
balance sheet item by various risk factors, which range from 0% for cash and
securities issued by the United States Government or its agencies to 100% for
repossessed assets or loans more than 90 days past due. Supplementary capital
may include, among other items, cumulative perpetual preferred stock, perpetual
subordinated debt, mandatory convertible subordinated debt, intermediate-term
preferred stock, and general allowances for loan losses. The allowance for loan
losses includable in supplementary capital is limited to 1.25% of risk-weighted
assets. Supplementary capital is limited to 100% of core capital.
Effective January 1, 1994, the OTS has amended its risk-based capital
requirements to require institutions with an "above normal" level of interest
rate risk to exclude certain amounts of capital to take account of such risk in
determining compliance with the risk-based requirements. A savings institution
will be considered to have a "normal" level of interest rate risk if the decline
in the market value of its portfolio equity after an immediate 200 basis point
increase or decrease in market interest rates (whichever leads to the greater
decline) is less than two percent of the current estimated market value of its
assets. The market value of portfolio equity is defined as the net present value
of expected cash inflows and outflows from an institution's assets, liabilities
and off-balance sheet items. The amount of additional capital that an
institution with an above normal interest rate risk would be required to
maintain (the "interest rate risk component") would equal one-half of the dollar
amount by which its measured interest rate risk exceeds the normal level of
interest rate risk. The interest rate risk component would be in addition to the
capital otherwise required to satisfy the risk-based capital requirement. At
December 31, 1996, the OTS had not implemented the interest rate risk component.
Had the interest rate risk component been implemented as originally proposed,
the Bank would not have been required to allocate any of its excess risk-based
capital for interest rate risk purposes at December 31, 1996.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital, in addition to the adjustments required
for calculating core capital. Such exclusions consist of equity investments (as
defined by regulation) and that portion of land loans and non-residential
construction loans in excess of an 80% loan-to-value ratio (these items are
excluded on a sliding scale through December 31, 1996, after which they must be
excluded in their entirety) and reciprocal holdings of qualifying capital
instruments.
The OTS and the FDIC generally are authorized to take enforcement action
against a savings association that fails to meet its capital requirements, which
action may include restrictions on operations and banking activities, the
imposition of a capital directive, a cease-and-desist order, civil money
penalties or harsher measures such as the appointment of a receiver or
conservator or a forced merger into another institution. In addition, under
current regulatory policy, a savings association that fails to meet its capital
requirements is prohibited from paying any dividends. Except under certain
circumstances, further disclosure of final enforcement actions by the OTS is
required.
Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank ("FHLB") of Atlanta, which is one of the 12 regional FHLBs. As a
member of the FHLB, the Bank is required to purchase and maintain stock in the
FHLB of Atlanta in an amount equal to the greater of 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year, or 1/20 (or such greater fraction as established by
the FHLB) of outstanding FHLB advances. At December 31, 1996 the Bank had $6.1
million in FHLB of Atlanta stock, which was in compliance with this requirement.
In past years the Bank has received dividends on its FHLB stock. Over
27
<PAGE>
the past five years such dividends have averaged 6.50%, and was 7.25% for the
year ended December 31, 1996. Certain provisions of FIRREA require all 12 FHLBs
to provide financial assistance for the resolution of troubled savings
associations and to contribute to affordable housing programs through direct
loans or interest subsidies on advances targeted for community investment and
low- and moderate-income housing projects. These contributions could cause rates
on the FHLB advances to increase and could affect adversely the level of FHLB
dividends paid and the value of FHLB stock in the future.
Each FHLB serves as a reserve or central bank for its members within its
assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB. These policies and procedures are subject to the
regulation and oversight of the Federal Housing Finance Board (the "FHFB").
FHLB advances must be fully secured by sufficient collateral as determined
by the FHLB. Eligible collateral consists of mortgage loans less than 90 days
delinquent or securities evidencing interests therein, securities (including
mortgage-backed securities) issued, insured, or guaranteed by the federal
government or any agency thereof, FHLB deposits, and to a limited extent, real
estate with readily ascertainable value in which a perfected security interest
may be obtained. Other forms of collateral may be accepted as collateralization
under certain circumstances. All long-term advances are required to be used to
provide funds for residential home financing. In addition, the FHFB has
established standards of community service that members must meet to maintain
access to long-term advances. FHLBs are authorized to make short-term liquidity
advances to solvent associations in poor financial condition but with prospects
of improving, upon the request of the OTS. In addition, pursuant to FHLB
regulations, each FHLB is required to establish programs for affordable housing
that involve interest subsidies from the FHLBs on advances to members engaged
in lending at subsidized interest rates for low- and moderate-income, owner-
occupied housing and affordable housing, and certain other community purposes.
Qualified Thrift Lender Test. The qualified thrift lender ("QTL") test
requires that a savings institution maintain at least 65% of its total portfolio
assets in "qualified thrift investments" on an average basis in nine out of
every twelve months. For purposes of the test, portfolio assets are defined as
the total assets of the savings institution minus: goodwill and other intangible
assets, the value of property used by the savings institution to conduct its
business and liquid assets not to exceed 20% of the savings institution's total
assets.
Under the QTL's statutory and regulatory provisions, all forms of home
mortgages, home improvement loans, home equity loans and loans on the security
of other residential real estate and mobile homes as well as a designated
percentage of consumer loans are "qualified thrift investments," as are shares
of stock of the FHLB, investments or deposits in other insured institutions,
securities issued by the FNMA, FHLMC, GNMA or the RTC Financing Corporation and
other mortgage-related securities. Investments in nonsubsidiary corporations or
partnerships whose activities include servicing mortgages or real estate
development are also considered qualified thrift investments in proportion to
the amount of primary revenue such entities derive from housing-related
activities. Also included in qualified thrift investments are mortgage servicing
rights, whether such rights are purchased by the insured institution or created
when the institution sells loans and retains the right to service such loans.
A savings institution that fails to become, or maintain its status as, a
qualified thrift lender must either become a bank (other than a savings bank) or
be subject to certain restrictions. A savings institution that fails to meet the
QTL test and does not convert to a bank will be: (i) prohibited from making an
28
<PAGE>
investment or engaging in activities that would not be permissible for national
banks; (ii) prohibited from establishing any new branch office where a national
bank located in the savings institution's home state would not be able to
establish a branch office; (iii) ineligible to obtain new advances from any
Federal Home Loan Bank; and (iv) subject to limitations on the payment of
dividends comparable to the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings institution ceases to be a qualified thrift lender, the
savings institution would be prohibited from retaining any investment or
engaging in any activity not permissible for a national bank and would be
required to repay any outstanding advances to any FHLB. A savings institution
may requalify as a qualified thrift lender if it thereafter complies with the
QTL test.
As of December 31, 1996, the Bank was in compliance with the QTL
requirement. At December 31, 1996, 90.6% of the Bank's assets were "qualified
thrift investments."
Liquidity Requirements. Federally insured savings associations are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of average daily balances of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement
may vary from time to time (between 4.0% and 10.0%) depending upon economic
conditions and savings flows of all savings associations. At the present time,
the required liquid asset ratio is 5.0%.
For purposes of this ratio, liquid assets include specified short-term
assets (such as cash, certain time deposits, certain bankers' acceptances and
short-term United States Treasury obligations), and long-term assets such as
United States Treasury obligations of more than one and less than five years and
federal agency obligations with a minimum term of 18 months. The regulations
governing liquidity requirements include as liquid assets debt securities hedged
with forward commitments obtained from dealers in United States Government
securities or Associations whose accounts are insured by the FDIC, debt
securities directly hedged with a short financial futures position, and debt
securities that provide the holder with a right to redeem the security at par
value, regardless of the stated maturities of such securities. FIRREA also
authorizes the OTS to designate as liquid assets certain mortgage-related
securities and certain mortgage loans (qualifying as backing for certain
mortgage-backed securities) with less than one year to maturity. Short-term
liquid assets currently must constitute at least 1% of an association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of the liquidity
requirements. The monthly average liquidity ratio of the Bank for December 1996
was 6.15% and exceeded the then applicable requirement of 5.0%.
Insurance of Accounts and Regulation by the FDIC. The Bank's deposits are
insured up to $100,000 per insured member (as defined by law and regulation) by
the SAIF. This insurance is backed by the full faith and credit of the United
States Government. The SAIF is administered and managed by the FDIC. As insurer,
the FDIC is authorized to conduct examinations of and to require reporting by
SAIF-insured associations. It also may prohibit any SAIF-insured association
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the SAIF. The FDIC also has the authority to initiate
enforcement actions against savings associations, after first giving the OTS an
opportunity to take such action.
The minimum annual deposit insurance premiums are currently assessed at the
rate of .065% of deposits for all SAIF-insured members. The FDIC, however, is
authorized to raise premiums in certain circumstances related to fund losses and
severe economic circumstances and has exercised this authority several times
with respect to premiums paid to the BIF by commercial banks and BIF-member
savings associations.
29
<PAGE>
In September 1996, Congress enacted legislation to recapitalize the SAIF by
a one-time assessment on all SAIF-insured deposits held as of March 31, 1995.
The assessment was 65.7 basis points per $100 in deposits, payable on November
27, 1996. In addition, beginning January 1, 1997, pursuant to the legislation,
interest payments on FICO bonds issued in the late 1980's by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation will be paid jointly by BIF-insured institutions and SAIF-insured
institutions. The FICO assessment will be 1.29 basis points per $100 in BIF
deposits and 6.44 basis points per $100 in SAIF deposits. Beginning January 1,
2000, the FICO interest payments will be paid pro rata by banks and thrifts
based on deposits (approximately 2.4 basis points per $100 in deposits).
The legislation also provides for the merger of the BIF and SAIF on January 1,
1999 if there are no more savings associations as of that date. Several bills
have been introduced in the current Congress that would eliminate the federal
thrift charter and OTS. The bills would require that all federal savings
associations convert to national banks or state depository institutions by no
later than January 1, 1998 in one bill and June 30, 1998 in the other and would
treat all state savings associations as state banks for purposes of federal
banking laws. Subject to a narrow grandfathering, all savings and loan holding
companies would become subject to the same regulation as bank holding companies
under the pending legislative proposals. Under such proposals, any lawful
activity in which a savings association would be permitted for up to two years
following the effective date of its conversion to the new charter, with two
additional one-year extension which may be granted at the discretion of the
regulator. Additionally, such proposals would grandfather existing thrift
intrastate and interstate branches which were operated as branches or in the
process of being established on January 1, 1997 or January 7, 1997,
respectively. The legislative proposals would also abolish the OTS and transfer
its functions to the federal bank regulators with respect to the institutions
and to the Federal Reserve Board with respect to the regulation of holding
companies. The Company is unable to predict whether the legislation will be
enacted or, given such uncertainty, determine the extent to which the
legislation, if enacted, would affect its business. The Company is also unable
to predict whether the SAIF and BIF funds will eventually be merged.
Limitations on Capital Distributions. OTS regulations impose limitations on
all capital distributions by savings institutions. Capital distributions include
cash dividends, payments to repurchase or otherwise acquire the savings
association's shares, payments to stockholders of another institution in a cash-
out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions. An institution that exceeds all fully
phased-in capital requirements before and after a proposed capital distribution
("Tier 1 Association") may, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year up to (i) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its surplus capital at the beginning of the calendar year or (ii) 75%
of its net income over the most recent four-quarter period. Any additional
capital distributions would require prior regulatory approval. An institution
that meets its regulatory capital requirement, but not its fully phased-in
capital requirement before or after its capital distribution ("Tier 2
Association") may, after prior notice but without the approval of the OTS, make
capital distributions of: up to 75% of its net income over the most recent four
quarter period if it satisfies the risk-based capital requirement that would be
applicable to it on January 1, 1993, computed based on its current portfolio; up
to 50% of its net income over the most recent four quarter period if it
satisfies the risk based capital standard that was applicable to it on January
1, 1991, computed based on its current portfolio; and up to 25% of its net
income over the most recent four quarter period if it satisfies its current
risk-based capital requirement. In computing the institution's permissible
percentage of capital distributions, previous distributions made during the
prior four quarter period must be included. A savings institution that does not
meet its current regulatory capital requirement before or after payment of a
proposed capital distribution ("Tier 3 Association") may not make any capital
distributions without the prior approval of the OTS. In addition, the OTS would
prohibit a proposed capital distribution by any
30
<PAGE>
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice. In addition, FDICIA provides that, as a general rule, a financial
institution may not make a capital distribution if it would be undercapitalized
after making the capital distribution. Also, an institution meeting the Tier 1
capital criteria which has been notified that it needs more than normal
supervision will be treated as a Tier 2 or Tier 3 Association unless the OTS
deems otherwise. A recently proposed OTS rule would amend the capital
distribution regulation to provide that a Tier 1 Association would be permitted
to make capital distributions under the Tier 1 standard or, consistent with the
highest Tier 2 standard, at 75% of its net income to date over the most recent
four quarter period. As of December 31, 1996, the Bank was a Tier 1 Association.
Investment Limitations. FIRREA generally provides that state-chartered
savings associations may not engage as principal in any type of activity, or in
any activity in any amount not permitted for federally-chartered associations,
or directly acquire or retain any equity investment of a type or amount not
permitted for federally-chartered associations. The FDIC has authority to grant
exceptions from these prohibitions (other than with respect to non-service
corporation equity investments) if it determines no significant risk to the
insurance fund is posed by the amount of the investment or the activity to be
engaged in if the Bank is and continues to be in compliance with fully phased-in
standards. Among activity restrictions applicable to federally-chartered
institutions that are also applicable to the Bank is the prohibition on
investing directly in equity securities or real estate (other than that used for
offices and related facilities or acquired through, or in lieu of, foreclosure).
In addition, the Bank is authorized to invest directly in service corporation
to a maximum of 2% of the Bank's assets, plus an additional 1% of assets if the
amount over 2% is used for specified community or intercity development
purposes. Federal laws and regulations also impose certain limitations on
operations, including restrictions on loans to one borrower, transactions with
affiliates and affiliated persons and liability growth.
FIRREA also imposed investment and lending restrictions that are applicable
to all federally- or state-chartered associations. FIRREA provides that no
savings association may invest in corporate debt securities not rated in one of
the four highest rating categories by a nationally recognized rating
organization. FIRREA and FDICIA amend the authority of savings associations to
engage in transactions with affiliates or to make loans to certain insiders, by
making such transactions subject to Sections 23A, 23B, 22(g) and 22(h) of the
Federal Reserve Act. Among other things, these provisions generally require that
these transactions with affiliates be on terms and conditions comparable to
those for similar transactions with non-affiliates. In addition, these affiliate
transactions may be regulated further by the OTS to address safety and soundness
concerns.
Holding Company Regulation. The Company and the MHC are holding companies
within the meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As
such, the Company and the MHC are registered with and is subject to OTS
examination and supervision as well as certain reporting requirements. In
addition, the operations of the Company and the MHC are subject to the
Regulations as well as other regulations promulgated by the OTS from time to
time. As a SAIF-insured subsidiary of a savings and loan holding company, the
Bank is subject to certain restrictions in dealing with the Company and MHC and
with other persons affiliated with the Company and the MHC and will continue to
be subject to examination and supervision by the OTS and the FDIC.
Transactions with Affiliates. Section 11 of HOLA provides that transactions
between an insured subsidiary of a holding company and an affiliate thereof will
be subject to the restrictions that apply to transactions between banks that are
members of the Federal Reserve System and their affiliates pursuant to Sections
23A and 23B of the Federal Reserve Act. Generally, Sections 23A and 23B: (i)
limit the extent to
31
<PAGE>
which a financial institution or its subsidiaries may engage in "covered
transactions" with an "affiliate," to an amount equal to 10% of the
institution's capital and surplus, and limit all "covered transactions" in the
aggregate with all affiliates to an amount equal to 20% of such capital and
surplus; and (ii) require that all transactions with an affiliate, whether or
not "covered transactions," be on terms substantially the same, or at least as
favorable to the institution or subsidiary as those provided to a non-affiliate.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and similar types of transactions. Management believes
that the Bank is in compliance with the requirements of Sections 23A and 23B. In
addition to the restrictions that apply to financial institutions generally
under Sections 23A and 23B, Section 11 of the HOLA places three other
restrictions on savings associations,including those that are part of a holding
company organization. First, savings associations may not make any loan or
extension of credit to an affiliate unless that affiliate is engaged only in
activities permissible for bank holding companies. Second, savings associations
may not purchase or invest in affiliate securities except for those of a
subsidiary. Finally, the Director is granted authority to impose more stringent
restrictions when justifiable for reasons of safety and soundness.
Extensions of credit by the Bank to executive officers, directors, and
principal stockholders and related interests of such persons are subject to
Sections 22 (g) and 22(h) of the Federal Reserve Act and Subpart A of the
Federal Reserve Board's Regulation O. These rules prohibit loans to any such
individual where the aggregate amount exceeds an amount equal to 15% of an
institution's unimpaired capital and surplus plus an additional 10% of
unimpaired capital and surplus in the case of loans that are fully secured by
readily marketable collateral, and/or when the aggregate amount outstanding to
all such individuals exceeds the institution's unimpaired capital and unimpaired
surplus. These rules also provide that no institution shall make any loan or
extension of credit in any manner to any of its executive officers or directors,
or to any person who directly or indirectly, or acting through or in concert
with one or more persons, owns, controls, or has the power to vote more than 10%
of any class of voting securities of such institution ("Principal Stockholder"),
or to a related interest (i.e., any company controlled by such executive
officer, director, or Principal Stockholder), or to any political or campaign
committee the funds or services of which will benefit such executive officer,
director, or Principal Stockholder or which is controlled by such executive
officer, director, or Principal Stockholder, unless such loan or extension of
credit is made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, does not involve more than the normal risk of repayment or
present other unfavorable features, and the institution follows underwriting
procedures that are not less stringent than those applicable to comparable
transactions by the institution with persons who are not executive officers,
directors, Principal Stockholders, or employees of the institution. A savings
association is therefore prohibited from making any new loans or extensions or
credit to the savings association's executive officers, directors, and 10%
stockholders at different rates or terms than those offered to employees of the
Bank generally. The rules identify limited circumstances in which an institution
is permitted to extend credit to executive officers. Management believes that
the Bank is in compliance with Sections 22(g) and 22(h) of the Federal Reserve
Act and Subpart A of the Federal Reserve Board's Regulation O.
The Federal Reserve System. Federal Reserve Board regulations require all
depository institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and Super NOW checking accounts) and non-
personal time deposits. Reserves of 3% must be maintained against total
transaction accounts of $54.0 million or less (after a $4.0 million exemption),
and an initial reserve of 10% (subject to adjustment by the Federal Reserve
Board to a level between 8% and 14%) must be maintained against that portion of
total transaction accounts in excess of such amount. At December 31, 1996, the
Bank was in compliance with these reserve requirements. The balances maintained
to meet the reserve
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<PAGE>
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "-Federal
Regulations-Liquidity Requirements."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require savings
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.
Federal and State Taxation
Federal Taxation. For federal income tax purposes, the Company files a
federal income tax return on a calendar year basis. Because the Mutual Holding
Company owns less than 80% of the outstanding common stock of the Bank, it is
not permitted to file a consolidated federal income tax return with the Bank.
Because the Mutual Holding Company has nominal assets other than the stock of
the Bank, it will initially have no material federal income tax liability.
Under recently enacted legislation, the percentage of taxable income method
has been repealed for years beginning after December 31, 1995, and "large"
associations, i.e., the quarterly average of the association's total assets or
of the consolidated group of which it is a member, exceeds $500 million for the
year, may no longer be entitled to use the experience method of computing
additions to their bad debt reserve. A "large" association must use the direct
write-off method for deducting bad debts, under which charge-offs are deducted
and recoveries are taken into taxable income as incurred. If the Bank is not a
"large" association, the Bank will continue to be permitted to use the
experience method. The Bank will be required to recapture (i.e., take into
income) over a six-year period its applicable excess reserves, i.e, the balance
of its reserves for losses on qualifying loans and nonqualifying loans, as of
the close of the last tax year beginning before January 1, 1996, over the
greater of (a) the balance of such reserves as of December 31, 1987 (pre-1988
reserves) or (b) in the case of a bank which is not a "large" association, an
amount that would have been the balance of such reserves as of the close of the
last tax year beginning before January 1, 1996, had the Bank always computed the
additions to its reserves using the experience method. Postponement of the
recapture is possible for a two-year period if an association meets a minimum
level of mortgage lending for 1996 and 1997.
If an association ceases to qualify as a "bank" (as defined in Code Section
581) or converts to a credit union, the pre-1988 reserves and the supplemental
reserve are restored to income ratably over a six-year period, beginning in the
tax year the association no longer qualifies as a bank. The balance of the pre-
1988 reserves are also subject to recapture in the case of certain excess
distributions to (including distributions on liquidation and dissolution), or
redemptions of, shareholders.
Delaware Taxation. As a Delaware holding company doing business in another
state, the Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual fee to the State of
Delaware. The Company is also subject to an annual franchise tax imposed by the
State of Delaware.
Florida Taxation. Foreign corporations, like the Company, pay a 5_% tax on
the portion of their net taxable income which is allocable to the State of
Florida.
The Company has not been audited by the Internal Revenue Service, the State
of Delaware or the State of Florida within the past five years. See Notes 1 and
13 to the Financial Statements.
33
<PAGE>
Executive Officers of the Registrant
Listed below is information, as of December 31, 1996, concerning the
Registrant's executive officers. There are no arrangements or understandings
between the Registrant and any of persons named below with respect to which he
or she was or is to be selected as an officer.
Name Age Position and Term
---- --- --------------------------------------
Vince A. Elhilow 57 President since 1987 and Chief
Executive Officer since 1992; Director
of the Bank since 1984
J. Robert McDonald 66 Executive Vice President of the Bank
as of December; 31, 1994; Manager of
the Appraisal Department since 1972;
President of Fidelity Realty &
Appraisal Service, Inc. since 1982
Richard D. Aldred 52 Executive Vice President as of
December 31, 1994; Treasurer and Chief
Financial Officer since 1985
Joseph C. Bova 52 Executive Vice President as of
December 31, 1994; Lending Operations
Manager
Robert L. Fugate 48 Executive Vice President as of
December 31, 1994; Banking Operations
Manager since 1982
Christopher H. Cook 53 Executive Vice President as of
December 31, 1996; Corporate Counsel
since 1996; Director of the Bank since
1993
David R. Hochstetler 52 Senior Vice President since 1984;
Director of Marketing since 1980; CRA
Officer since 1989
Janice R. Newlands 48 Senior Vice President since 1989;
Director of Human Resources Director
since 1986
Kenneth B. Stone, Jr. 46 Senior Vice President since 1989; Loan
Production Manager since 1984
Daniel F. Turk 42 Senior Vice President since 1991;
Property and Risk Manager since 1983
Patricia C. Clager 61 Vice President since 1990; Corporate
Secretary since 1987; Assistant to the
Chairman of the Board
Flora R. Schmidt 41 Senior Vice President since 1995;
Banking Administration Manager since
1984
Joseph B. Shearouse III 39 Senior Vice President since 1995;
Commercial Loan Manager since 1995
Brian C. Mahoney 36 Senior Vice President since December
31, 1995; Controller since 1988
34
<PAGE>
ITEM 2. PROPERTIES
The Bank conducts its business through its main office located in West Palm
Beach, Florida, and 19 additional full service branch offices located in Palm
Beach and Martin counties. The following table sets forth certain information
concerning the main office and each branch office of the Bank at December 31,
1996. The aggregate net book value of the Bank's premises and equipment was
$18.1 million at December 31, 1996.
LOCATION OPENING DATE OWNERSHIP ANNUAL
- -------- ------------ --------- ------
RENT
- ----
Main Office 12/22/52 Fee Simple/ $ 7,420
218 Datura St. Ground Lease
West Palm Beach, Florida
45th St. 10/23/60 Fee Simple -
4520 45th St.
West Palm Beach, Florida
Northlake 11/15/65 Fee Simple -
950 Northlake Blvd
Lake Park, Florida
Forest Hill 4/05/71 Fee Simple -
399 Forest Hill Blvd
West Palm Beach, Florida
Palm Beach 6/18/73 Fee Simple -
245 Royal Poinciana
Palm Beach, Florida
Century Corners 6/25/73 Fee Simple -
4835 Okeechobee Blvd
West Palm Beach, Florida
Singer Island 2/04/74 Fee Simple -
1200 E. Blue Heron
Riviera Beach, Florida
Jupiter/Tequesta 1/26/76 Ground Lease $ 13,250
171 Tequesta Dr
Tequesta, Florida
35
<PAGE>
Royal Palm Beach 3/15/76 Fee Simple -
100 Royal Palm Beach Blvd
Royal Palm Beach, Florida
Boynton Beach 12/19/77 Lease $ 120,458
1501 Corporate Dr
Boynton Beach, Florida
West Lake Worth 12/03/79 Fee Simple -
6535 Lake Worth Rd
Lake Worth, Florida
Wellington 6/02/80 Fee Simple -
12000 W. Forest Hill Blvd
Wellington, Florida
Delray Beach 10/20/80 Ground Lease $ 68,916.
5017 W. Atlantic Ave
Delray Beach, Florida
Jensen Beach 9/14/81 Fee Simple -
1021 NE Jensen Beach Blvd
Jensen Beach, Florida
Bear Lakes 5/15/89 Lease $ 192,286
701 Village Blvd
West Palm Beach, Florida
Palm Beach Gardens 5/20/91 Lease $ 143,523
10973 N. Military Tr
Palm Beach Gardens, Florida
Kanner/Monterey 7/06/93 Fee Simple -
2401 S. Kanner Highway
Stuart, Florida
Stuart 12/13/93 Fee Simple -
2980 South Federal Highway
Stuart, Florida
West Forest Hill 9/30/96 Fee Simple -
3989 Forest Hill Blvd.
West Palm Beach, Florida
The Bank's accounting and record keeping activities are maintained on the
Florida Informanagement Services, Inc. (FIS) service bureau system. FIS is owned
by its participating members, of which the Bank is one. The Bank's investment in
FIS at December 31, 1996 was $96,000, which
36
<PAGE>
represented a 9.88% interest in the Company. The Bank also owns data processing
equipment it uses for its internal processing needs. The net book value of such
data processing equipment and related software at December 31, 1996, was
approximately $950,000.
ITEM 3. LEGAL PROCEEDINGS
- -----------------------------
There are various claims and lawsuits in which the Bank is periodically
involved incident to the Bank's business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
No matters were submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- ------------------------------------------------------------
For information concerning the market for the Registrant's common stock,
the section captioned "Stockholder Information" of the Registrant's Annual
Report to Stockholders for the Year Ended December 31, 1996 (the "Annual Report
to Stockholders") is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- ----------------------------------------------------------
The "Selected Consolidated Financial and Other Data" section of the
Registrant's Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Registrant's Annual Report to Stockholders
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS
- --------------------------------
The financial statements identified in Item 14(a)(1) hereof are
incorporated by reference hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------------------------------
There were no changes in or disagreements with accountants in the
Registrant's accounting and financial disclosure during 1996.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
- -----------------------------------------------------
Information concerning Directors of the Registrant is incorporated herein
by reference from the Registrant's definitive Proxy Statement dated March 15,
1997 (the "Proxy Statement"), specifically the section captioned "Proposal I-
Election of Directors." In addition, see Item 1. "Executive Officers of the
Registrant" for information concerning the Company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION
- -----------------------------------
Information concerning executive compensation is incorporated herein by
reference from the Registrant's Proxy Statement, specifically the sections
captioned "Proposal I-Election of Directors-Executive Compensation," "-
Directors' Compensation," and "-Benefits."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
- ------------------------------------------------------------
Information concerning security ownership of certain owners and
management is incorporated herein by reference from the Registrant's Proxy
Statement.
ITEM 13. CERTAIN TRANSACTIONS
- ---------------------------------
Information concerning relationships and transactions is incorporated
herein by reference from the Registrant's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
- --------------------------------------------------------
The exhibits and financial statement schedules filed as a
part of this Form 10-K are as follows:
(a)(1) Financial Statements
--------------------
* Independent Auditors' Report
* Consolidated Statements of Financial Condition,
December 31, 1995 and 1996
* Consolidated Statements of Operations,
Years Ended December 31, 1994, 1995 and 1996
* Consolidated Statements of Changes in Stockholders'
equity, Years Ended December 31, 1994, 1995 and 1996
* Consolidated Statements of Cash Flows,
Years Ended December 31, 1994, 1995 and 1996
* Notes to Consolidated Financial Statements.
38
<PAGE>
(a)(2) Financial Statement Schedules
-----------------------------
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated
financial statements or related notes.
(a)(3) Exhibits
--------
3.1 Federal Stock Charter of Fidelity Federal Savings Bank
of Florida (Incorporated by reference to Exhibit
2(C)(5) of the Bank's Form MHC-1, as amended)
3.2 Bylaws of Fidelity Federal Savings Bank of Florida
(Incorporated by reference to Exhibit 2(C)(6) of the Bank's
Form MHC-1, as amended)
4 Common Stock Certificate of the Bank (Incorporated by
reference to Exhibit 2(B)(1) of the Bank's Form MHC-1, as
amended)
10.1 Incentive Stock Option Plan (Incorporated by reference to
Exhibit 2(D)(6) of the Bank's Form MHC-1, as amended)
10.2 Stock Option Plan for Outside Directors (Incorporated by
reference to Exhibit 2(D)(7) of the Bank's Form MHC-1, as
amended)
10.3 Employment Agreement with Vince A. Elhilow, President and
Chief Executive Officer (Incorporated
by reference to Exhibit 2(D)(1) of the Bank's Form 10-K
filed on March 29, 1994)
10.4 Recognition and Retention Plan for Employees (Incorporated
by reference to Exhibit 2(D)(4) of the Bank's Form MHC-1, as
amended)
10.5 Recognition and Retention Plan for Outside Directors
(Incorporated by reference to Exhibit 2(D)(5) of the Bank's
Form MHC-1, as amended)
10.6 Employee Severance Compensation Plan (Incorporated by
reference to Exhibit 2(D)(2) of the Bank's Form MHC-1, as
amended)
10.6.A Severance Agreement between the Bank and Richard D. Aldred,
Executive Vice President (Incorporated by reference to
Exhibit 10.6A of the Bank's Form 10-K filed on March 29,
1994)
39
<PAGE>
10.6.B Severance Agreement between the Bank and Joseph C. Bova,
Executive Vice President
10.6.C Severance Agreement between the Bank and Robert L. Fugate,
Executive Vice President
10.7 Employee Stock Ownership Plan (Incorporated by reference to
Exhibit 2(D)(3) of the Bank's Form MHC-1, as amended)
10.8 Fidelity Federal Savings Bank of Florida Senior Management
Performance Incentive Award Plan (Incorporated by reference
to Exhibit 2(D)(8) of the Bank's Form MHC-1, as amended)
13 1996 Annual Report to Stockholders
21 Subsidiaries of the Registrant
99.1 Proxy Statement for Annual Meeting of Stockholders
(b) Reports on Form 8-K:
-------------------
The Registrant filed no Current Report on Form 8-K during the
fourth quarter of fiscal 1996.
(c) The exhibits listed under (a)(3) above are filed herewith.
(d) Not applicable.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIDELITY BANKSHARES, INC.
Date: March 25, 1997 By: /s/ Vince A. Elhilow
-----------------------------
Vince A. Elhilow
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: /s/ Vince A. Elhilow By: /s/ Richard D. Aldred
----------------------------- ---------------------------------
Vince A. Elhilow President Richard D. Aldred, Executive Vice
and Chief Executive Officer President, Chief Financial
Officer and Treasurer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
Date: March 25, 1997 Date: March 25, 1997
By: /s/ Joseph B. Shearouse By: /s/ Keith D. Beaty
----------------------------- ---------------------------------
Joseph B. Shearouse, Jr., Keith D. Beaty, Director
Chairman of the Board
Date: March 25, 1997 Date: March 25, 1997
By: /s/ F. Ted Brown By: /s/ Christopher H. Cook
----------------------------- ---------------------------------
F. Ted Brown, Jr., Director Christopher H. Cook, Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/ Donald E. Warren
-----------------------------
Donald E. Warren, Director
Date: March 25, 1997
<PAGE>
EXHIBIT 13
1996 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
[LOGO OF FIDELITY BANKSHARES, INC. APPEARS HERE]
Annual Report
1996
<PAGE>
Table of Contents
Message from the President & CEO.................................. 2
Our Community - Watch Us Grow..................................... 4
Financial Highlights.............................................. 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations................ 8
Independent Auditors' Report...................................... 20
Consolidated Financial Statements................................. 21
Management's Assertions
as to the Effectiveness of its Internal Control
Structure over Financial Reporting and
Compliance with Designated Laws and
Regulations..................................................... 46
Independent Accountants' Report................................... 47
Board of Directors and Officers................................... 48
Office Locations.................................................. 50
Corporate Information.............................. Inside Back Cover
<PAGE>
A Message From the President & CEO
[PHOTO OF VINCE A. ELHILOW APPEARS HERE]
Vince A. Elhilow
President
Chief Executive Officer
To our stockholders:
Our message this year is one of exciting new opportunities. We have important
developments to report on a number of fronts; including our new mid-tier stock
holding company, rapid growth in deposits, loans and assets, and many exciting
new services.
Before addressing these developments, however, we must acknowledge that our
satisfaction is tempered by a sense of loss, resulting from the passing of
Director Fred DeHon. Mr. DeHon had been a member of our board of directors since
1978, and a resident of this area since the very earliest days of our bank.
Those of us who were privileged to work with him will miss his wisdom and
guidance. For those who did not know him, I urge you to read the memorial on
page 48, where you can learn more about the remarkable life of this esteemed
leader and friend. Following Mr. DeHon's death, the board of directors voted to
reduce the size of its membership to six.
During 1996, Fidelity Federal took a leadership position in the industry,
becoming the first federally chartered mutual holding company to form a mid-tier
stock holding company. As a result of the reorganization, Fidelity Federal
Savings Bank is now a wholly-owned subsidiary of Fidelity Bankshares, Inc., a
Delaware corporation. Fidelity Bankshares, Inc., in turn, is now majority-owned
by Fidelity Bankshares, MHC, the mutual holding company parent. As part of this
reorganization, each share of the Bank's outstanding common stock was
automatically converted into one share of Fidelity Bankshares, Inc. common
stock.
The reorganization into a two-tier structure provides us with greater
flexibility. We now have broader investment capability, including the
possibility of repurchasing Fidelity Bankshares, Inc. common stock. In addition,
through Fidelity Bankshares, Inc., we are better positioned to take advantage of
other business opportunities which may arise. The increased flexibility this
structure offers should benefit our stockholders and further enhance stockholder
value.
The overall positive outlook for the Bank is reflected in the continuing growth
of both assets and deposits in 1996, including a substantial increase in volume
in all loan categories. As of December 31, 1996, total assets stood at just
under $874 million, an increase of 12.0 percent over the previous year. The most
notable aspect of this achievement was the $100 million increase in overall loan
volume that was achieved during the year. Total mortgage volume increased by
53.5 percent to more than $214 million. As we continue to operate more like a
Commercial Bank, our consumer lending increased by 47 percent and our commercial
loans increased 367 percent. Concurrent with this growth in assets, total
deposits increased to more than $694 million, a 16.7 percent increase over
1995's year-end figure.
In terms of return to investors, Fidelity Bankshares, Inc. continues to
outperform the market. The chart on the top of page three analyzes the Bank's
total return performance compared to other U.S.-based NASDAQ stocks, other banks
of comparable size, and all OTC-traded banks. In each case, Fidelity Bankshares,
Inc. compares quite favorably.
2
<PAGE>
Total Return Performance
Based on the combined effect of dividends
and appreciation in stock value.
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Period Ending
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Index 1/7/94 9/30/94 6/30/95 3/31/96 12/31/96
- ------------------------------------------------------------------------
Fidelity Federal Savings 100.00 145.37 129.86 159.23 221.11
Nasdaq - Total US 100.00 98.22 121.07 143.73 168.90
Banks ($500M to $1B) 100.00 111.15 117.94 151.00 177.70
OTC Traded Banks 100.00 107.59 119.76 155.85 197.66
</TABLE>
We believe this excellent performance reflects the energy and dedication of our
officers and employees, as well as the underlying strength of the South Florida
economy. Because of our confidence in this market area, we continue to enhance
our services to the community, both in terms of
new offices and new products. In 1996 we moved both our West Boynton Beach and
West Forest Hill Offices into new full-service facilities, and also opened our
first loan production office (LPO) to serve the fast-growing south Palm Beach
County and northern Broward County markets. We later established a satellite LPO
in Coral Springs to better serve northern Broward County. Later this year we
will open a new office in Jupiter, and several other offices are planned during
the next few years.
We continue to expand our ATM network to better serve our customers. In late
1996 we began service with our first remote ATM at the South Florida
Fairgrounds. This venture was the result of our commercial banking relationship
with the South Florida Fair. Five more ATMs are planned for 1997, bringing our
network to fourteen.
We are very excited about several innovative new products introduced during the
year. These include our new PC Banking, Telephone Bill Pay services, and the
Visa Check Card. We believe these services are an added convenience, using
technology for our customers' benefit. Other new products include the Eagle
Account, a personal investment account, as well as the Business Reserve Account
which is designed to enhance business customers' ability to manage their cash
flow. Additionally, the Bank established a Worldwide Website - www.fidfed.com -
to provide information to customers.
Another innovative addition is our new Count On Us Checking account, which
offers a large number of "value-added" features such as discounts at local
merchant stores. This account has attracted many new depositors, and enhanced
our relationships with local business partners who offer discounts under the
program.
As we continue to enhance our competitive position by diversifying our
portfolio, we recognize we must remain true to those attributes which have made
Fidelity Federal what it is today. We are committed to our role as a local
community bank, as we have been for nearly 45 years. Moreover, we are committed
to returning maximum value to our shareholders by continuing to focus on our
strengths, while using our enhanced flexibility to respond quickly to new
opportunities as they arise.
/S/VINCE A. ELHILOW
Vince A. Elhilow
President and Chief Executive Officer
3
<PAGE>
Our Community - Watch Us Grow
Founded in 1952, Fidelity Federal is now in its 45th year as a leading financial
institution located in Palm Beach and Martin counties in south Florida. When the
Bank first opened its doors, the area was still considered a winter resort, with
its population and economy changing drastically with the change of seasons. Now,
in the 1990s, the area has developed a vibrant year-round economy.
Fidelity Federal has grown with the community, and now has a network of 20
offices, with more to come. The Bank staff is working to meet the challenges of
the rapidly changing community as we look to the beginning of the 21st century.
The 1995 estimated population of Palm Beach and Martin counties was just over 1
million people. By the year 2010, the University of Florida's Bureau of Economic
and Business Research projects the area will be home to more than 1.4 million
people - an increase of 32.2% in just 15 years!
Even more important than the population growth rate are the desirable
demographic and economic characteristics of the communities we serve. Among all
counties in Florida, Palm Beach and Martin counties have ranked among the top
three in per capita income in each of the past 10 years, and for seven of those
years they ranked first and second. Moreover, these counties continually post
income figures that are among the highest of all metropolitan areas in the
nation.
[GRAPHIC PHOTO OMITTED: PALM TREES AND A FOUNTAIN]
CityPlace's Church Plaza
Illustration provided by
City Place Partners
One of the facets of the growth is urban revitalization, with a prime example
being CityPlace in downtown West Palm Beach. Planned for construction on
formerly blighted parcels of land adjacent to a major thoroughfare, CityPlace
has a mixed-use urban plan combining cultural activities, retail stores, fine
restaurants, entertainment and
4
<PAGE>
residential living. The area will complement the existing fine arts center with
an opera house and convention center with hotel. Current plans call for 480,000
square feet for residential use, including 582 residential units. Leasing for
CityPlace has begun and will continue through 1997, with groundbreaking
scheduled for 1998 and the initial phase completed in 1999.
Downtown West Palm Beach has been home to Fidelity Federal's headquarters and
main office for nearly 45 years. The Bank will be in a prime position to serve
the banking needs of CityPlace's future merchants, retailers and residents.
[GRAPHIC PHOTO OMITTED: TREELINED STREET WITH BUILDINGS]
ABACOA's Workplace Campus
Illustration provided by
de Guardiola Development, Inc.
Another example of the growth is illustrated by the development of previously
rural land in Jupiter (northern Palm Beach County) into the 2,000-acre community
of ABACOA. This community received its initial approval in 1996, with more than
2,000 residential units expected by 1999 and a total of more than 6,000 units at
completion. Office space will encompass 2.2 million square feet, with an
additional 1 million square feet planned for regional, community and
neighborhood retail. ABACOA will also be home of the 135-acre northern campus of
Florida Atlantic University, an 18-hole championship golf course, a 23-acre
municipal recreation facility, and a 7,500 seat baseball stadium, which will be
the spring training facility for two major league baseball clubs.
Fidelity Federal has been one of the major lenders in northern Palm Beach County
for over 40 years. The ABACOA community will offer another tremendous
opportunity for future expansion.
Ambitious, long-term projects such as these are excellent examples of the
outstanding long-term potential to be found in the Palm Beaches. As a leading
local financial institution, Fidelity Federal is ideally positioned to play an
active role in such endeavors, and to continue building on its consistent record
of loan and deposit growth.
5
<PAGE>
Financial Highlights
On January 7, 1994, Fidelity Federal Savings Bank of Florida completed a
reorganization from a mutual savings bank, into a stock savings bank, with the
majority of its shares owned by a mutual holding company. As a result, certain
comparative, stockholder data is unavailable prior to 1994.
On January 29, 1997, Fidelity Federal Savings Bank of Florida consummated a tax-
free reorganization, by becoming a wholly-owned subsidiary of a Delaware
chartered, stock holding company known as Fidelity Bankshares, Inc. Each
stockholder's common stock in Fidelity Federal Savings Bank of Florida was
converted into shares of common stock in Fidelity Bankshares, Inc., in the same
proportionate ownership interest the stockholder held before the reorganization.
In addition, the reorganization was accounted for in the same manner as a
pooling of interests transaction. Consequently, the consolidated financial
statements required no accounting adjustments.
Fidelity Bankshares, Inc. common stock currently trades on the Nasdaq National
Market system under the symbol "FFFL" as Fidelity Federal's did before the
reorganization.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
FOR THE YEAR (In Thousands)
<S> <C> <C> <C> <C> <C>
Interest income $50,387 $44,755 $43,420 $53,261 $60,240
Interest expense 23,171 18,415 17,776 28,095 32,131
Net interest income 27,216 26,340 25,644 25,166 28,109
Net income 8,554 6,497 5,262 4,815 3,550
PER COMMON SHARE (1)
Net Income:
Primary N/A N/A $0.80 $0.73 $0.53
Fully diluted N/A N/A 0.80 0.73 0.53
Book value N/A N/A 11.35 12.31 12.12
Stock price:
High N/A N/A 13.64 17.00 18.50
Low N/A N/A 9.09 10.23 11.75
Close N/A N/A 10.00 16.25 17.75
AVERAGE FOR THE YEAR (In Thousands)
Assets $623,814 $658,463 $669,506 $741,777 $824,025
Loans receivable, net 449,264 434,522 441,573 490,088 605,507
Mortgage-backed securities 60,685 75,325 83,550 145,405 135,973
Investments (2) 78,642 95,284 103,715 63,605 35,530
Deposits 563,516 568,470 553,184 567,493 636,297
Borrowed funds 8,254 15,758 30,231 79,905 85,608
Stockholders' equity 35,725 43,394 72,546 77,356 81,339
SELECTED PERFORMANCE RATIOS
Return on average assets 1.37% .99% .79% .65% .43%
Return on average equity 23.94% 14.97% 7.25% 6.22% 4.36%
Interest rate spread on average assets 4.57% 4.25% 3.85% 3.28% 3.30%
YEAR END (In Thousands)
Total assets $638,183 $678,928 $712,643 $779,620 $873,562
Investments (2) 95,505 127,154 82,410 43,108 41,740
Cash and amounts due from depository institutions 18,098 15,205 19,275 14,989 15,293
Loans receivable, net 437,564 434,967 456,543 532,333 661,700
Mortgage-backed securities 64,558 75,199 126,807 159,761 123,599
Deposits 573,623 586,527 538,235 595,180 694,718
Borrowed funds 12,412 15,934 88,319 86,549 83,621
Equity 40,002 46,786 74,404 81,266 81,723
</TABLE>
(1) All per share items retroactively adjusted to reflect 10% stock dividend
distributed November 30, 1995.
(2) Includes Government and Agency securities, interest-bearing deposits and
Federal Home Loan Bank stock.
6
<PAGE>
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
On April 25, 1996, Fidelity Federal Savings Bank of Florida (the "Bank") adopted
an Agreement and Plan of Reorganization, (the "Plan") whereby the Bank would
become a wholly-owned subsidiary of a stock holding company, Fidelity
Bankshares, Inc. (the "Company"), a Delaware corporation. Pursuant to the Plan,
the Bank's mutual holding company parent would continue to own a majority of the
Company's outstanding common stock. In addition, as part of the Plan, each share
of the Bank's outstanding stock would be converted into one share of Fidelity
Bankshares, Inc. common stock. Consequently, following the reorganization, each
stockholder of the Bank would have the same ownership interest in Fidelity
Bankshares, Inc. as the stockholder had in the Bank. In November, 1996, the Bank
received regulatory approval to proceed with the reorganization and on January
21, 1997, the Bank's stockholders approved the Plan. On January 29, 1997, the
transaction was consummated, resulting in the Company owning all the outstanding
common stock of the Bank.
The reorganization, which has been accounted for in the same manner as a pooling
of interests merger, will not result in any significant accounting adjustments.
The Company conducts no business other than holding the common stock of the
Bank. Consequently, its net income is derived from the Bank's, which is
primarily dependent on its net interest income, which is the difference between
interest income earned on its investments in mortgage loans and mortgage-backed
securities, other investment securities and loans, and its cost of funds
consisting of interest paid on deposits and borrowings. The Bank's net income
also is affected by its provision for loan losses, as well as by the amount of
other income, including income from fees and service charges, net gains and
losses on sales of investments, and operating expense such as employee
compensation and benefits, deposit insurance premiums, occupancy and equipment
costs, and income taxes. Earnings of the Bank also are affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities, which
events are beyond the control of the Bank. In particular, the general level of
market rates tends to be highly cyclical. In periods of high interest rates,
earnings of the Bank are likely to be depressed, which in turn would be likely
to have a detrimental effect on the market value of any investment in the Bank's
common stock. In addition, legislative and regulatory actions may result in
diminishing the value of any investment in the Bank.
Business Strategy
The Bank's current business strategy is to operate as a well-capitalized,
profitable and independent community-oriented savings bank dedicated to
providing quality customer service. Generally, the Bank has sought to implement
this strategy by emphasizing retail deposits as its primary source of funds and
maintaining a substantial part of its assets in locally-originated residential
first mortgage loans, in mortgage-backed securities and in other liquid
investment securities. Specifically, the Bank's business strategy incorporates
the following elements: (1) operating as a community-oriented financial
institution, maintaining a strong core customer base by providing quality
service and offering customers the access to senior management and services that
a community-based institution can offer; (2) maintaining high levels of asset
quality by emphasizing investment in residential mortgage loans, mortgage-backed
securities and other securities issued or guaranteed by the United States
Government or agencies thereof; (3) managing interest rate risk exposure by
maintaining adequate levels of liquidity, while achieving desirable levels of
profitability; and (4) maintaining capital in excess of regulatory requirements
and growing only to the extent that adequate capital levels and asset quality
can be maintained.
8
<PAGE>
Highlights of the Bank's business strategy are as follows:
Community-Oriented Institution. The Bank is the second largest savings
institution headquartered in Palm Beach County, which in recent years has
experienced a significant influx of commercial banks and offices of savings
institutions headquartered outside of Florida. The Bank is committed to meeting
the financial needs of the communities in which it operates. The Bank believes
it is large enough to provide a full range of personal and business financial
services, and yet is small enough to be able to provide such services on a
personalized and efficient basis. Management believes that the Bank can be more
effective in servicing its customers than many of its non-local competitors
because of the Bank's ability to quickly and effectively provide senior
management responses to customer needs and inquiries. The Bank's ability to
provide these services is enhanced by the stability of the Bank's senior
management. The Bank intends to maintain its operation as a community-oriented,
independent savings institution.
Asset Quality and Emphasis on Residential Mortgage Lending. Since its inception,
the Bank has emphasized residential real estate financing as a portfolio lender,
and anticipates a continued commitment to financing the purchase or improvement
of residential real estate in its market area. To supplement local mortgage loan
originations, the Bank also invests in mortgage-backed securities that are
issued or guaranteed by the United States Government or agencies thereof. At
December 31, 1996, 83.3% of the Bank's total gross loan portfolio consisted of
one- to-four family residential mortgage loans, including residential
construction loans, and 15.1% of the Bank's total assets consisted of mortgage-
backed securities and investments that are issued or guaranteed by the United
States government or agencies thereof.
Generally, the yield on mortgage loans originated by the Bank is greater than
that of mortgage-backed securities purchased by the Bank. However, due to the
highly competitive market in which the Bank operates, the Bank may, from time to
time, not be able to originate a sufficient number of new mortgage loans to
offset the amortization and prepayments of its existing loan portfolio. In
addition, new real estate development opportunities in the Bank's market area
may diminish, as well as the adoption of growth controls by local governments,
which could further diminish lending opportunities of the Bank in the future. As
a result of these factors, new loan originations could be reduced in the future,
which may require the Bank to increase its investment in mortgage-backed
securities.
The percentage of small commercial business loans and consumer loans in the
Bank's portfolio has been below the levels of its peers. As a
result, the Bank's yield on its loan portfolio has been below peer levels. The
Bank has begun to expand its offering of commercial and consumer loan services,
but expects to continue to adhere to the Bank's relatively conservative loan
underwriting standards.
Interest Rate Risk Management. Deposit accounts typically react more quickly to
changes in market interest rates than interest-earning assets such as mortgage
loans, because of the relatively shorter maturities of deposits. When interest
rates are rising, the repricing of a higher volume of interest-bearing
liabilities compared to interest-earning assets will result in interest expense
increasing more rapidly than interest income, while in a falling interest rate
environment net interest income will be benefited. The difference between
interest-earning assets and interest-bearing liabilities expressed as a
percentage of total assets, is a measure of interest rate risk and is referred
to as an institution's interest rate gap. A gap is considered negative if
interest-bearing liabilities maturing or repricing in a particular time period
exceed interest-earning assets maturing or repricing within the same time
period. Management seeks to manage the Bank's interest rate risk exposure by
monitoring the levels of interest rate sensitive assets and liabilities while
maintaining an acceptable interest rate spread. At December 31, 1996, total
interest-bearing liabilities maturing or repricing within one year exceeded
total interest-earning assets maturing or repricing in the same period by $ 99.7
million, representing a cumulative one-year gap ratio of a negative 11.41%.
To reduce the potential volatility of the Bank's earnings in a changing interest
rate environment, the Bank has sought to manage interest rate risk by investing
a substantial part of its assets in relatively short-and medium- term United
States Government and agency securities, and in ARM loans and mortgage-backed
securities with
9
<PAGE>
adjustable interest rates. Of the Bank's total investment of $ 785.3 million in
loans and mortgage-backed securities at December 31, 1996, $ 413.1 million, or
52.6%, had adjustable interest rates. Another part of the Bank's interest rate
risk management strategy has been to extend the maturity of interest-bearing
liabilities, including using FHLB advances as a source of funds.
Strong Retail Deposit Base. The Bank has had a relatively strong retail deposit
base drawn from the 20 full-service offices in its market area. At December 31,
1996, 32.9% of its deposit base of $ 694.7 million consisted of core deposits,
which included non-interest demand accounts, passbook accounts, NOW accounts,
and money market demand deposit accounts. Core deposits are considered to be a
more stable and lower cost source of funds than certificates of deposit or
outside borrowings. The Bank will continue to emphasize retail deposits by
maintaining and seeking to expand its network of full-service offices, providing
depositors with a full range of accounts.
Capital Strength and Controlled Growth. The Bank's total equity at December 31,
1996, was $ 81.7 million. As a result, the Bank's ratio of total equity to total
assets was 9.4%. While the Bank intends to continue to increase retained
earnings and maintain high capital ratios, the present level of capital will
permit the Bank significantly greater growth opportunities than experienced in
prior years.
Results of Operations
The earnings of the Bank depend primarily on its level of net interest income,
which is the difference between interest earned on the Bank's interest-earning
assets, consisting primarily of mortgage loans, mortgage securities and other
investment securities, and the interest paid on interest-bearing liabilities,
consisting primarily of deposits. Net interest income is a function of the
Bank's interest rate spread, which is the difference between the average yield
earned on interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared to interest-bearing liabilities. The Bank's earnings also are
affected by its level of operating expenses and service charges as well as other
expenses, including employee compensation and benefits, occupancy and equipment
costs, and deposit insurance premiums.
General. The Bank had net income of $ 3.6 million, or $ .53 per share, for the
year ended December 31, 1996. Net income totaled $ 4.8 million, or $ .73 per
share, and $ 5.3 million, or $ .80 per share, for fiscal 1995 and 1994,
respectively. The decrease in net income for the year ended December 31, 1996,
compared to 1995 resulted primarily from the one-time special assessment of $
3.6 million charged against the Bank's income to recapitalize the Savings
Association Insurance Fund (SAIF). If this one-time special assessment had not
been incurred, earnings per share of common stock would have been $ .86 for the
year ended December 31, 1996 compared to $ .73 for the prior year.
Interest Income. Interest income increased by $ 6.9 million, or 13.0%, to $ 60.2
million for the year ended December 31, 1996 from $ 53.3 million for the year
ended December 31, 1995. The increase in interest income was principally
attributable to an increase in the average balance of the Bank's interest-
earning assets to $ 777.0 million from $ 699.1 million and an increase in the
yield on the Bank's average interest-earning assets to 7.75% from 7.62%. The
increase in average interest-earning assets was primarily the result of a $ 95.8
million increase in the average balance of mortgage loans and a $ 19.6 million
increase in average consumer and other loans, which was partially offset by
declines in average balances of $ 9.4 million in mortgage-backed securities and
$ 25.0 million in investment securities.
Interest income on mortgage loans increased by $ 7.6 million, or 21.0%, to $
43.9 million for the year ended December 31, 1996 from $ 36.3 million for the
year ended December 31, 1995 primarily because of an increase in the average
balance of these loans to $ 560.2 million from $ 464.4 million. Interest income
on consumer loans increased by $ 1.7 million in 1996 as compared to 1995. While
the average yield on consumer and other loans decreased to 9.00% in 1996 from
9.43% in 1995, this was more than offset by an increase in the average balance
of these loans to $ 45.3 million in 1996 from $ 25.7 million in 1995. Interest
income on mortgage-backed securities declined by $ 769,000 due mainly to a
decrease in the average balance to $ 136.0 million at
10
<PAGE>
December 31, 1996 from $145.4 million at December 31, 1995. Interest income on
investment securities decreased by $ 1.3 million. While the average yield on
investment securities increased to 6.49% in 1996 from 5.74% in 1995, this was
more than offset by a decrease in the average balance of these securities by $
25.0 million to $ 12.4 million at December 31, 1996 from $ 37.4 million at
December 31, 1995.
Interest income increased by $ 9.8 million, or 22.7%, to $ 53.3 million for the
year ended December 31, 1995 from $ 43.4 million for the year ended December 31,
1994. The increase in interest income was principally attributable to an
increase in the average yield on the Bank's average interest-earning assets to
7.62% from 6.90%, and an increase in the balance of average interest-earning
assets of $ 70.3 million, to $ 699.1 million from $ 628.8 million. The increase
in average interest-earning assets was the result of a $ 61.9 million increase
in average mortgage-backed securities and a $ 39.8 million increase in average
mortgage loans. The increase in average yield on interest-earning assets was
also caused by the increase in the average balance of mortgage-backed securities
along with an increase in the average yield on those securities to 7.37% for
1995 from 5.09% during 1994. Also contributing to this increase was an increase
in the average balance of consumer and other loans of $ 8.7 million along with
an increase in the average yield on these loans to 9.43% for 1995 from 8.81%
during 1994.
Interest income on mortgage loans increased by $ 3.0 million, or 9.0%, to $ 36.3
million for the year ended December 31, 1995 from $ 33.3 million for the year
ended December 31, 1994, primarily because of an increase in the average balance
of mortgage loans to $ 464.4 million from $ 424.6 million in 1994. Interest
income on consumer and other loans increased by $ 928,000 in 1995, as compared
to 1994. While the average yield on consumer and other loans increased from
8.81% in 1994 to 9.43% in 1995, the principal reason for the increase in
interest income was a 51.6% increase in the average balance of such loans in
1995, as compared to 1994. Interest income on mortgage-backed securities
increased by $ 6.5 million to $ 10.7 million. The increase in interest income on
mortgage-backed securities was caused by an increase in the average balance of
such securities by $ 61.9 million to $ 145.4 million. Also, the average yield on
these mortgage-backed securities increased to 7.37% at December 31, 1995,
compared to 5.09% in 1994. Interest income on investment securities decreased by
$ 840,000 as a result of a decrease in the average balance of these securities
to $ 37.4 million in 1995 compared to $ 69.8 million in 1994. Income from other
investments, consisting of interest-earning deposits in other financial
institutions and FHLB stock increased by $ 290,000 to $ 1.7 million for the year
ended December 31, 1995, compared to $ 1.4 million in 1994. The average balances
of these investments decreased by $ 7.7 million in 1995, or 22.7%, compared to
1994 but were offset by an increase in average yield to 6.41% at December 31,
1995 compared to 4.10% in 1994.
Interest Expense. Interest expense increased by $ 4.0 million, or 14.4%, to $
32.1 million for the year ended December 31, 1996 from $ 28.1 million for the
year ended December 31, 1995. The increase is due mainly to an increase in the
average cost of interest-bearing deposits to 4.29% from 4.12% and an increase in
the average balance of interest-bearing deposits to $ 611.0 million for the year
ended December 31, 1996 from $ 546.4 million for the same period in 1995. The
average balance of FHLB advances increased by $ 5.7 million to $ 85.6 million in
1996 compared to $ 79.9 million in 1995. The Bank increased its FHLB advances
principally for liquidity purposes.
Interest expense increased by $ 10.3 million, or 58.1%, to $ 28.1 million for
the year ended December 31, 1995 from $ 17.8 million for the year ended December
31, 1994. The increase was attributable to an increase in the average cost of
the Bank's interest-bearing deposits to 4.12% from 3.00% and an increase in the
average balance of interest-bearing deposits of $ 10.9 million. The average
balance of FHLB advances increased by $ 49.7 million to $ 79.9 million in 1995
compared to $ 30.2 million in 1994. The Bank increased its FHLB advances as part
of its interest rate risk strategy of extending the maturity of its interest-
bearing liabilities and for liquidity purposes.
Net Interest Income. Net interest income increased by $ 2.9 million, or 11.7%,
to $ 28.1 million from $ 25.2 million for the years ended December 31, 1996 and
1995, respectively. The principal reason for this increase in net interest
income was an increase in the Bank's loans receivable to $ 661.7 million at
11
<PAGE>
December 31, 1996 from $ 532.3 million at December 31, 1995 and an increase in
the Bank's average interest rate spread to 3.14% from 3.13%.
Net interest income decreased slightly to $ 25.2 million for the year ended
December 31, 1995 from $ 25.6 million for the same period in 1994, representing
a decrease of $ 478,000, or 1.9%. The principal reason for the reduction in net
interest income was a decrease in the Bank's average interest rate spread to
3.28% from 3.85%. This was partially offset by a slight improvement in the
Bank's ratio of average interest-earning assets to average interest-bearing
liabilities.
Provision for Loan Losses. The Bank's provision for loan losses increased to $
164,000 for the year ended December 31, 1996 compared to a negative $ 210,000
for the year ended December 31, 1995. The 1995 negative provision was
principally the result of reversing provisions on two loans based on new
appraisals performed during that year, while the 1996 provision reflects more
normal circumstances. The Bank's total allowance for loan losses at December 31,
1996 of $ 2.3 million was deemed adequate by management, in light of the risks
inherent in the Bank's loan portfolio.
The Bank had a negative provision for loan losses of $ 210,000 for the year
ended December 31, 1995 compared to a positive $ 112,000 for the year ended
December 31, 1994. This was principally the result of reversing specific
valuation allowances for loan losses on two of the Bank's significant loans,
based on new appraisals performed during the year.
The financial statements of the Bank are prepared in accordance with generally
accepted accounting principles and, accordingly, allowances for loan losses are
based on management's estimate of the fair value of collateral, as applicable,
and the Bank's actual loss experience and standards applied by the OTS and FDIC.
The Bank provides both general valuation allowances (for unspecified, potential
losses) and specific valuation allowances (for known losses) in its loan
portfolio. General valuation allowances are added to the Bank's capital for
purposes of computing the Bank's regulatory risk-based capital. The Bank
regularly reviews its loan portfolio, including impaired loans, to determine
whether any loans require classification or the establishment of appropriate
valuation allowances.
Other Income. Other income increased by $ 1,855,000, or 61.4%, to $ 4.9 million
for the year ended December 31, 1996 from $ 3.0 million for the same period in
1995. This increase in other income was primarily the result of a $1.2 million
increase in gain in sale of loans, mortgage-backed securities and investments.
Also contribution to this increase, were increases in the Bank's fee income and
other income of $ 532,000 and $ 113,000, respectively.
Other income increased by $ 524,000, or 21.0%, to $ 3.0 million for the year
ended December 31, 1995, from $ 2.5 million for the same period in 1994. The
increase in other income resulted primarily from an increase in fee income of $
518,000 and an increase in other income of $ 16,000 which was partially offset
by a decrease in the gain on sale of loans, mortgage-backed securities and
investments of $ 10,000.
Operating Expense. Operating expense increased by $ 6.3 million, or 30.6%, to
$ 26.7 million for the year ended December 31, 1996 from $ 20.4 million for the
same period in 1995. Employee compensation and benefits represent $ 2.0 million,
or 19.1%, of this increase. This resulted primarily from additional personnel
hired for the creation of a legal department and loan production, including
employees in the Bank's Loan Production Office (LPO) opened in January, 1996 and
the expansion of a branch office in April, 1996. The Bank's occupancy and
equipment cost for the year ended December 31, 1996 was $ 456,000 more than
experienced in 1995, primarily as a result of opening the LPO office in January,
1996 and operating and upgrading the previously mentioned branch office. Federal
deposit insurance premiums increased by $ 3.7 million to $ 4,958,000 for the
year ended December 31, 1996 compared to $ 1,279,000 in 1995. This increase
resulted from the SAIF one-time special assessment discussed earlier. Other
operating expense increased by $ 188,000 for the year ended December 31, 1996
when compared to the 1995. These increases were only partially offset by an
increase in gain on real estate owned of $ 98,000 and a decrease in marketing
expense of $ 13,000 for the year ended December 31, 1996 compared to 1995.
12
<PAGE>
Operating expense increased by $ 1.1 million, or 5.5%, to $ 20.4 million for the
year ended December 31, 1995. Employee compensation and benefits increased by $
56,000 in 1995 to $ 10.7 million, representing an increase of .52%. The Bank's
employee compensation increased by $ 406,000, largely as a result of an increase
in personnel, principally in loan originations, of 3.9%. In addition, the Bank's
hospitalization costs increased by $ 244,000. These costs were offset by
decreases in stock based compensation and officer incentives of $ 137,000 and
allocation of employee costs to the Bank's mutual holding company of $ 299,000.
Of the $ 555,000 increase in occupancy and equipment costs, $ 327,000 is
attributable to data processing expenses, resulting from the installation and
operation of new equipment, $ 114,000 represents an increase in property taxes
and the balance of the increase is due to operating two new offices for the
entire 1995 year compared to only four months in 1994. Miscellaneous expense
increased by $ 431,000 which is comprised of an increase of $ 173,000 in audit
and consulting fees, an increase of $ 145,000 in goodwill amortization relating
to the Bank's acquisition of deposits from the RTC during the summer of 1994 and
an increase in temporary help expense of $ 108,000.
Income Taxes. Federal and state income taxes decreased by $ 571,000 to $ 2.6
million for the year ended December 31, 1996 compared to $ 3.1 million for the
year ended December 31, 1995. Lower taxes resulted from the decline in income
before provision for income taxes to $ 6.1 million in 1996 from $ 7.9 million in
1995.
Income taxes for the year ended December 31, 1995 were $ 3.1 million, a decrease
of $ 259,000 for the comparable period in 1994 which was attributable to a
decrease in income before tax to $ 7.9 million from $ 8.7 million.
Average Balance Sheet
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material difference in the information
presented.
13
<PAGE>
Average Balance Sheet
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1996 For the Year Ended December 31, 1994
Actual Actual Average Average
Balance Yield/Cost Balance Yield/Cost Balance Interest Yield/Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans.................... $500,461 7.88% $604,614 7.88% $424,626 $33,298 7.84%
Consumer and other loans.......... 31,872 9.12% 57,086 8.64% 16,947 1,493 8.81%
Mortgage-backed securities........ 159,761 7.56% 123,599 7.29% 83,550 4,253 5.09%
Investment securities............. 26,986 6.44% 8,465 6.30% 69,773 2,984 4.28%
Other investments (1)............. 16,122 6.23% 33,275 5.58% 33,942 1,392 4.10%
--------- --------- --------- ---------
Total interest-earning
assets....................... 735,202 7.78% 827,039 7.74% 628,838 43,420 6.90%
Non-interest-earning assets............ 44,418 46,523 40,668
--------- --------- ---------
Total assets................. $779,620 $873,562 $669,506
========= ========= =========
Interest-bearing liabilities:
Deposits.......................... $573,750 4.13% $668,312 4.26% $535,559 $16,059 3.00%
Borrowed funds.................... 86,549 6.89% 83,621 6.76% 30,231 1,717 5.68%
Total interest-bearing....... --------- --------- --------- ---------
liabilities.................. 660,299 4.48% 751,933 4.54% 565,790 17,776 3.14%
Non-interest-bearing liabilities....... 38,055 39,906 31,170 ---------
--------- --------- ---------
Total liabilities............ 698,354 791,839 596,960
Net worth.............................. 81,266 81,723 72,546
--------- --------- ---------
Total liabilities and
net worth.................... $779,620 $873,562 $669,506
========= ========= =========
Net interest income:................... $25,644
Net interest rate spread (2)........... 3.30% 3.20% ======= 3.76%
Net yield on interest-earning.......... ======== ========= =======
assets (3)............................. 3.63% 3.61% 4.08%
Ratio of average interest-earning...... ======== ========= =======
assets to average interest-bearing
liabilities............................ 107.84% 109.99% 111.14%
======== ========= =======
</TABLE>
(1) Includes interest-bearing deposits in other financial institutions and FHLB
stock.
(2) Net interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
Average Balance Sheet (continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1996
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans................... $464,392 $36,296 7.82% $560,233 $43,923 7.84%
Consumer and other loans......... 25,696 2,421 9.43% 45,274 4,074 9.00%
Mortgage-backed securities....... 145,405 10,718 7.37% 135,973 9,949 7.32%
Investment securities............ 37,380 2,144 5.74% 12,391 804 6.49%
Other investments (1)............ 26,225 1,682 6.41% 23,139 1,490 6.44%
--------- -------- --------- --------
Total interest-earning
assets...................... 699,098 53,261 7.62% 777,010 60,240 7.75%
Non-interest-earning assets........... 42,679 47,015
--------- ---------
Total assets................ $741,777 $824,025
========= =========
Interest-bearing liabilities:
Deposits......................... $546,453 $22,515 4.12% $611,031 $26,239 4.29%
Borrowed funds................... 79,905 5,580 6.98% 85,608 5,892 6.88%
--------- -------- --------- --------
Total interest-bearing
liabilities................. 626,358 28,095 4.49% 696,639 32,131 4.61%
--------
Non-interest-bearing liabilities...... 38,063 46,047
--------- ---------
Total liabilities........... 664,421 742,686
Net worth............................. 77,356 81,339
--------- ---------
Total liabilities
and net worth............... $741,777 $824,025
========= =========
Net interest income................... $25,166 $28,109
========= ========
Net interest rate spread (2).......... 3.13% 3.14%
-------- --------
Net yield on interest-earning
assets (3)............................ 3.60% 3.62%
Ratio of average interest-earning..... ======== --------
assets to average interest-
bearing liabilities.............. 111.61% 111.54%
======== ========
</TABLE>
(1) Includes interest-bearing deposits in other financial institutions and FHLB
stock.
(2) Net interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
14
<PAGE>
Rate Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); (ii) changes in rate (change
in rate multiplied by old average volume); and (iii) the net change.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 vs 1994 1996 vs 1995
Increase/(Decrease) Increase/(Decrease)
Due to Total Due to Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Mortgage loans............. $3,118 $(110) $(10) $2,998 $7,491 $113 $23 $7,627
Consumer and other loans... 771 103 54 928 1,845 (109) (83) 1,653
Mortgage-backed securities. 3,148 1,906 1,411 6,465 (695) (79) 5 (769)
Investment securities...... (1,385) 1,018 (473) (840) (1,433) 281 (188) (1,340)
Other investments.......... (317) 785 (178) 290 (198) 7 (1) (192)
-------- -------- -------- -------- -------- ------- ----- -------
Total interest-earning
assets..................... 5,335 3,702 804 9,841 7,010 213 (244) 6,979
======= ======= ======= ======= ======= ====== ===== =======
Interest expense:
Deposits................... 327 6,007 122 6,456 2,661 951 112 3,724
Borrowed funds............. 2,822 394 647 3,863 398 (81) (5) 312
-------- -------- -------- -------- -------- ------- ----- -------
Total interest-bearing
liabilities................ 3,149 6,401 769 10,319 3,059 870 107 4,036
-------- -------- -------- -------- -------- ------- ----- ------
Change in net interest income... $2,186 $(2,699) $35 $(478) $3,951 $(657) $(351) $2,943
======== ======== ======= ======== ======= ======= ===== ======
</TABLE>
Asset and Liability Management - Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
and interest-bearing liabilities maturing or repricing within that time period.
A gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income while a positive gap would tend to positively affect net
interest income. Similarly, during a period of falling interest rates, a
negative gap would tend to positively affect net interest income while a
positive gap would tend to adversely affect net interest income.
The Bank's policy in recent years has been to reduce its exposure to interest
rate risk generally by better matching the maturities of its interest rate
sensitive assets and liabilities and by originating ARM loans and other
adjustable rate or short-term loans, as well as by purchasing short-term
investments. However, particularly in a low interest rate environment borrowers
typically prefer fixed rate loans to ARM loans. The Bank seeks to lengthen the
maturities of its deposits by promoting longer-term certificates. The Bank does
not solicit high-rate jumbo certificates or brokered funds.
At December 31, 1996, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing in
the same period by $ 99.7 million, representing a cumulative one-year gap ratio
of a negative 11.41%. The Bank has an Asset-Liability Management Committee which
is responsible for reviewing the Bank's assets and liability policies. The
Committee meets weekly and reports monthly to the Board of Directors on interest
rate risks and trends, as well as liquidity and capital ratio requirements.
15
<PAGE>
Gap Table
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1996, which are
expected to reprice or mature, based upon certain assumptions, in each of the
future time periods shown. Except as stated below, the amounts of assets and
liabilities shown that reprice or mature during a particular period were
determined in accordance with the earlier of the term of repricing or the
contractual terms of the asset or liability. The Bank has assumed that its
passbook savings, interest-bearing NOW, and money market accounts, which totaled
$ 202.1 million at December 31, 1996, are withdrawn at the annual percentage
rates set forth in the table on the next page. For information regarding the
contractual maturities of the Bank's loans, investments, and deposits, see Notes
to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Amounts Maturing or Repricing
Within 3 6 Months to
Months 3-6 Months 1 Year 1-3 Years 3-5 Years Over 5 Years Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest -earning assets:
Real estate loans:
Residential one-to four-family:
Current market index ARMs........ $24,437 $15,095 $22,736 $48,648 $26,726 $15,559 $153,201
Lagging market index ARMs........ 24,558 23,616 34,763 26,948 137 - 110,022
Fixed rate....................... 22,284 10,920 18,582 61,816 46,597 126,933 287,132
Commercial and
multi-family:
ARMs............................ 15,404 6,406 9,793 11,977 3,384 145 47,109
Fixed rate...................... 1,095 650 964 1,851 902 2,074 7,536
Consumer and commercial
business......................... 32,040 2,525 4,202 11,838 6,106 614 57,325
Investment securities............ 27,127 - 2,000 6,444 - - 35,571
FHLB stock....................... 6,148 - - - - - 6,148
Mortgage-backed
securities:
Adjustable..................... 44,168 1,906 735 - - - 46,809
Fixed.......................... 2,059 2,010 3,883 16,093 11,150 40,100 75,295
-------- -------- -------- -------- -------- -------- --------
Total interest-
earning assets (1)............ 199,320 63,128 97,658 185,615 95,002 185,425 826,148
-------- -------- -------- -------- -------- -------- --------
Interest-bearing
liabilities:
Passbook accounts................. 15,074 9,033 14,060 31,251 11,469 6,647 87,534
NOW accounts...................... 7,707 7,497 3,910 13,068 9,749 28,627 70,558
Money market accounts............. 1,932 708 1,372 5,046 4,409 30,545 44,012
Certificate accounts.............. 140,670 90,969 127,272 79,893 27,323 81 466,208
Borrowed funds.................... 13,844 25,393 359 29,824 6,411 7,791 83,622
-------- -------- -------- -------- -------- -------- --------
Total interest-
bearing liabilities........... 179,227 133,600 146,973 159,082 59,361 73,691 751,934
-------- -------- -------- -------- -------- -------- --------
Interest-earning assets
less interest-
bearing liabilities
("interest rate
sensitivity gap")................ $20,093 $(70,472) $(49,315) $26,533 $35,641 $111,734 $74,214
======== ======== ======== ======== ======== ======== ========
Cumulative excess (deficiency) of
interest-sensitive
assets over interest-
sensitive liabilities............ $20,093 $(50,379) $(99,694) $(73,161) $(37,520) $74,214 $74,214
======== ======== ======== ======== ======== ======== ========
Cumulative interest
sensitivity gap to
total assets........................ 2.30% (5.77)% (11.41)% (8.38)% (4.30)% 8.50% 8.50%
======= ======== ======= ======== ======== ======== ========
Cumulative ratio of
interest-earning
assets to interest-bearing
liabilities......................... 111.21% 83.90% 78.32% 88.18% 94.47% 109.87% 109.87%
======= ======== ======== ======== ======== ======== =======
</TABLE>
(1) The above table shows expected cash flows within the time periods
presented. Accordingly, the balances do not reflect adjustments for
premiums, discounts, and market value adjustments.
16
<PAGE>
In preparing the table above, it has been assumed, based on the Bank's own
internal calculation of loan prepayment rates, that the Bank's loan portfolio
will prepay at rates averaging 10%. It is also assumed that mortgage-backed
securities will prepay at rates ranging from 8.00% to 20.00% and NOW, passbook
and money market accounts will decay, based on a study of the Bank's actual
experience, at the following rates:
<TABLE>
<CAPTION>
Over 6
Months Over 1 Over 3 Over 5 Over 10
6 Months Through Through Through Through Through Over 20
or Less 1 Year 3 Years 5 Years 10 Years 20 Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
NOW accounts 38.08% 13.63% 13.63% 13.63% 13.63% 13.63% 13.63%
Passbook, club accounts 46.32% 39.42% 39.42% 39.42% 39.42% 39.42% 39.42%
Money market deposit accounts 9.23% 6.52% 6.52% 6.52% 6.52% 6.52% 6.52%
</TABLE>
The above assumptions are annual percentages based on remaining balances and
should not be regarded as indicative of the actual prepayments and withdrawals
that may be experienced by the Bank in any given period. Moreover, certain
shortcomings are inherent in the analysis presented by the foregoing tables. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, interest rates on certain types of assets and liabilities
may fluctuate in advance of or lag behind changes in market interest rates.
Additionally, certain assets, such as ARM loans, have features that restrict
changes in interest rates on a short-term basis and over the life of the assets.
Moreover, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. For information regarding the contractual maturities of
the Bank's loans, investments, and deposits, see Notes to Consolidated Financial
Statements.
Under OTS risk-based capital regulations, savings associations are required to
calculate the market value of their portfolio equity (MVPE). These calculations
are based upon data concerning interest-earning assets, interest-bearing
liabilities and other rate sensitive assets and liabilities provided to the OTS
on schedule CMR of the Quarterly Thrift Financial Report. Commencing March 31,
1994, for purposes of measuring interest rate risk, the OTS began using the MVPE
calculations which essentially discount the cash flows from an institution's
assets and liabilities to present value, using current market rates.
The amendments to the risk-based capital regulations require institutions to
hold additional risk-based capital in an amount equal to one-half the amount an
institution's interest rate risk exceeds the normal amount of interest rate
risk. Normal interest rate risk is defined as 2% of the MVPE at static interest
rates. If, after applying a rate shock of 200 basis points ("bp") (one basis
point equals .01%) of either a decline or increase in rates, the resultant
negative change in MVPE exceeds 2% of MVPE at static interest rates, an
institution is deemed to have excess interest rate risk. At December 31, 1996,
the Bank was not required to hold additional risk-based capital for interest
rate risk.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The required ratio currently is 5.0%. The Bank's
liquidity ratio averaged 6.15% during the month of December 1996 and 8.4% during
the month of December 1995. Liquidity ratios averaged 6.78% and 11.8% for the
years ended December 31, 1996 and 1995, respectively. The Bank adjusts its
liquidity levels in order to meet funding needs of deposit outflows, payment of
real estate taxes on mortgage loans, repayment of borrowings and loan
commitments. The Bank also adjusts liquidity as appropriate to meet its asset
and liability management objectives.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities, maturities of investment securities and
other short-term investments, and earnings and funds provided from operations.
While scheduled principal repayments on loans and mortgage-backed securities are
a relatively
17
<PAGE>
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Bank manages the pricing of its deposits to maintain a desired deposit balance.
In addition, the Bank invests excess funds in short-term interest-earning and
other assets, which provide liquidity to meet lending requirements. Short-term
interest-bearing deposits with the FHLB of Atlanta amounted to $ 27.0 million
and $ 9.8 million at December 31, 1996 and 1995, respectively. Other assets
qualifying for liquidity outstanding at December 31, 1996, and 1995, amounted to
$ 19.8 million and $ 40.1 million, respectively. For additional information
about cash flows from the Bank's operating, financing, and investing activities,
see Consolidated Statements of Cash Flows included in the Financial Statements.
A major portion of the Bank's liquidity consists of cash and cash equivalents,
which are a product of its operating, investing and financing activities. The
primary sources of cash were net income, principal repayments on loans and
mortgage-backed securities, and increases in deposit accounts along with
advances from the Federal Home Loan Bank.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. At December 31, 1996, the Bank had $ 82.5 million in advances
from the FHLB. The Bank engages in borrowing from the FHLB in order to reduce
interest rate risk, and for liquidity purposes.
At December 31, 1996, the Bank had outstanding loan commitments of $ 21.8
million to originate and/or purchase mortgage loans. This amount does not
include the unfunded portion of loans in process. Certificates of deposit
scheduled to mature in less than one year at December 31, 1996, totaled $ 322.0
million. Based on prior experience, management believes that a significant
portion of such deposits will remain with the Bank, although their rates could
increase.
Changes in Financial Condition
During 1996, the Bank's assets increased by $ 93.9 million. Loans receivable
increased in the amount of $ 129.4 million. Cash and cash equivalents also
increased by $ 17.5 million. These increases were partially offset by a decline
of $ 54.7 million in assets available for sale. Of this decrease, $ 19.5 million
resulted from the sale of mortgage-backed securities. The Bank experienced
deposit inflows during 1996 of $ 99.5 million, as a result of a more aggressive
pricing of its certificates of deposit, which together with an increase in
equity, net of the change in unrealized increase in fair value of assets
available for sale, of $ 2.3 million, provided the principal funds for the
Bank's asset growth.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Bank and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Bank's operations.
Unlike most industrial companies, nearly all the assets and liabilities of the
Bank are monetary. As a result, interest rates have a greater impact on the
Bank's performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.
Impact of New Accounting Standards
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 122, "Accounting for Mortgage Servicing
Rights." The Statement, which amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities," requires mortgage banking enterprises that acquire
mortgage servicing rights through either the purchase of or origination of
mortgage loans and sell or securitize those loans with servicing rights retained
to allocate the total cost of the mortgage loans to the mortgage
18
<PAGE>
servicing rights and the loans based on their relative fair values. Mortgage
banking enterprises include commercial banks and thrift institutions that
conduct operations substantially similar to the primary operations of a mortgage
banking enterprise. SFAS No. 122 applies prospectively in fiscal years beginning
after December 15, 1995 to sales of mortgage loans with servicing rights
retained and to impairment evaluations of all amounts capitalized as mortgage
servicing rights, including those purchased before the adoption of this
Statement. Management of the Bank implemented SFAS No. 122, prospectively, as
required. The adoption of this accounting principle had the effect of increasing
income before tax by $ 196,000 for the fiscal year ended December 31, 1996.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to account for
them, defines a fair value based method of accounting for an employee stock
option or similar equity instrument, and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
stock-based compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value method of accounting defined in this Statement had been applied.
Under the fair value method, compensation cost 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. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. The disclosure requirements of this Statement are effective
for financial statements for fiscal years beginning after December 15, 1995. Pro
forma disclosures required for entities that elect to continue to measure
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. Management
has determined that the Bank will continue the accounting set forth in APB
Opinion No. 25 and will make such pro forma disclosures as are required
beginning with the year ended December 31, 1996. There were no stock options
awarded during 1995 or 1996.
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on a financial-
components approach that focuses on control. Statement 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be prospectively applied. Management
of the Bank does not expect the adoption of this promulgation to have a material
effect on the Bank's consolidated financial statements.
19
<PAGE>
Independent Auditors' Report
Board of Directors of
Fidelity Bankshares, Inc.:
We have audited the accompanying consolidated statements of financial position
of Fidelity Bankshares, Inc. (the "Company") and its wholly owned subsidiary,
Fidelity Federal Savings Bank of Florida, as of December 31, 1995 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fidelity Bankshares, Inc. and
subsidiary at December 31, 1995 and 1996 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights," in 1996.
/S/Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, FL
February 21, 1997
20
<PAGE>
CONSOLIDATED STATEMANTS OF FINANCIAL POSITION
AT DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
ASSETS (In Thousands)
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions..................................... $ 14,989 $ 15,293
Interest-bearing deposits............................................................. 9,974 27,127
-------- --------
Total cash and cash equivalents (Note 1, 19)..................................... 24,963 42,420
ASSETS AVAILABLE FOR SALE (At Fair Value):
(Notes 1, 2, 3, 19)
Government and agency securities...................................................... 26,986 8,465
Mortgage-backed securities............................................................ 159,761 123,599
-------- --------
Total assets available for sale.................................................. 186,747 132,064
LOANS RECEIVABLE, Net of allowance for loan losses - 1995, $2,265;
1996, $2,263 (Notes 1, 4, 19)......................................................... 532,333 661,700
OFFICE PROPERTIES AND EQUIPMENT, Net (Notes 1, 5).......................................... 15,563 18,092
FEDERAL HOME LOAN BANK STOCK, At cost...................................................... 6,148 6,148
REAL ESTATE OWNED, Net (Notes 1, 6)........................................................ 643 93
ACCRUED INTEREST RECEIVABLE (Note 7)....................................................... 4,627 4,614
OTHER ASSETS (Note 1, 11).................................................................. 8,596 8,431
-------- --------
TOTAL ASSETS............................................................................... $ 779,620 $ 873,562
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS (Note 8, 19)...................................................................... $ 595,180 $ 694,718
ADVANCES FROM FEDERAL HOME LOAN BANK (Note 9, 19).......................................... 85,169 82,517
ESOP LOAN (Note 10, 19).................................................................... 1,380 1,104
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE.............................................. 2,734 2,448
DRAFTS PAYABLE (Note 1).................................................................... 3,663 2,957
OTHER LIABILITIES (Notes 1, 12)............................................................ 7,368 7,209
DEFERRED INCOME TAXES (Notes 1, 11)........................................................ 2,860 886
-------- --------
TOTAL LIABILITIES..................................................................... 698,354 791,839
COMMITMENTS AND CONTINGENCIES (Note 1, 15)................................................. ======== ========
STOCKHOLDERS' EQUITY (Notes 1, 11, 12, 13, 14, 17):
PREFERRED STOCK, 2,000,000 shares authorized, none issued.................................. - -
COMMON STOCK ($.10 par value) 8,200,000 authorized shares:
outstanding 6,717,821 and 6,744,689 at December 31, 1995 and 1996, respectively....... 672 675
ADDITIONAL PAID IN CAPITAL................................................................. 37,170 37,397
RETAINED EARNINGS - substantially restricted............................................... 42,764 44,184
COMMON STOCK PURCHASED BY:
Employee stock ownership plan......................................................... (1,644) (1,315)
Recognition and retention plan........................................................ (280) -
NET UNREALIZED INCREASE IN FAIR VALUE OF ASSETS AVAILABLE FOR SALE
(Net of applicable income taxes) (Notes 1, 2, 3)...................................... 2,584 782
-------- --------
TOTAL STOCKHOLDERS' EQUITY............................................................. 81,266 81,723
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................. $ 779,620 $ 873,562
========= =========
</TABLE>
See Notes To Consolidated Financial Statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
Interest income:
Loans................................................................ $ 34,791 $ 38,717 $ 47,997
Investment securities................................................ 2,984 2,144 804
Other investments.................................................... 1,392 1,682 1,490
Mortgage-backed securities........................................... 4,253 10,718 9,949
-------- -------- --------
Total interest income........................................... 43,420 53,261 60,240
-------- -------- --------
Interest expense:
Deposits (Note 8).................................................... 16,059 22,515 26,239
Advances from Federal Home Loan Bank and other borrowings............ 1,717 5,580 5,892
-------- -------- --------
Total interest expense.......................................... 17,776 28,095 32,131
-------- -------- --------
Net interest income....................................................... 25,644 25,166 28,109
Provision for loan losses (Note 4)........................................ 112 (210) 164
-------- -------- --------
Net interest income after provision for loan losses....................... 25,532 25,376 27,945
-------- -------- --------
Other income:
Servicing income and other fees...................................... 2,151 2,669 3,201
Net gain on sale of loans, mortgage-backed securities and
investments..................................................... 15 5 1,215
Miscellaneous........................................................ 331 347 460
-------- -------- --------
Total other income.............................................. 2,497 3,021 4,876
Operating expense:
Employee compensation and benefits................................... 10,672 10,728 12,776
Occupancy and equipment.............................................. 3,637 4,192 4,648
Loss (gain) on real estate owned..................................... (1) 29 (69)
Marketing............................................................ 588 617 604
Federal deposit insurance premium.................................... 1,306 1,279 4,958
Miscellaneous........................................................ 3,173 3,604 3,792
-------- -------- --------
Total operating expense......................................... 19,375 20,449 26,709
-------- -------- --------
Income before provision for income taxes.................................. 8,654 7,948 6,112
-------- -------- --------
Provision (benefit) for income taxes: (Note 11)
Current.............................................................. 3,183 3,194 3,417
Deferred............................................................. 209 (61) (855)
-------- -------- --------
Total provision for income taxes................................ 3,392 3,133 2,562
-------- -------- --------
Net income................................................. $ 5,262 $ 4,815 $ 3,550
======== ======== ========
Earnings per share, primary and fully diluted (Note 18)................... $ .80 $ .73 $ .53
======== ======== ========
</TABLE>
See Notes To Consolidated Financial Statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Net
Unrealized
Increase
(Decrease)
Retained Employee Recognition in Fair
Additional Earnings- Stock and Value of
Common Paid In Substantially Ownership Retention Assets
Stock Capital Restricted Plan Plan Available
for Sale Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1993.......... $ - $ - $ 46,499 $ - $ - $ 287 $ 46,786
Net Income for the year ended
December 31, 1994............... - - 5,262 - - - 5,262
Issuance of Common Stock,
pursuant to
Reorganization, net of costs
of issuance of $1,344,000....... 579 23,745 - - - - 24,324
Purchase of shares by Employee Stock
Ownership Plan.................. 19 1,913 - (1,932) - - -
Distribution of Common Stock to
Management
Recognition and Retention Plan. 11 1,093 - - (1,104) - -
Assets distributed to Mutual Holding
Company
pursuant to Reorganization...... - - (530) - - - (530)
Recognition of unrealized decrease
in fair value of assets
available for sale, net of
income taxes, pursuant to
SFAS 115........................ - - - - - (1,152) (1,152)
Amortization of deferred
compensation - Employee Stock
Ownership Plan and Recognition
and Retention Plan.............. - 85 - 276 496 - 857
Cash dividends declared.............. - - (1,143) - - - (1,143)
Balance - December 31, 1994.......... 609 26,836 50,088 (1,656) (608) (865) 74,404
Net Income for the year ended
December 31, 1995............... - - 4,815 - - - 4,815
Stock Options exercised (Note 16).... 2 15 - - - - 17
Effect of Reclassification of
assets held to maturity
to available for sale, net
of taxes........................ - - - - - 2,253 2,253
Recognition of unrealized
increase in fair value
of assets available for
sale, net of income taxes,
pursuant to SFAS 115............ - - - - - 1,196 1,196
Amortization of deferred
compensation - Employee
Stock Ownership Plan and
Recognition and Retention
Plan............................ - 109 - 289 328 - 726
Refund of Reorganization costs....... - 13 - - - - 13
Distribution of 10% Stock dividend... 61 10,197 (9,981) (277) - - -
Cash dividends declared.............. - - (2,158) - - - (2,158)
Balance - December 31, 1995.......... 672 37,170 42,764 (1,644) (280) 2,584 81,266
Net Income for the year ended
December 31, 1996............... - - 3,550 - - - 3,550
Stock Options exercised.............. 5 387 - - - - 392
Common Stock retired................. (2) (285) - - - - (287)
Recognition of unrealized
decrease in fair
value of assets
available for sale, net
of income taxes, pursuant
to SFAS 115..................... - - - - - (1,802) (1,802)
Amortization of deferred
compensation -
Employee Stock Ownership Plan
and Recognition and Retention
Plan............................ - 125 - 329 280 - 734
Cash dividends declared.............. - - (2,130) - - - (2,130)
Balance - December 31, 1996.......... $ 675 $ 37,397 $ 44,184 $ (1,315) $ - $ 782 $ 81,723
</TABLE>
See Notes to Consloidated Financial Statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net Income...................................................................... $ 5,262 $ 4,815 $ 3,550
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.............................................. 1,048 1,108 1,238
ESOP and Recognition and Retention Plan Compensation expense............... 857 726 734
Accretion of discounts, amortization of premiums, and other
deferred yield items...................................................... 801 (1,018) (1,122)
Provision for loan losses.................................................. 112 (210) 164
Provisions for losses and net losses on sales of real estate owned......... (96) (29) (110)
Net (gain) loss on sale of:
Loans................................................................. (34) (17) (340)
Investment securities................................................. 20 12 -
Mortgage-backed securities............................................ - - (875)
Other assets.......................................................... 12 - -
(Increase) decrease in accrued interest receivable.............................. (424) (525) (13)
(Increase) decrease in other assets............................................. 2,441 (446) 165
Increase (decrease) in drafts payable........................................... 1,753 1,170 (706)
Increase (decrease) in deferred income taxes.................................... (471) 2,145 (1,974)
Increase (decrease) in other liabilities........................................ (2,055) 1,681 (321)
------- ------- -------
Net cash from operating activities.................................... 9,226 9,412 416
------- ------- -------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans............................... (25,405) (66,196) (124,601)
Principal payments received on mortgage-backed securities....................... 14,510 17,796 23,608
Purchases of:
Loans...................................................................... (573) (12,398) (21,153)
Mortgage-backed securities................................................. (68,133) (45,625) (9,962)
Investment securities...................................................... (41,440) (22,318) (10,029)
Office properties and equipment............................................ (2,712) (2,116) (3,985)
Proceeds from sales of:
Loans...................................................................... 2,846 2,914 17,357
Investment securities available for sale................................... 37,891 5,981 -
Real estate acquired in settlement of loans and held for investment........ 2,191 1,318 1,195
Mortgage-backed securities available for sale.............................. - - 20,516
Office properties and equipment............................................ - 67 -
Proceeds from maturities of investment securities............................... 24,000 41,000 28,490
Other........................................................................... (1,103) (2,323) 1,147
------- ------- -------
Net cash used for investing activities................................ (57,928) (81,900) (77,417)
------- ------- -------
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Gross proceeds from the sale of common stock.................................... 27,445 - -
Common stock options exercised.................................................. - 100 105
Purchase of stock for ESOP...................................................... (1,932) - -
Purchase of stock for RRP....................................................... (1,104) - -
Cash dividends paid............................................................. (707) (2,106) (1,971)
Deposits acquired from Resolution Trust Corporation
NOW accounts, demand deposits and savings accounts......................... 3,509 - -
Certificates of deposit.................................................... 21,501 - -
Net increase (decrease) in:
NOW accounts, demand deposits and savings accounts......................... (43,420) (18,826) 8,046
Certificates of deposit.................................................... (29,882) 75,771 91,492
Advances from Federal Home Loan Bank....................................... 70,725 (1,490) (2,652)
ESOP Loan.................................................................. 1,660 (280) (276)
Stock subscriptions payable................................................ (18,435) - -
Advances by borrowers for taxes and insurance.............................. (39) (56) (286)
------- ------- -------
Net cash from financing activities.................................... 29,321 53,113 94,458
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (19,381) (19,375) 17,457
CASH AND CASH EQUIVALENTS, Beginning of year.................................... 63,719 44,338 24,963
CASH AND CASH EQUIVALENTS, End of year.......................................... $ 44,338 $ 24,963 $ 42,420
======== ======== ========
</TABLE>
See Notes To Consolidated Financial Statements.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fidelity Bankshares, Inc. ("the Company") became the parent of Fidelity Federal
Savings Bank of Florida ("the Bank") on January 29, 1997, as a result of a tax-
free reorganization, accounted for in the same manner as a pooling of interests
merger (See Note 17). Consequently, the Bank is now a wholly-owned subsidiary of
the Company. This transaction is reflected in the accompanying financial
statements as though it had occurred on December 31, 1996. Separate holding
company financial statements have not been presented, as the Company had no
operations in any period presented.
The accounting and reporting policies of the Company and its subsidiary conform,
in all material respects, to generally accepted accounting principles. The
following summarizes the more significant of these policies:
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company, the Bank and the Bank's wholly-owned subsidiary,
Fidelity Realty and Appraisal Services, Inc. ("FRAS"). All significant
intercompany balances and transactions have been eliminated. Neither the Bank
nor its subsidiary are or have been involved in any joint ventures during any
periods presented.
FRAS, principally, performs appraisals for and sells real estate owned by the
Bank.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities 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.
Cash Equivalents - For presentation purposes in both the consolidated statements
of financial position and the consolidated statements of cash flows, the Bank
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Assets Available for Sale - Securities available for sale are carried at fair
value, based upon market quotations. Deferred income taxes are provided on any
unrealized appreciation or decline in value. Such appreciation or decline in
value, net of deferred taxes is reflected as an adjustment of equity. Gain or
loss on sale of such securities is based on the specific identification method.
Debt securities are classified as either available for sale or held for
investment based on management's intent.
Interest Rate Risk - The Bank is engaged principally in providing first mortgage
loans (both adjustable rate and fixed rate mortgage loans) to individuals (see
Note 4 for the composition of the mortgage loan portfolio at December 31, 1995
and 1996). Mortgage loans and investment securities are funded primarily with
short-term liabilities which have interest rates that vary with market rates
over time. Net interest income and the market value of net interest-earning
assets will fluctuate based on changes in interest rates and changes in the
levels of interest-sensitive assets and liabilities. The actual duration of
interest-earning assets and interest-bearing liabilities may differ
significantly from the stated duration as a result of prepayment, early
withdrawals, and similar factors.
Provisions for Loan Losses - Provisions for loan losses, which increase the
allowance for loan losses, are established by charges to income. Such allowance
represents the amounts which, in management's judgment, are adequate to absorb
charge-offs of existing loans which may become uncollectible. The adequacy of
the allowance is determined by management's continuing evaluation of the loan
portfolio in light of past loss experience, present economic conditions, and
other factors considered relevant by management at the financial statement date.
Anticipated changes in economic factors which may influence the level of the
allowance are considered in the evaluation by management when the likelihood of
the changes can be reasonably determined. In estimating the
25
<PAGE>
allowance for possible losses, consideration is given to asset performance, the
financial condition of borrowers or guarantors, additional collateral provided,
current and anticipated economic conditions, appraisals, cost of disposal, and
holding costs. While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary, which may be
material, if economic conditions differ substantially from the assumptions used
in the evaluation. If additions to the original estimate of the allowance for
loan losses are deemed necessary, they will be reported in earnings in the
period in which they become reasonably estimable.
Uncollected Interest - The Bank reverses all accrued interest against interest
income when a loan is more than 90 days delinquent and ceases accruing interest
thereafter. Such interest ultimately collected is credited to income in the
period of recovery.
Real Estate Owned - Properties acquired through foreclosure, or a deed in lieu
of foreclosure are carried at the lower of fair value less estimated costs to
sell, or cost. If the fair value less the estimated cost to sell an individual
property declines below the cost of such property, a provision for losses is
charged to operations.
Subsequent costs relating to the improvement of property are capitalized in
amounts not to exceed the property's fair value. Costs relating to holding the
property are charged to expense when incurred.
The amounts the Bank could ultimately recover from property acquired by
foreclosure or deed in lieu of foreclosure, could differ materially from the
amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the Bank's control or changes in the Bank's
strategy for recovering its investment.
Office Properties and Equipment - Office properties and equipment are carried at
cost less accumulated depreciation. Land is carried at cost. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets, which range from three to fifty years for buildings and improvements and
three to ten years for furniture and equipment.
Goodwill - Goodwill resulting from the acquisition of deposits from the
Resolution Trust Corporation ("RTC") is being amortized on a straight-line basis
over five years. The balance of goodwill, included in other assets at December
31, 1995 and 1996 was $ 1,057,000 and $ 755,000, respectively.
Drafts Payable - Drafts payable represent checks drawn by the Bank on a third
party payer, for savings account withdrawals and payment of the Bank's expenses.
Under the agreement between the Bank and its third party payer, the Bank funds
the checks written on the day following their issuance.
Loan Origination Fees and Costs - Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
of the related loan. Deferred loan fees and costs are amortized to income over
the estimated life of the loans using the interest method.
Unearned discounts on consumer loans are amortized to income using the interest
method.
Commitment Fees - Non-refundable fees received for commitments to make or
purchase loans in the future, net of direct costs of underwriting the
commitments, are deferred and, if the commitment is exercised, recognized over
the life of the loan as an adjustment of yield. If the commitment expires
unexercised, income is recognized upon expiration of the commitment. Direct loan
origination costs incurred to make a commitment to originate a loan are offset
against any related commitment fee and the net amount recognized.
Pension and Retirement Plans - Benefits are accounted for in accordance with
Statement of Financial Accounting Standards No. 87, entitled "Employers'
Accounting for Pensions" ("SFAS No. 87"). Net periodic pension costs (income)
are actuarially determined.
26
<PAGE>
Income Taxes - The Bank and its subsidiary file consolidated federal and state
income tax returns. Income taxes are allocated to the Bank and its subsidiary as
though separate tax returns are being filed. ( See Note 11).
Deferred income taxes are provided on items recognized for financial reporting
purposes in periods different than such items are recognized for income tax
purposes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Earnings Per Common Share - Primary earnings per common share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding and common stock equivalents, after giving retroactive effect to the
stock dividend in 1995, assumed outstanding during the year less the weighted
average unallocated ESOP and Management Recognition Plan shares of common stock.
Fully diluted shares outstanding includes the maximum dilutive effect of stock
issuable upon exercise of common stock options and unallocated ESOP and
Management Recognition Plan shares of common stock.
Impact of New Accounting Issues - In May 1995, FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights." The Statement, which amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities," requires mortgage
banking enterprises that acquire mortgage servicing rights through either the
purchase of or origination of mortgage loans and sell or securitize those loans
with servicing rights retained to allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans based on their relative fair
values. Mortgage banking enterprises include commercial banks and thrift
institutions that conduct operations substantially similar to the primary
operations of a mortgage banking enterprise. SFAS No. 122 applies prospectively
in fiscal years beginning after December 15, 1995 to sales of mortgage loans
with servicing rights retained and to impairment evaluations of all amounts
capitalized as mortgage servicing rights, including those purchased before the
adoption of this Statement. Management of the Bank implemented SFAS No. 122,
prospectively, as required. The adoption of this accounting principle had the
effect of increasing income before tax by $ 196,000 for the fiscal year ended
December 31, 1996.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to account for
them, defines a fair value based method of accounting for an employee stock
option or similar equity instrument, and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
stock-based compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value method of accounting defined in this Statement had been applied.
Under the fair value method, compensation cost 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. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. The disclosure requirements of this Statement are effective
for financial statements for fiscal years beginning after December 15, 1995. Pro
forma disclosures required for entities that elect to continue to measure
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. Management
has determined that the Bank will continue the accounting set forth in APB
Opinion No. 25. Pro forma disclosures are not required because no stock options
were granted during 1995 or 1996.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on a financial-
components approach that focuses on control. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be prospectively applied. Management
of the Bank does
27
<PAGE>
not expect the adoption of this promulgation to have a material effect on the
Bank's consolidated financial statements.
Reclassifications - Certain amounts in the 1994 and 1995 consolidated financial
statements have been reclassified to conform to the 1996 presentation.
2. GOVERNMENT AND AGENCY SECURITIES AVAILABLE FOR SALE
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
Municipal Bonds................................... $ 421 $ 19 $ - $ 440
United States Government and agency securities.... 26,441 105 - 26,546
------- ------- ------- -------
Total............................................. $ 26,862 $ 124 $ - $ 26,986
======= ======= ======= =======
Weighted average interest rate.................... 6 76%
=======
December 31, 1996:
Municipal Bonds................................... $ 419 $ 11 $ - $ 430
United States Government and agency securities.... 8,024 30 19 8,035
------- ------- ------- -------
Total............................................. $ 8,443 $ 41 $ 19 $ 8,465
======= ======= ======= =======
Weighted average interest rate.................... 6.30%
=======
</TABLE>
The following table sets forth the contractual maturity of the Bank's securities
available for sale at December 31, 1995 and 1996
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less.................... $ 19,954 $ 20,034 $ 2,000 $ 1,995
Due after one year, through two years...... 6,908 6,952 6,443 6,470
-------- -------- -------- --------
Total................................. $ 26,862 $ 26,986 $ 8,443 $ 8,465
======== ======== ======== ========
</TABLE>
The Bank had total Government and Agency securities available for sale pledged
at December 31, 1995 and 1996 of $ 2,300,000 and $ 2,515,000, respectively. Of
the $ 2,515,000 of securities pledged at December 31, 1996, $ 515,000 was
pledged for customer accounts that exceeded $ 100,000 and the remaining
$2,000,000 was pledged as collateral for "Treasury, Tax and Loan" (TT&L)
accounts held for the benefit of the federal government.
Proceeds from the sale of securities available for sale were $ 37,891,000 and $
5,981,000 during the years ended December 31, 1994 and 1995. During the years
ended December 31, 1994 and 1995, sales resulted in gross realized gains of $ 0
and $ 18,000 and gross realized losses of $ 12,000 and $ 38,000, respectively.
There were no sales of securities during the year ended December 31, 1996.
28
<PAGE>
3. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale at December 31, 1995 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
FHLMC-fixed rate $ 72,386 $ 1,747 $ 81 $ 74,052
FNMA-fixed rate 13,865 201 47 14,019
GNMA-fixed rate 25,017 2,179 - 27,196
FHLMC-adjustable rate 13,256 19 31 13,244
FNMA-adjustable rate 31,054 211 15 31,250
--------- --------- --------- ---------
Total $ 155,578 $ 4,357 $ 174 $ 159,761
========= ========= ========= =========
December 31, 1996:
FHLMC-fixed rate $ 55,832 $ 856 $ 443 $ 56,245
FNMA-fixed rate 11,804 97 130 11,771
GNMA-fixed rate 7,670 474 - 8,144
FHLMC-adjustable rate 15,605 295 - 15,900
FNMA-adjustable rate 29,449 222 95 29,576
GNMA-adjustable rate 1,935 28 - 1,963
--------- --------- --------- ---------
Total $ 122,295 $ 1,972 $ 668 $ 123,599
========= ========= ========= =========
</TABLE>
There were no sales of mortgage-backed securities classified as available for
sale during the year ended December 31, 1995. There were $ 19.6 million in sales
of mortgage-backed securities classified as available for sale during the year
ended December 31, 1996. Proceeds from the sale of mortgage-backed securities
were $ 20.5 million for the year ended December 31, 1996 which included gross
realized gains of $ 875,000 and no gross realized losses.
At December 31, 1995 and 1996, the Bank had $ 104,378,000 and $ 94,913,000,
respectively, of mortgage-backed securities available for sale pledged as
collateral for advances from the Federal Home Loan Bank (See Note 9).
29
<PAGE>
4. LOANS RECEIVABLE
Loans receivable at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
One-to-four single family, residential real estate mortgages.................... $ 426,823 $ 524,434
Commercial real estate mortgages................................................ 45,107 42,811
Real estate construction-primarily residential.................................. 40,522 58,493
Participations-primarily residential............................................ 5,564 4,255
Land loans-primarily residential................................................ 10,769 11,875
-------- --------
Total first mortgage loans...................................................... 528,785 641,868
Deposit account loans........................................................... 244 158
Consumer and commercial business loans.......................................... 32,445 57,905
-------- --------
Total gross loans............................................................... 561,474 699,931
Less:
Undisbursed portion of loans in process.................................... 27,261 37,575
Unearned discounts, premiums and deferred loan fees (costs), net........... (385) (1,607)
Allowance for loan losses.................................................. 2,265 2,263
--------- ---------
Loans receivable-net............................................................ $ 532,333 $ 661,700
========= =========
</TABLE>
The amount of loans on which the Bank has ceased accruing interest or does not
charge interest aggregated approximately $ 1,864,000 and $ 3,035,000, net of
specific valuation allowances of $ 128,000 and $ 274,000, at December 31, 1995
and 1996, respectively. The amount of interest not accrued relating to these
loans was approximately $ 100,000 and $ 192,000 at December 31, 1995 and 1996,
respectively. Management believes the allowance for possible loan losses is
adequate.
An analysis of the changes in the allowance for loan losses for the years ended
December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period...................... $ 2,865 $ 2,566 $ 2,265
Current provision................................... 112 (210) 164
Charge-offs......................................... (411) (91) (166)
Recoveries.......................................... - - -
------- ------- -------
Ending balance...................................... $ 2,566 $ 2,265 $ 2,263
======= ======= =======
</TABLE>
The Bank originates both adjustable and fixed rate mortgage loans. Included in
the loans receivable at December 31, 1996 are $ 245,000 of loans held for sale.
These loans are recorded at the lower of cost or market. There were no loans
held for sale at December 31, 1995.
A loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. An analysis of the recorded investment
in impaired loans owned by the Bank at December 31, 1995 and 1996 and the
related allowance for those loans is as follows:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
Loan Related Loan Related
Balance Allowance Balance Allowance
<S> <C> <C> <C> <C>
Impaired loan balances and related allowances:
Loans performing in conformity with contractual terms......... $ 2,908 $ 316 $ 984 $ 164
Loans for which interest income is not being recognized....... 292 128 667 277
------- ------- ------- -------
Total............................................... $ 3,200 $ 444 $ 1,651 $ 441
======= ======= ======= =======
</TABLE>
30
<PAGE>
The Bank's policy on interest income on impaired loans is to reverse all accrued
interest against interest income if a loan becomes more than 90 days delinquent
and cease accruing interest thereafter. Such interest ultimately collected is
credited to income in the period of recovery.
At December 31, 1996, the composition and maturity or repricing of the mortgage
loan portfolio is presented below:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
Term of Maturity Book Value Term to Rate Adjustment Book Value
(In Thousands) (In Thousands)
<S> <C> <C> <C>
1 year or less $ 41,100 1 year or less $ 191,865
1 year-3 years 4,344 1 year-3 years 90,750
3 years-5 years 13,297 3 years-5 years 52,429
5 years-10 years 29,551 5 years-10 years 30,027
10 years-20 years 132,361 10 years-20 years 66
Over 20 years 113,611 Over 20 years 530
--------- ---------
Total $ 334,264 Total $ 365,667
========= =========
</TABLE>
Adjustable rate mortgage loans originated prior to December 31, 1993 have
interest rate adjustment limitations and are generally indexed to the monthly
weighted-average cost of funds for Savings Association Insurance Fund ("SAIF")
insured institutions headquartered in the Fourth Federal Home Loan Bank ("FHLB")
District. Adjustable rate mortgage loans originated subsequent to December 31,
1993 are indexed to comparable term U.S. Treasury securities. Future market
factors may affect the correlation of the interest rate adjustment with the
rates the Bank pays on the short-term deposits which have been primarily
utilized to fund those loans.
The Bank makes fixed rate loan commitments for periods generally not exceeding
sixty days. At December 31, 1995 and 1996 the Bank had commitments outstanding
to originate fixed rate mortgage loans as follows:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
15 Years to Maturity
6.76 - 7.00.................................................... $ 82 $ -
7.01 - 7.25.................................................... 383 -
7.26 - 7.50.................................................... 301 666
7.51 - 7.75.................................................... 133 360
7.76 - 8.00.................................................... 88 215
8.01 - 8.25.................................................... - 98
8.26 - 8.50.................................................... - 30
8.51 - 8.75.................................................... - -
8.76 - 9.00.................................................... - -
9.01 - 9.25.................................................... - 842
30 Years to Maturity
7.26 - 7.50.................................................... 462 107
7.51 - 7.75.................................................... 891 97
7.76 - 8.00.................................................... 1,022 930
8.01 - 8.25.................................................... 471 921
8.26 - 8.50.................................................... - 611
8.51 - 8.75.................................................... 86 -
8.76 - 9.00.................................................... - -
9.01 - 9.25.................................................... - -
Over 9.25...................................................... - 100
-------- --------
Totals .................................................. $ 3,919 $ 4,977
======== ========
</TABLE>
Because the above commitments generally are funded within sixty days, management
of the Bank feels that related interest rate risk of the commitments is minimal.
The Bank's lending markets are primarily concentrated in Palm Beach, Martin and
St. Lucie counties in Southeast Florida.
31
<PAGE>
Commercial Real Estate Lending - The Bank originates and purchases commercial
real estate loans, which totaled $ 45,107,000 and $ 42,811,000 at December 31,
1995 and 1996, respectively. These loans are considered by management to be of
somewhat greater risk of uncollectibility due to the dependency on income
production or future development of the real estate. Accordingly, Bank
management establishes greater provisions for probable but not yet identified
losses on these loans than on less risky residential mortgage loans. The
composition of commercial real estate loans and its primary collateral at
December 31, 1995 and 1996 are approximately as follows:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
Office buildings....................................... $ 10,522 $ 9,576
Retail buildings....................................... 10,214 9,517
Warehouses............................................. 9,665 9,032
Rental property........................................ 13,748 13,781
Hotels and motels...................................... 65 60
Other property improvements............................ 332 300
Other.................................................. 561 545
-------- --------
Total.................................................. $ 45,107 $ 42,811
======== ========
</TABLE>
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a federally chartered savings and loan association's aggregate
commercial real estate loans may not exceed 400% of its capital as determined
under the capital standards provisions of FIRREA. The Bank is federally
chartered and subject to this limitation. FIRREA does not require divestiture of
any loan that was lawful when it was originated. At December 31, 1996, the Bank
estimates that, while complying with this limitation, it could originate an
additional $ 284.0 million of commercial real estate loans, though the Bank's
current business plan indicates no intentions to do so.
Loans to One Borrower Limitation - The Bank may not make real estate loans to
one borrower in excess of 15% of its unimpaired capital and surplus except for
loans not to exceed $ 500,000. This 15% limitation results in a dollar
limitation of approximately $ 12.3 million at December 31, 1996. At December 31,
1996, the Bank met the loans to one borrower limitation under current existing
regulations.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial position. The unpaid balances of these
loans at December 31, 1995 and 1996 were $ 33,941,000 and $ 45,539,000,
respectively. Custodial escrow balances maintained in connection with the
foregoing loan servicing were $ 186,078 and $ 186,343 at December 31, 1995 and
1996, respectively.
The Bank offers loans to its employees, including Directors and Senior
Management at prevailing market interest rates. These loans are made in the
ordinary course of business and on substantially the same terms and collateral
requirements as those of comparable transactions prevailing at the time.
The loans to Directors, Executive Officers, and associates of such persons
amounted to $ 1,246,000 and $ 1,184,000 at December 31, 1995 and 1996,
respectively, which did not exceed 5% of retained earnings.
32
<PAGE>
5. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31, 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
Land..................................................... $ 4,839 $ 5,657
Buildings and improvements............................... 11,321 13,627
Furniture and equipment.................................. 7,280 7,710
-------- --------
Total.................................................... 23,440 26,994
Less accumulated depreciation............................ 7,877 8,902
-------- --------
Office properties and equipment - net.................... $ 15,563 $ 18,092
======== ========
</TABLE>
6. REAL ESTATE OWNED
Real estate owned at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
Real estate owned..................... $ 643 $ 93
Valuation allowance................... - -
----- ----
Real estate owned - net............... $ 643 $ 93
===== =====
</TABLE>
7. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 1995 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
Loans.................................. $ 2,891 $ 3,474
Investments............................ 669 298
Mortgage-backed securities............. 1,067 842
------- -------
Accrued interest receivable............ $ 4,627 $ 4,614
======= =======
</TABLE>
33
<PAGE>
8. DEPOSITS
The weighted-average interest rates on deposits at December 31, 1995 and 1996
were 4.13% and 4.26%, respectively. Deposit accounts, by type and range of rates
at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
Account Type and Rate 1995 1996
(In Thousands)
<S> <C> <C>
Non-interest-bearing NOW accounts......................................... $ 21,430 $ 26,406
NOW, Super NOW and funds transfer accounts
1995 and 1996, 1.00 % and 1.02 %, respectively....................... 67,886 70,558
Passbook and statement accounts
1995 and 1996, 1.99 % and 2.05 %, respectively....................... 86,471 87,534
Variable-rate money market accounts
1995 and 1996, 2.47 % and 2.51 %, respectively....................... 44,677 44,012
-------- --------
Total non-certificate accounts............................................ 220,464 228,510
======== ========
Certificates:
1.01% - 2.00%........................................................ 834 949
2.01% - 3.00%........................................................ 2 2
3.01% - 4.00%........................................................ 1,198 20
4.01% - 5.00%........................................................ 49,308 34,308
5.01% - 6.00%........................................................ 205,595 333,998
6.01% - 7.00%........................................................ 109,737 93,788
7.01% - 8.00%........................................................ 8,025 3,079
8.01% - 9.00%........................................................ 17 64
-------- --------
Total certificates........................................................ 374,716 466,208
-------- --------
Total..................................................................... $ 595,180 $ 694,718
========= =========
</TABLE>
Individual deposits greater than $ 100,000 at December 31, 1995 and 1996
aggregated approximately $ 37,571,000 and $ 53,680,000, respectively.
Interest on deposit accounts, presented in the consolidated statements of
operations, is net of interest forfeited by depositors on early withdrawal of
certificate accounts of approximately $ 74,000, $ 115,000 and $ 106,000, for the
years ended December 31, 1994, 1995 and 1996, respectively.
Scheduled maturities of certificate accounts are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1996
Amount Percent Amount Percent
Maturity (Dollars In Thousands)
<S> <C> <C> <C> <C>
Less than 1 year........................ $ 275,749 73.59% $ 322,042 69.08%
1 year-2 years.......................... 51,148 13.65 75,043 16.10
2 years-3 years......................... 16,925 4.52 28,603 6.13
3 years-4 years......................... 11,503 3.07 17,031 3.65
4 years-5 years......................... 17,469 4.66 21,867 4.69
Thereafter.............................. 1,922 .51 1,622 .35
--------- --------- --------- -------
Totals.................................. $ 374,716 100.00% $ 466,208 100.00%
========= ========= ========= =======
</TABLE>
Under FIRREA, any insured depository institution that does not meet its
applicable minimum capital requirements may not accept brokered deposits after
December 7, 1992. This prohibition includes renewals and rollovers of existing
brokered deposits and deposit solicitations at higher than prevailing interest
rates paid by institutions in the Bank's normal market area. Even though the
Bank meets all of the applicable minimum capital requirements at December 31,
1996, the Bank had no brokered deposits.
34
<PAGE>
Interest expense on deposits consists of the following during the years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
Passbook accounts................. $ 1,848 $ 1,812 $ 1,723
NOW accounts...................... 828 812 937
Money market accounts............. 1,255 1,139 1,075
Certificate accounts.............. 12,128 18,752 22,504
-------- -------- --------
Total............................. $ 16,059 $ 22,515 $ 26,239
======== ======== ========
</TABLE>
9. ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank had outstanding advances from the FHLB of $ 85,169,000 with interest
rates ranging from 5.21% to 8.21% and $ 82,517,000 with interest rates ranging
from 5.21% to 8.21% at December 31, 1995 and 1996, respectively. The advances at
December 31, 1996 are repayable as follows:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
(In Thousands)
<S> <C>
1997 $ 37,779
1998 -
1999 28,349
2000 56
2001 6,327
Thereafter 10,006
--------
Total $ 82,517
========
</TABLE>
The Bank has entered into a security agreement with the FHLB under which the
Bank is required to maintain as collateral for its advances, securities in an
amount at least equal to 100% of the Bank's total advances outstanding from the
FHLB. Pledged assets to secure FHLB advances at December 31, 1995 and 1996
include FHLMC and FNMA securities totaling $ 104,378,000 and $ 94,913,000
respectively (See Note 3).
10. EMPLOYEE STOCK OWNERSHIP PLAN LOAN
In connection with the Bank's plan of reorganization into a mutual holding
company, which was consummated January 7, 1994, the Bank established an Employee
Stock Ownership Plan (ESOP) which was funded by proceeds from a loan with an
unrelated financial institution in the original amount of $ 1,932,000. Terms of
the loan require equal quarterly payments, together with interest, for seven
years, with a right of prepayment of the loan after three years. The loan bears
interest at .25% below the New York prime rate (8.25% at December 31, 1996).
Collateral for the loan will be released and allocated to employee accounts
proportional to the payments on the loan. The collateral for this loan at
December 31, 1996 is 121,440 shares of the Company's stock held and owned by the
ESOP. In addition, the loan contains several restrictive covenants requiring
certain minimum levels of financial performance be maintained by the Bank. The
Bank is in compliance with these covenants.
Although the loan contains only minimal guarantees by Fidelity Bankshares M.H.C.
(the Company's mutual holding company), as was permitted by the OTS, the Bank
intends to make contributions to the ESOP trust for the repayment of the loan in
accordance with its terms.
The balance of this loan at December 31, 1996 was $ 1,104,000.
35
<PAGE>
11. INCOME TAXES
In accordance with SFAS No. 109, deferred income tax assets and liabilities are
computed annually for differences between financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable for
the period adjusted for the change during the period in deferred tax assets and
liabilities.
The components of the provisions for income taxes for the years ended December
31, 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
Current - federal............................ $ 2,723 $ 2,784 $ 2,993
Current - state.............................. 460 410 424
------- ------- -------
Total current................................ 3,183 3,194 3,417
Deferred - federal and state................. 209 (61) (855)
------- ------- -------
Total........................................ $ 3,392 $ 3,133 $ 2,562
======= ======= =======
</TABLE>
The Bank's provision for income taxes differs from the amounts determined by
applying the statutory federal income tax rate to income before income taxes for
the following reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1995 1996
Amount % Amount % Amount %
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate.................... $ 3,029 35.0% $ 2,781 35.0% $ 2,139 35.0%
State income taxes, net of federal
income tax benefits
327 3.8 265 3.3 220 3.6
Benefit of graduated rates................. (87) (1.0) (79) (1.0) (61) (1.0)
Other...................................... 123 1.4 166 1.8 264 4.3
-------- -------- -------- -------- -------- --------
Total provision and effective tax rate..... $ 3,392 39.2% $ 3,133 39.1% $ 2,562 41.9%
======== ======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
The tax effect of temporary differences that give rise to deferred tax assets
and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
December 31,
1995 1996
(In Thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation............................................................. $ 824 $ 978
Loan fee income.......................................................... 1,242 1,304
FHLB stock dividends..................................................... 1,050 1,102
Unrealized appreciation in securities.................................... 1,662 543
Excess of tax bad debt reserve over book reserve......................... 531 513
Deferred compensation.................................................... 92 -
----- -----
Gross deferred tax liabilities........................................... 5,401 4,440
----- -----
Deferred tax assets:
Executive death benefit.................................................. 283 347
Amortization............................................................. 118 205
Retirement Plan.......................................................... 1,461 2,182
Deferred compensation.................................................... 591 686
Deferred state taxes..................................................... - -
Other.................................................................... 123 117
----- -----
Gross deferred tax assets................................................ 2,576 3,554
Less valuation allowances for deferred tax assets........................ (35) -
----- -----
Net deferred tax assets.................................................. 2,541 3,554
----- -----
Net deferred tax liability............................................... $ 2,860 886
===== =====
</TABLE>
During 1996, legislation was passed that repealed Section 593 of the Internal
Revenue Code for taxable years beginning after December 31, 1995. Section 593
allowed thrift institutions, including the Bank, to use the percentage-of-
taxable income bad debt accounting method, if more favorable than the specific
charge-off method, for Federal income tax purposes. The excess reserves
(deduction based on the percentage-of-taxable income less the deduction based on
the specific charge-off method) accumulated post 1987 are required to be
recaptured ratably over a six year period beginning in 1996. The recapture has
no effect on the Company's statement of operations as taxes were provided for in
prior years in accordance with SFAS 109, "Accounting for Income Taxes." The
timing of this recapture may be delayed for a one or two year period to the
extent that the Bank originates more residential loans that the average
originations in the past six years. The Bank will meet the origination
requirement for 1996 and, therefore, will delay recapture at least until the six
year period beginning in 1997. The recapture amount of $ 3.7 million will result
in payments totaling $ 1.4 million which has been previously accrued. The same
legislation forgave the tax liability on pre-1987 accumulated bad debt reserves
which would have penalized any thrift choosing to adopt a bank charter because
the tax would have become due and payable. The unrecorded potential liability
that was forgiven approximated $ 2.9 million.
12. PENSION AND EMPLOYEE BENEFIT PLANS
Pension Plan - The Bank's employees participate in the Bank's, qualified defined
benefit pension plan covering substantially all employees. The plan calls for
benefits to be paid to eligible employees at retirement based primarily upon
years of service with the Bank and compensation rates during those years.
Currently, the Bank's policy is to fund the qualified retirement plan in an
amount that falls between the minimum contribution required by the Employee
Retirement Income Security Act and the maximum tax deductible contribution. Plan
assets consist primarily of common stock, U.S. Government obligations and
certificates of deposit.
37
<PAGE>
Pension expense for the plan includes the following components:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1995 1996
(In Thousands)
<S> <C> <C> <C>
Service cost........................................ $ 344 $ 325 $ 410
Interest cost....................................... 436 554 535
Return on assets.................................... 270 (1,066) (816)
Net amortization and deferral....................... (709) 680 433
----- ----- -----
Net periodic pension cost........................... $ 341 $ 493 $ 562
===== ===== =====
</TABLE>
For the years ended December 31, 1994, 1995 and 1996, pension expense amounts
were based upon actuarial computations.
In accordance with the actuarially determined computation under SFAS No. 87, the
Bank funded $ 746,000 as required for the 1996 plan year.
The following sets forth the funded status of the qualified plan at December 31:
<TABLE>
<CAPTION>
1995 1996
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................................... $ 4,565 $ 3,569
Non-vested benefits....................................................... 279 302
------- -------
Accumulated benefit obligation............................................ 4,844 3,871
Effect of anticipated future compensation levels
and other events..................................................... 2,103 3,319
------- -------
Projected benefit obligation.............................................. 6,947 7,190
Fair value of assets held in the plan (estimated)......................... 5,169 6,284
------- -------
Unfunded plan assets over projected benefit obligation.................... $ 1,778 $ 906
======= =======
The unfunded plan assets under projected benefit
obligation consists of the following:
Accrued pension cost (benefit) $ 445 $ 261
Unrecognized net loss due to changes in assumptions 1,607 889
Other, net (274) (244)
------- -------
Total $ 1,778 $ 906
======= =======
</TABLE>
The weighted-average discount rate used to measure the projected benefit
obligation is 7.75% pre-retirement and 6.00% post-retirement in 1996, compared
to 7.25% pre-retirement and 6.00% post-retirement in 1995 and 8.50% pre-
retirement and 6.50% post-retirement in 1994. The rate of increase in future
compensation levels is 6.50% in all years, and the expected long-term rate of
return on assets is 8.00% in all years.
Savings Plan - Effective January 1, 1988, the Board of Directors approved a
401(k) deferred savings plan for all Bank employees who are 21 years of age with
one or more years of service. The 401(k) deferred savings plan allows qualified
employees to save from 1% to 10% of their income. Presently, one-half of an
employee's contribution is matched by the Bank, up to 3% of the employee's
salary. The Bank's matching percentage will be determined annually by the Board
of Directors after taking into consideration such factors as profit performance
and ability to meet capital requirements. The Bank's contribution to the plan
totaled $ 103,000, $ 145,000 and $ 170,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
Retirement Plans - During 1989, the Bank established non-qualified defined
benefit plans for certain officers and directors. The director's plan became
effective on January 1, 1991. For the years ended December 31, 1994, 1995 and
1996, the net periodic pension expense for the Supplemental Executive Retirement
Plan for Officers totaled $ 626,000, $ 615,000 and $ 964,000, respectively. The
projected benefit obligation as of December 31, 1994, 1995 and 1996, was
estimated at $ 3,704,000, $ 5,791,000 and $ 5,217,000, respectively. For 1994,
1995 and 1996, respectively, the discount rates used to measure the projected
benefit obligation were 7.00%, 6.50% and 7.75%. The rate of increase in future
compensation levels in all years was 5.00%. For the years ended December 31,
1994, 1995 and 1996, the net periodic pension expense for the Retirement Plan
for the Director's
38
<PAGE>
totaled $ 337,000, $ 257,000 and $ 273,000, respectively. The projected benefit
obligation for the Retirement Plan for Directors as of December 31, 1994, 1995
and 1996 was estimated at $ 1,494,000, $ 1,678,000 and $ 1,514,000,
respectively. For 1994, 1995 and 1996, the discount rates used to measure that
projected benefit obligation were 7.00%, 6.50% and 7.75%, respectively. The rate
of increase in future compensation levels for the Retirement Plan for Directors
was 5.00% in all years. The provisions of SFAS No. 87 require recognition in the
statement of financial position of the additional minimum liability and related
intangible asset for a retirement plan with accumulated benefits in excess of
plan assets. This resulted in the recognition at December 31, 1995, of an
additional liability and an intangible asset of $ 2,050,000. There was no
material effect on earnings or cash requirements to fund the retirement plans.
At December 31, 1996, the Bank recognized an additional liability of $ 592,000
and an intangible asset of an equal amount. The additional liability and
intangible asset amounts as of December 31, 1995 and 1996 are recorded in the
account balances captioned other liabilities and other assets, respectively, in
the accompanying consolidated statements of financial position.
Incentive Program - The Bank also has a Senior Management Performance Incentive
Award Program to provide the opportunity for those executives to be rewarded in
future earnings growth. A designated percentage of income at December 31 of each
year is used to determine the award fund contribution. This percentage will be
determined annually by the Board of Directors after taking into consideration
such factors as profit performance and ability to meet capital requirements.
Awards amounting to $ 170,000, $ 164,000 and $ 120,000, were made during the
calendar years 1994, 1995 and 1996, respectively, for distribution in subsequent
years.
Employee Stock Ownership Plan - On January 7, 1994, in connection with the
Bank's Plan of Reorganization into a Mutual Holding Company (See Note 17), the
Bank adopted a tax qualified Employee Stock Ownership Plan ("ESOP") for all
eligible employees. The ESOP purchased 193,200 shares of the Bank's stock at the
date of the Reorganization. The funds used to purchase the shares were borrowed
from a third party lender (See Note 10). The Bank will contribute to the ESOP
sufficient funds to pay the principal and interest on this loan over seven
years. Benefits generally become 100% vested after five years of credited
service. However, contributions to the ESOP and shares allocated among
participants proportional to repayment of the seven year ESOP loan will be
allocated among participants on the basis of compensation in the year of
allocation, subject to regulatory maximum limitations. The Bank recognized $
361,000, $ 398,000 and $ 462,000, by a charge against income in 1994, 1995 and
1996, respectively, under this plan.
Bank Recognition and Retention Plans - On January 7, 1994, in connection
with the Bank's Plan of Reorganization into a Mutual Holding Company (See Note
17), the Bank adopted two Recognition and Retention Plans to encourage key
employees and Directors to remain with the Bank. Both plans, consisting of a
total of 121,440 shares of restricted stock after the 10% stock dividend, were
awarded and will vest and be allocated to the affected employees and Directors
ratably over three years, subject to various conditions requiring their
acceleration. The Bank recognized $ 496,000, $ 328,000 and $ 280,000 by a charge
against income in 1994, 1995 and 1996, respectively, under this plan.
39
<PAGE>
13. STOCK OPTION PLAN
The Bank has adopted stock option plans which granted options with an exercise
price equal to the market value of the stock at the date of grant, to Directors
and officers. The Directors may exercise their options at any time up to ten
years, while officer's options are exercisable at a rate of twenty percent per
year, not to exceed ten years. Under these plans, after retroactively adjusting
for the 10% stock dividend distributed in November 1995, the Bank reserved
303,600 shares of authorized but unissued common stock for future issuance. The
following table shows a summary of transactions.
<TABLE>
<CAPTION>
Options Price
Average
Number of Exercise
Options Price Per Aggregate
Outstanding Share Price
<S> <C> <C> <C>
Options Outstanding
Balance - December 31, 1993 - - -
------- ------- ---------
Granted.............................................. 303,600 $ 9.09 $ 2,759,724
Exercised............................................ - - -
Cancelled............................................ - - -
------- ------- ---------
Balance - December 31, 1994.............................. 303,600 9.09 2,759,724
------- ------- ---------
Granted............................................. - - -
Exercised........................................... (37,950) 9.09 (344,966)
Cancelled........................................... - - -
------- ------- ---------
Balance - December 31, 1995.............................. 265,650 9.09 2,414,758
------- ------- ---------
Granted............................................. - - -
Exercised........................................... (43,117) 9.09 (391,934)
Cancelled........................................... - - -
------- ------- ---------
Balance - December 31, 1996.............................. 222,533 $ 9.09 $ 2,022,824
======= ======= =========
</TABLE>
14. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory and possible discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by regulators about components, risk-weighting
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Tangible capital of
not less than 1.5% of adjusted total assets, Total capital to risk-weighted
assets of not less than 8%, Tier I capital of not less than 3.0% of adjusted
total assets, and Tier I capital to risk-weighted assets of 4.0% (as defined in
the regulations). As of December 31, 1996, the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996 the Bank is categorized as "Well Capitalized" under the
framework for prompt corrective action. To be considered well capitalized under
Prompt Corrective Action Provisions, the Bank must maintain total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the following
table.
40
<PAGE>
The Bank's capital amounts and ratios are represented in the following table:
<TABLE>
<CAPTION>
To be Considered
Minimum for Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
Ratio Amount Ratio Amount Ratio Amount
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995
Stockholders'
Equity and ratio
to total assets...... 10.4% $ 81,266
=========
Unrealized increase in
market value of
assets available
for sale (net of
applicable income
taxes)............... (2,584)
Goodwill.................. (1,057)
Tangible capital and...... --------
ratio to adjusted
total assets......... 10.0% $ 77,625 1.5% $ 11,600
Tier I (core) capital..... ========= ======== ========= =========
and ratio to
adjusted total
assets............... 10.0% $ 77,625 3.0% $ 23,199 5.0% $ 38,666
Tier I (core) capital..... ========= ======== ========= ========= ========= =========
and ratio to
risk-weighted total
assets............... 21.0% $ 77,625 6.0% $ 22,173
========= ========== =========
General loan valuation
allowances........... 1,821
Equity investments........ (217)
---------
Tier 2 capital............ $ 1,604
---------
Total risk-based capital
and ratio to
risk-weighted total
assets............... 21.4% $ 79,229 8.0% $ 29,564 10.0% $ 36,955
======== ========= ========= ========= ========= =========
Total assets.............. $ 779,620
=========
Adjusted total assets..... $ 773,314
=========
Risk-weighted assets...... $ 369,554
=========
As of December 31, 1996
Stockholders' Equity
and ratio to total
assets............... 9.4% $ 81,723
========
Unrealized increase in
market value of
assets available
for sale (net of
applicable income
taxes)................ (782)
Goodwill.................. (755)
Tangible capital and...... ---------
ratio to adjusted
total assets.......... 9.2% $ 80,186 1.5% $ 13,072
Tier I (core) capital and. ========= ========= ========= =========
ratio to adjusted
total assets.......... 9.2% $ 80,186 3.0% $ 26,144 5.0% $ 43,574
Tier I (core) capital and. ========= ========= ========= ========= ========= =========
ratio to risk-
weighted total
assets................ 17.9% $ 80,186 6.0% $ 26,915
========= ========= =========
General loan valuation
allowances............ 1,822
Equity investments........ (97)
---------
Tier 2 capital............ $ 1,725
Total risk-based.......... =========
capital and ratio
to risk-weighted
total assets.......... 18.3% $ 81,911 8.0% $ 35,886 10.0% $ 44,858
========= ========= ======== ========= ========= =========
Total assets.............. $ 873,562
=========
Adjusted total assets..... $ 871,472
=========
Risk-weighted assets...... $ 448,579
=========
</TABLE>
41
<PAGE>
At periodic intervals, both the OTS and the FDIC routinely examine the Bank's
financial statements as part of their legally proscribed oversight of the
savings and loan industry. Based on these examinations, the regulators can
direct that the Bank's financial statements be adjusted in accordance with their
findings.
During the year ended December 31, 1996, an OTS examination resulted in no
significant adjustments to the consolidated financial statements.
15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes commitments to extend credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. The interest
rates on both fixed and variable rate mortgage loans are generally based on the
market rates in effect on the date the loan application is taken. Commitments
generally have fixed expiration dates of no longer than 60 days and other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained by the Bank upon extension of credit is based on
management's credit evaluation of the customer. Collateral held varies but may
include single-family homes, marketable securities and income-producing
residential and commercial properties. Credit losses may occur when one of the
parties fails to perform in accordance with the terms of the contract. The
Bank's exposure to credit risk is represented by the contractual amount of the
commitments to extend credit. At December 31, 1996, the Bank had commitments to
extend credit for or purchase mortgage loans of $ 21,799,000 ($ 4,977,000 in
fixed rate commitments, see Note 4, and the balance of commitments in either
variable rate or for which rates had not yet been set). The Bank also has a pre-
approval program which commits dollar amounts to potential loan customers based
on their credit history. This program, however, does not commit to locked in
rates. No fees are received in connection with such commitments.
The Bank leases various property for original periods ranging from one to
seventy-two years. Rent expense for the years ended December 31, 1994, 1995 and
1996, was approximately $ 568,000, $ 623,000 and $ 682,000, respectively. At
December 31, 1996, future minimum lease payments under these operating leases
are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
(In Thousands)
<S> <C>
1997 $ 619,127
1998 606,237
1999 624,594
2000 656,754
2001 582,895
Thereafter 3,684,339
-----------
Total $ 6,773,946
===========
</TABLE>
In connection with the Bank's reorganization in 1994, the Bank entered into a
three year employment agreement with its Chief Executive Officer. This
agreement, among other matters, would provide for severance payments of up to
three years salary in the event of termination for reasons other than cause. In
addition, the Bank has entered into severance agreements with four of its
executive officers. The severance agreements would provide for payments of up to
three years salary for these executives, but only in the event of change of
control of the Bank.
42
<PAGE>
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1995 1996
Supplemental Disclosure of Cash Flow Information: (In Thousands)
<S> <C> <C> <C>
Cash paid for income taxes................................................ $ 3,540 $ 3,223 $ 2,810
======== ======== ========
Cash paid for interest on deposits and other borrowings................... $ 17,822 $ 27,906 $ 31,879
======== ======== ========
Supplemental Schedule of Noncash Investing and Financing Activities:
Real estate acquired in settlement of loans............................... $ 2,191 $ 1,326 $ 593
======== ======== ========
</TABLE>
17. CONVERSION TO HOLDING COMPANY
On April 25, 1996, Fidelity Federal Savings Bank of Florida (the "Bank") adopted
an Agreement and Plan of Reorganization, (the "Plan") whereby the Bank would
become a wholly-owned subsidiary of a stock holding company, Fidelity
Bankshares, Inc. (the "Company"), a Delaware corporation. Pursuant to the Plan,
the Bank's mutual holding company parent would continue to own a majority of the
Company's outstanding common stock. In addition, as part of the Plan, each share
of the Bank's outstanding one dollar par value common stock would be converted
into one share of Fidelity Bankshares, Inc. ten cent par value common stock.
Consequently, following the reorganization, each stockholder of the Bank would
have the same ownership interest in Fidelity Bankshares, Inc. as the stockholder
had in the Bank.
In November, 1996, the Bank received regulatory approval to proceed with the
reorganization and on January 21, 1997, the Bank's stockholders approved the
Plan. On January 29, 1997, the transaction was consummated, resulting in the
Company owning all the outstanding common stock of the Bank. The reorganization
was completed as a tax-free transaction. In addition, since the reorganization
was accounted for in the same manner as a pooling of interests merger, no
significant accounting adjustments were necessary to the consolidated financial
statements. Common stock and additional paid in capital reflect the change in
par value described above.
18. EARNINGS PER SHARE
The weighted-average number of shares, including the adjustments for the Bank's
leveraged Employee Stock Ownership Plan (ESOP), Management Recognition Plan
(MRP) and stock options for the years ended December 31, 1995 and 1996,
retroactively adjusted to reflect the 10% stock dividend distributed on November
30, 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Primary Shares:
Shares Outstanding......................................... 6,699,440 6,709,492 6,723,409
Adjustments to reflect
Uncommitted ESOP shares............................... (200,786) (170,619) (140,291)
Unearned MRP shares (treasury stock method)........... (16,542) (9,031) -
Common stock options (treasury stock method).......... 75,089 77,894 84,380
--------- --------- ---------
Total............................................ 6,557,201 6,607,736 6,667,498
========= ========= =========
</TABLE>
The computations of fully diluted shares outstanding is the same as for primary
shares, above.
Pursuant to Statement of Position 93-6, entitled "Employers' Accounting for
Employee Stock Ownership Plans," issued by the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants, ESOP shares
that have not been committed to be released are not considered to be
outstanding.
43
<PAGE>
19. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107 ("SFAS No. 107"), "Disclosure About Fair Value of Financial
Instruments," as amended by SFAS 119, requires additional disclosures of fair
values of financial instruments in the notes to the consolidated financial
statements. Fair values of financial instruments that are not actively traded
are based on market prices of similar instruments and/or valuation techniques
using market assumptions. Although management uses its best judgment in
estimating the fair value of these financial instruments, there are inherent
limitations in any estimation technique. Therefore, the fair value estimates
presented herein are not necessarily indicative of the amounts which the Bank
could realize in a current transaction.
<TABLE>
<CAPTION>
December 31,
1995 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets: (In Thousands)
<S> <C> <C> <C> <C>
Cash and amounts due from depository institutions....... $ 14,989 $ 14,989 $ 15,293 $ 15,293
Interest-bearing deposits............................... 9,974 9,974 27,127 27,127
Assets available for sale............................... 186,747 186,747 132,064 132,064
Loans receivable (net).................................. 532,333 542,483 661,700 664,667
Liabilities:
Deposits................................................ 595,180 595,835 694,718 697,163
Advances from the Federal Home Loan Bank................ 85,169 87,273 82,517 84,859
ESOP loan............................................... 1,380 1,380 1,104 1,104
</TABLE>
The following methods and assumptions were used to estimate fair value of each
major class of financial instrument at December 31, 1995 and 1996.
Cash and Amounts due from Depository Institutions and Interest-Bearing
Deposits - The carrying amount of these assets is a reasonable estimate of
their fair value.
Assets Available for Sale - The fair value of these securities are based on
quoted market prices.
Loans Receivable - The fair value of loans is estimated by discounting the
future cash flows of the loans using the current rates at which similar loans
would be made to borrowers with similar credit rating for the same remaining
maturities.
Deposits - The fair value of demand deposits, savings accounts and money market
accounts are equal to the amount payable on demand at the reporting date. The
fair values of fixed maturity certificate accounts are estimated by discounting
the future cash flows of the certificates using the current rates for advances
from the Federal Home Loan Bank with similar maturities.
Advances from the Federal Home Loan Bank - The fair value of these advances is
estimated by discounting the future cash flows of these advances using the
current rates at which similar term advances could be obtained.
ESOP Loan - The carrying amount of this loan is a reasonable estimate of fair
market value.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of
these commitments is insignificant.
44
<PAGE>
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Interest income........................... $ 12,277 $ 12,924 $ 13,839 $ 14,221
Interest expense.......................... 6,013 6,842 7,617 7,623
-------- -------- -------- --------
Net interest income.................. 6,264 6,082 6,222 6,598
-------- -------- -------- --------
Provision for loan losses................. (278) 16 (7) 59
Non-interest income....................... 680 660 808 873
Non-interest expenses..................... 4,938 5,025 5,099 5,387
Income taxes.............................. 884 663 762 824
-------- -------- -------- --------
Net Income........................... $ 1,400 $ 1,038 $ 1,176 $ 1,201
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands)
<S>............................................ <C> <C> <C> <C>
Year ended December 31, 1996:
Interest income........................... $ 14,333 $ 14,709 $ 15,377 $ 15,821
Interest expense.......................... 7,579 7,591 8,247 8,714
-------- -------- -------- --------
Net interest income.................. 6,754 7,118 7,130 7,107
-------- -------- -------- --------
Provision for loan losses................. 76 (16) 54 50
Non-interest income....................... 1,420 864 968 1,624
Non-interest expenses..................... 5,552 5,649 9,585 5,923
Income taxes.............................. 1,050 974 (617) 1,155
-------- -------- -------- --------
Net Income........................... $ 1,496 $ 1,375 $ (924) $ 1,603
======== ======== ======== ========
</TABLE>
45
<PAGE>
Management's Assertions as to the Effectiveness of its Internal Control
Structure Over Financial Reporting and Compliance with Designated Laws and
Regulations
To the Stockholders:
Financial Statements
Management of Fidelity Bankshares, Inc. (the "Company") and its subsidiary,
Fidelity Federal Savings Bank of Florida (the "Bank"), is responsible for the
preparation, integrity and fair presentation of its published financial
statements and all other information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on judgments and
estimates made by management.
The financial statements have been audited by the independent accounting firm,
Deloitte & Touche LLP, which was given unrestricted access to all financial
records and related data, including minutes of all meetings of stockholders, the
Board of Directors and committees of the board. Management believes that all
representations made to the independent auditors during their audit were valid
and appropriate. The independent auditors report accompanies the Company's
audited financial statements.
Internal Control
Management is responsible for and does maintain a structure of internal control
over financial reporting, which is designed to provide reasonable assurance to
the Company's management and Board of Directors regarding the preparation of
reliable published financial statements, including the Bank's reports to the
Office of Thrift Supervision which are based on both generally accepted
accounting principles and instructions for Thrift Financial Reports (TFR
instructions). The structure includes a documented organizational structure and
division of responsibility, established policies and procedures including a code
of conduct to foster a strong ethical climate, which are communicated throughout
the Bank, and the careful selection, training and development of our people.
Internal auditors monitor the operation of the internal control system and
report findings and recommendations to management and the Board of Directors,
and corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. The Board,
operating through its audit committee, which is composed entirely of directors
who are not officers or employees of the Company nor the Bank, provides
oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any structure of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control,
including the possibility of human error and the circumvention or overriding of
controls. Accordingly, even an effective internal control structure can provide
only reasonable assurance with respect to financial statement preparation.
Furthermore, the effectiveness of an internal control structure can change with
circumstances.
Management assessed its internal control structure over financial reporting
presented in conformity with both generally accepted accounting principles and
TFR instructions as of December 31, 1996 in relation to criteria for effective
internal control over financial reporting described in "Internal Control--
Integrated Framework" issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Management believes the Company and the Bank maintained an
effective internal control structure over financial reporting, presented in
conformity with generally accepted accounting principles and TFR instructions,
as of December 31, 1996.
Compliance with Designated Laws and Regulations
Management is also responsible for compliance with the federal laws and
regulations concerning loans to insiders and the federal and state laws and
regulations concerning dividend restrictions, both of which are designated by
the FDIC as safety and soundness laws and regulations.
Management assessed its compliance with the designated safety and soundness laws
and regulations and has maintained records of its determinations and assessments
as required by the FDIC. Based on this assessment, management believes that the
Company and the Bank has complied, in all material respects, with the designated
safety and soundness laws and regulations for the year ended December 31, 1996.
by:/S/Vince A. Elhilow by:/S/Richard D. Aldred
---------------------------------- -------------------------
President and Chief Executive Officer Executive Vice President-
Chief Financial Officer
February 3, 1997
46
<PAGE>
Independent Accountants' Report
To the Audit Committee
Fidelity Federal Savings Bank of Florida
West Palm Beach, Florida
We have examined management's assertion that, as of December 31, 1996, Fidelity
Federal Savings Bank of Florida maintained an effective internal control
structure over financial reporting presented in conformity with both generally
accepted accounting principles and the Office of Thrift Supervision Instructions
for Thrift Financial Reports included in the accompanying Report on Management's
Assertions as to the Effectiveness of its Internal Control Structure over
Financial Reporting and Compliance with Designated Laws and Regulations.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
obtaining an understanding of the internal control structure over financial
reporting, testing, and evaluating the design and operating effectiveness of the
internal control structure over financial reporting, and such other procedures
as we considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projections of any
evaluation of the internal control structure over financial reporting to future
periods are subject to the risk that the internal control structure may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies may deteriorate.
In our opinion, management's assertion that, as of December 31, 1996, Fidelity
Federal Savings Bank of Florida maintained an effective internal control
structure over financial reporting presented in conformity with both generally
accepted accounting principles and the Office of Thrift Supervision Instructions
for Thrift Financial Reports is fairly stated, in all material respects, based
on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, FL
February 21, 1997
47
<PAGE>
Fidelity Bankshares, Inc.
Board of Directors
[GRAPHIC PHOTO OMITTED: JOS. B. SHEARHOUSE, JR.]
Jos. B. Shearouse, Jr.
Chairman of the Board
[GRAPHIC PHOTO OMITTED: VINCE A. ELHILOW]
Vince A. Elhilow
President
Chief Executive Officer
[GRAPHIC PHOTO OMITTED: KEITH D. BEATY]
Keith D. Beaty
Chief Executive Officer
Implant Innovations, Inc.
[GRAPHIC PHOTO OMITTED: F. TED BROWN, JR.]
F. Ted Brown, Jr.
President
Ted Brown Real Estate, Inc.
[GRAPHIC PHOTO OMITTED: CHRISTOPHER H. COOK]
Christopher H. Cook
Executive Vice President
Corporate Counsel
[GRAPHIC PHOTO OMITTED: DONALD E. WARREN, M.D]
Donald E. Warren, M.D.
Retired Physician
[GRAPHIC PHOTO OMITTED: FREDERIC T. DEHON]
Frederic T. DeHon
Certified Public
Accountant
Frederic T. DeHon, a member of the Board of Directors of Fidelity Federal
Savings Bank of Florida, passed away on Tuesday, January 8, 1997. Mr. DeHon, a
1950 graduate of the University of Florida, had been a practicing CPA in the
West Palm Beach area since 1952, and a Director of the Bank since 1978.
Mr. DeHon served in the US Navy during World War II as a carrier-based fighter
pilot and continued his military service as a Lieutenant in the United States
Naval Reserve through 1953 with a fighter unit and a Carrier-based helicopter
unit. He began his accounting career with Himes & Himes, CPAs, in 1950, and was
a partner in Holyfield, Elliott and DeHon, P.A. at the time of his passing.
Mr. Dehon was a founding board member of Florida Atlantic University, a member
of the West Palm Beach Rotary Club for more than 30 years, and was an active
member of many other civic and social organization.
In his eighteen years on Fidelity Federal's Board of Directors, Mr. DeHon served
as Chairman of the Audit Committee, Chairman of the Executive Compensation
Committee and on many other committees and was actively involved in all of the
major decisions concerning the Bank during his service on the Board.
We are grateful to Mr. DeHon for his valuable contribution to Fidelity Federal
and his community, and extend sympathies to his family and friends.
Officers
Richard D. Aldred
Executive Vice President
Chief Financial Officer
Joseph C. Bova
Executive Vice President
Robert L. Fugate
Executive Vice President
Patricia C. Clager
Corporate Secretary
48
<PAGE>
Fidelity Federal Savings Bank of Florida
Directors
Jos. B. Shearouse, Jr.
Chairman of the Board
Vince A. Elhilow
President
Chief Executive Officer
Christopher H. Cook
Executive Vice President
Corporate Counsel
Keith D. Beaty
Chief Executive Officer
Implant Innovations, Inc.
F. Ted Brown
President
Ted Brown Real Estate, Inc.
Donald E. Warren, M. D.
Retired Physician
Directors Emerti
Carl H. Anthony
President
Anthony Groves
Louis B. Bills, Sr.
Louis B. Bills Enterprises
George B. Preston
Chairman Emeritus
Raymond C. Tylander
President
Tylander Realty Corporation
Officers
EXECUTIVE OFFICER
Vince A. Elhilow
President
Chief Executive Officer
EXECUTIVE VICE PRESIDENTS
Richard D. Aldred
Chief Financial Officer
Joseph C. Bova
Lending Operations Manager
Christopher H. Cook
Corporate Counsel
Robert L. Fugate
Banking Operations Manager
J. Robert McDonald
President, Fidelity Realty & Appraisal Services, Inc.
VICE PRESIDENT/CORPORATE SECRETARY
Patricia C. Clager
Administrative Assistant to the Chairman
SENIOR VICE PRESIDENTS
David R. Hochstetler
Director of Marketing/CRA Officer
Brian C. Mahoney
Controller
Janice R. Newlands
Director of Human Resources
Debra K. Schiavone
Mortgage Loan Administration
Shellie R. Schmidt
Banking Administration
Joseph B. Shearouse, III
Commercial Loan Manager
Kenneth B. Stone, Jr.
Mortgage Loan Production
Daniel F. Turk
Property and Risk Management
VICE PRESIDENT/ASSISTANT SECRETARY
Arlene Metz
Administrative Assistant to the President
Martin County Advisory Board
Richard Q. Pennick, M.D., Chairman
Retired Physician
J. David Girlinghouse, D.D.S.
Dentist
C. Norris Tilton, Esq.
Attorney
Owen C. Schwaderer
President
Jensen Beach Land Company
Francis X. Wilson
President
Wilson Builders
49
<PAGE>
Palm Beach County Offices
[GRAPHIC OMITTED: MAP OF FLORIDA BRANCH OFFICES]
MAIN OFFICE
218 Datura Street
West Palm Beach, FL 33401
(561) 659-9900
45th Street
4520 Broadway
West Palm Beach, FL 33407
(561) 848-5577
Bear Lakes
701 Village Blvd.
West Palm Beach, FL 33409
(561) 689-8800
Boynton Beach
At I-95 & Woolbright Road
1501 Corporate Drive
Boynton Beach, FL 33426
(561) 734-3300
Century Corners
4835 Okeechobee Blvd.
West Palm Beach, FL 33417
(561) 689-5305
Forest Hill
399 Forest Hill Blvd.
West Palm Beach, FL 33405
(561) 585-5552
Northlake
950 Northlake Blvd.
Lake Park, FL 33408
(561) 842-4266
Palm Beach
245 Royal Poinciana Way
Palm Beach, FL 33480
(561) 659-0666
Palm Beach Gardens
Garden Square Shoppes
10973 North Military Trail
Palm Beach Gardens, FL 33410
(561) 775-7600
Royal Palm Beach
100 Royal Palm Beach Blvd.
Royal Palm Beach, FL 33411
(561) 793-3270
Singer Island
1200 East Blue Heron Blvd.
Riviera Beach, FL 33404
(561) 848-8675
Tequesta
171 Tequesta Drive
Tequesta, FL 33469
(561) 747-5100
Wellington
12000 W. Forest Hill Blvd.
West Palm Beach, FL 33414
(561) 793-4501
West Boynton Beach
9875 Jog Road
Boynton Beach, FL 33437
(561) 731-2122
West Delray Beach
5017 West Atlantic Avenue
Delray Beach, FL 33484
(561) 499-7002
West Forest Hill
3989 Forest Hill Blvd.
West Palm Beach, FL 33406
(561) 969-3333
West Lake Worth
6535 Lake Worth Road
Lake Worth, FL 33467
(561) 968-1040
Martin County Offices
Jensen Beach
1021 N.E. Jensen Beach Blvd.
Jensen Beach, FL 34957
(561) 334-1600
Martin Square
2980 S. Federal Highway
Stuart, FL 34994
(561) 287-6600
Kanner/Monterey
2401 South Kanner Highway
Stuart, FL 34994
(561) 288-6767
50
<PAGE>
Corporate Information
STOCK PRICE INFORMATION
Fidelity Bankshares, Inc.'s common stock is traded on the Nasdaq National Market
under the symbol "FFFL". Newspaper stock tables list the holding company as
"Fidelbksh". The Bank's common stock has been trading since January 7, 1994.
INVESTOR RELATIONS
Vince A. Elhilow, President & CEO Richard D. Aldred, Executive Vice President &
CFO Fidelity Federal Savings Bank of Florida 218 Datura Street
West Palm Beach, Florida 33401
(561) 659-9900
SHAREHOLDER SERVICES &
DIVIDEND REINVESTMENT PLAN
Fidelity Federal Savings Bank of Florida David R. Hochstetler, Senior Vice
President Lucy A. Carr, Assistant Secretary 218 Datura Street West Palm Beach,
Florida 33401 (561) 659-9931
ANNUAL REPORT ON FORM 10-K
A copy of the Company's report on Form 10-K, as filed with the Securities and
Exchange Commission, is available without charge by written request addressed as
set forth under Shareholder Services above.
DATE AND PLACE OF ANNUAL MEETING
April 15, 1997, 10:00 a.m. (EDT)
Omni Hotel
1601 Belvedere Road
West Palm Beach, Florida 33401
GENERAL COUNSEL
Brackett, Sned, Welch, D'Angio, Tucker & Farach P.A.
218 Datura Street
West Palm Beach, Florida 33401
SPECIAL COUNSEL
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1645 Palm Beach Lakes Blvd., Suite 900
West Palm Beach, Florida 33401
STOCK TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 937-5449
STOCKHOLDER INFORMATION
- -----------------------------------------------------------
Quarter Ended
-------------
3/31/96 6/30/96 9/30/96 12/31/96
Stock Price
- -----------
High $ 16.50 $ 14.50 $ 15.50 $ 18.50
---------------------------------------
Low $ 13.25 $ 12.75 $ 11.75 $ 15.00
Dividends
declared $ .15 $ .15 $ .20 $ .20
- -----------------------------------------------------------
ELECTRONIC COMMUNICATIONS
News releases issued through PR Newswire are available through Company News On-
Call via fax
(1-800-758-5804, ext. 281429) or Internet website
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent Company Subsidiary Company State of Incorporation
- -------------- ------------------- ----------------------
Fidelity Fidelity Federal Savings Florida
Bankshares, Bank of Florida
Inc.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20552
----------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Securities Exchange Act Number 0-29040
FIDELITY BANKSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 65-0717085
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
218 Datura Street, West Palm Beach, Florida 33401
--------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (561) 659-9900
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check [X] whether the Registrant has filed all reports required
to be filed by Sections 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: There were 6,784,958 shares of
the Registrant's common stock outstanding as of November 1, 1997.
<PAGE>
FIDELITY BANKSHARES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Financial Statements............................... 1
Consolidated Statements of Financial Condition as
of December 31, 1996 and September 30, 1997........ 2
Consolidated Statements of Operations for the
three and nine months ended
September 30, 1996 and 1997........................ 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1997........... 4
Notes to Consolidated Financial Statements......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 11
PART II. OTHER INFORMATION........................................... 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
1
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited
DECEMBER 31, September 30,
1996 1997
============ ==============
(In Thousands)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions..................... $ 15,293 $ 15,891
Interest-bearing deposits............................................. 27,127 23,523
------------ --------------
Total cash and cash equivalents....................................... 42,420 39,414
ASSETS AVAILABLE FOR SALE (At Fair Value):
Government and agency securities...................................... 8,465 12,278
Mortgage-backed securities............................................ 123,599 181,413
------------ --------------
Total assets available for sale....................................... 132,064 193,691
LOANS RECEIVABLE, Net (Notes 2, 3)........................................... 661,700 769,357
OFFICE PROPERTIES AND EQUIPMENT, Net......................................... 18,092 20,835
FEDERAL HOME LOAN BANK STOCK, At cost, which approximates market............. 6,148 6,985
REAL ESTATE OWNED, Net....................................................... 93 483
ACCRUED INTEREST RECEIVABLE.................................................. 4,614 5,696
OTHER ASSETS................................................................. 8,431 9,231
TOTAL ASSETS................................................................. $ 873,562 $ 1,045,692
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS..................................................................... $ 694,718 $ 791,179
REPURCHASE AGREEMENTS........................................................ - 2,642
ADVANCES FROM FEDERAL HOME LOAN BANK......................................... 82,517 139,689
ESOP LOAN.................................................................... 1,104 897
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE................................ 2,448 12,599
DRAFTS PAYABLE............................................................... 2,957 3,489
OTHER LIABILITIES............................................................ 7,209 7,923
DEFERRED INCOME TAXES........................................................ 886 1,500
TOTAL LIABILITIES..................................................... 791,839 959,918
------------ --------------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, 2,000,000 shares authorized, none issued.................... - -
COMMON STOCK ($ .10 par value) 8,200,000 authorized shares,
6,744,689 shares outstanding at December 31, 1996, and
6,782,879 shares outstanding at September 30, 1997.................... 675 678
ADDITIONAL PAID IN CAPITAL................................................... 37,397 37,932
RETAINED EARNINGS - substantially restricted................................. 44,184 46,942
COMMON STOCK PURCHASED BY EMPLOYEE STOCK OWNERSHIP PLAN...................... (1,315) (1,068)
NET UNREALIZED INCREASE IN FAIR VALUE OF
ASSETS AVAILABLE FOR SALE ( Net of applicable income taxes)........... 782 1,290
TOTAL STOCKHOLDERS' EQUITY (Note 4)................................... 81,723 85,774
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $ 873,562 $ 1,045,692
============ ==============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Unaudited
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
========================== =========================
<S> <C> <C> <C> <C>
(In Thousands, except per share amounts)
Interest income:
Loans.................................................. $ 12,451 $ 14,911 $ 35,155 $ 42,452
Investment securities.................................. 187 187 666 538
Other investments...................................... 405 465 1,006 1,419
Mortgage-backed securities............................. 2,334 3,121 7,592 7,989
-------- -------- -------- --------
Total interest income.................................. 15,377 18,684 44,419 52,398
-------- -------- -------- --------
Interest expense:
Deposits............................................... 6,726 8,815 18,963 24,707
Advances from Federal Home Loan Bank and other
borrowings............................................ 1,521 2,035 4,454 5,009
-------- -------- -------- --------
Total interest expense................................. 8,247 10,850 23,417 29,716
-------- -------- -------- --------
Net interest income......................................... 7,130 7,834 21,002 22,682
Provision for loan losses................................... 54 57 114 129
-------- -------- -------- --------
Net interest income after provision for loan losses......... 7,076 7,777 20,888 22,553
-------- -------- -------- --------
Other income:
Servicing income and other fees........................ 785 899 2,381 2,562
Net gain on sale of loans, investments
and mortgage-backed securities......................... 40 796 555 808
Miscellaneous.......................................... 143 95 316 325
-------- -------- -------- --------
Total other income..................................... 968 1,790 3,252 3,695
-------- -------- -------- --------
Operating expense:
Employee compensation and benefits..................... 3,299 3,579 9,391 10,395
Occupancy and equipment................................ 1,155 1,227 3,511 3,612
Gain on real estate owned.............................. (12) (145) (68) (94)
Marketing.............................................. 154 150 465 498
Federal deposit insurance premium...................... 4,001 117 4,678 338
Other.................................................. 988 1,145 2,809 3,332
-------- -------- -------- --------
Total operating expense................................ 9,585 6,073 20,786 18,081
-------- -------- -------- --------
Income (loss) before provision for income taxes............. (1,541) 3,494 3,354 8,167
-------- -------- -------- --------
Provision (benefit) for income taxes:
Current................................................ (570) 1,377 1,307 3,197
Deferred............................................... (47) 107 100 261
-------- -------- -------- --------
Total provision (benefit) for income taxes............. (617) 1,484 1,407 3,458
-------- -------- -------- --------
Net income (loss)........................................... $ (924) $ 2,010 $ 1,947 $ 4,709
======== ======== ======== ========
Earnings per share (Note 5):
Primary................................................ $ (0.14) $ 0.30 $ 0.29 $ 0.70
======== ======== ======== ========
Fully Diluted.......................................... $ (0.14) $ 0.30 $ 0.29 $ 0.70
======== ======== ======== ========
Dividends declared per share of common stock................ $ 0.200 $ 0.225 $ 0.500 $ 0.625
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNAUDITED
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
======== =========
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net Income........................................................................................ $ 1,947 $ 4,709
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization............................................................. 914 956
ESOP and Recognition and Retention Plan compensation expense.............................. 538 518
Accretion of discounts, amortization of premiums, and other deferred yield items.......... (897) (526)
Provision for loan losses and real estate losses.......................................... 114 129
Provisions for losses and net (gains) losses on sales of real estate owned................ (87) (115)
Net gain on sale of:
Other assets............................................................. - (702)
Mortgage-backed securities............................................... (511) -
Loans.................................................................... (44) (106)
Increase in accrued interest receivable........................................................... (5) (1,082)
Increase in other assets.......................................................................... (2,400) (800)
Increase (decrease) in drafts payable............................................................. (493) 532
Increase (decrease) in deferred income taxes...................................................... (1,194) 614
Increase in other liabilities..................................................................... 5,860 625
-------- ---------
Net cash from operating activities....................................... 3,742 4,752
-------- ---------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans................................................. (99,078) (91,526)
Principal payments received on mortgage-backed securities......................................... 19,331 14,882
Purchases of:
Loans..................................................................................... (19,137) (22,633)
Mortgage-backed securities................................................................ (9,962) (72,076)
Federal Home Loan Bank stock.............................................................. - (837)
Investment securities..................................................................... (6,002) (7,782)
Office properties and equipment........................................................... (3,572) (3,755)
Proceeds from sales of:
Loans..................................................................................... 9,947 5,713
Real estate acquired in settlement of loans............................................... 973 1,165
Mortgage-backed securities................................................................ 14,516 -
Proceeds from maturities of investment securities................................................. 22,490 4,000
Other............................................................................................. 1,124 467
-------- ---------
Net cash used for investing activities................................... (69,370) (172,382)
-------- ---------
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Gross proceeds from the sale of common stock...................................................... 57 263
Cash dividends.................................................................................... (1,514) (1,858)
Net increase (decrease) in:
NOW accounts demand deposits, and savings accounts........................................ (3,116) 13,490
Certificates of deposit................................................................... 70,929 82,971
Advances from Federal Home Loan Bank...................................................... (2,202) 57,172
ESOP loan................................................................................. (207) (207)
Repurchase agreements..................................................................... - 2,642
Advances by borrowers for taxes and insurance............................................. 9,119 10,151
-------- ---------
Net cash from financing activities........................................................ 73,066 164,624
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................................. 7,438 (3,006)
CASH AND CASH EQUIVALENTS, Beginning of period.................................................... 24,963 42,420
-------- ---------
CASH AND CASH EQUIVALENTS, End of period.......................................................... $ 32,401 $ 39,414
======== =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies of Fidelity Bankshares, Inc. (the
"Company") and its subsidiary Fidelity Federal Savings Bank of Florida (the
"Bank") conform to generally accepted accounting principles and to predominant
practices within the thrift industry. The Company has not changed its
accounting and reporting policies from those disclosed in its 1996 Annual Report
on Form 10-K.
On April 25, 1996, Fidelity Federal Savings Bank of Florida adopted an Agreement
and Plan of Reorganization, (the "Plan") whereby the Bank would become a wholly-
owned subsidiary of a stock holding company, Fidelity Bankshares, Inc., a
Delaware corporation. Pursuant to the Plan, the Bank's mutual holding company
parent would continue to own a majority of the Company's outstanding common
stock. In addition, as part of the Plan, each share of the Bank's outstanding
stock would be converted into one share of Fidelity Bankshares, Inc. common
stock. Consequently, following the reorganization, each stockholder of the Bank
would have the same ownership interest in Fidelity Bankshares, Inc. as the
stockholder had in the Bank. In November 1996, the Bank received regulatory
approval to proceed with the reorganization and on January 21, 1997, the Bank's
stockholders approved the Plan. On January 29, 1997, the transaction was
consummated, resulting in the Company owning all the outstanding common stock of
the Bank.
The reorganization, which has been accounted for in the same manner as a pooling
of interest merger, did not result in any significant accounting adjustments.
The Company conducts no business other than holding the common stock of the
Bank. Consequently, its net income is derived from the Bank. In the opinion of
the Company's management, all adjustments necessary to fairly present the
consolidated financial position of the Company at September 30, 1997 and the
results of its consolidated operations and cash flows for the period then ended,
all of which are of a normal and recurring nature, have been included.
New Accounting Pronouncements - In June 1997, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income", which requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from non-owner sources; and No. 131 "Disclosures about Segments of an Enterprise
and Related Information", which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. Adoption of
these statements will not impact the Bank's consolidated financial position,
results of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
Certain amounts in the financial statements have been reclassified to conform
with the September 30, 1997 presentation.
On August 18, 1997, the Bank reached a definitive agreement to acquire
BankBoynton, a Federal Savings Bank based in Boynton Beach, Florida with $57.6
million in assets. The agreement has been approved by the board of directors of
both companies and BankBoynton's stockholders. The agreement is subject to the
approval of the appropriate regulatory agencies. The acquisition of BankBoynton
is expected to be completed during the fourth quarter of 1997. Following the
acquisition, BankBoynton's three offices are expected to closed and deposit
accounts existing at the BankBoynton facilities will be merged into Fidelity
Federal's existing branch network.
The BankBoynton acquisition will be accounted for as a purchase. Fidelity
Bankshares, Inc. will acquire all the outstanding common stock of BankBoynton
for $9.00 per share, cash. The total purchase price of approximately $5.6
million is one and one half times BankBoynton's net book value at July 31, 1997.
5
<PAGE>
2. LOANS RECEIVABLE
Loans receivable at December 31, 1996 and September 30, 1997, consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
================ ================
<S> <C> <C>
(IN THOUSANDS)
One-to-four single family, residential real estate
mortgages....................................................... $ 524,434 $ 636,022
Commercial real estate mortgages........................................ 42,811 41,747
Real estate construction-primarily residential.......................... 58,493 34,958
Participations-primarily residential.................................... 4,255 3,351
Land loans-primarily residential........................................ 11,875 11,093
---------------- ----------------
Total first mortgage loans...................................... 641,868 727,171
Consumer and commercial business loans 58,063 89,512
---------------- ----------------
Total gross loans............................................... 699,931 816,683
Less:
Undisbursed portion of loans in process......................... 37,575 47,402
Unearned discounts, premiums and deferred loan fees, net........ (1,607) (2,223)
Allowance for loan losses....................................... 2,263 2,147
Loans receivable-net.................................................... $ 661,700 $ 769,357
================ ================
</TABLE>
3. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the year ended
December 31, 1996 and the three and nine months ended September 30, 1996 and
1997, is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR For the Three Months For the Nine Months
ENDED Ended Ended
DECEMBER 31, September 30, September 30,
1996 1996 1997 1996 1997
============ ==================== ========================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....... $ 2,265 $ 2,225 $ 2,109 $ 2,265 $ 2,265
Current provision.................... 164 54 57 114 114
Charge-offs.......................... (166) (59) (19) (159) (159)
------------ -------- -------- --------- ---------
Ending balance....................... $ 2,263 $ 2,220 $ 2,147 $ 2,220 $ 2,220
============ ======== ======== ========= =========
</TABLE>
6
<PAGE>
An analysis of the recorded investment in impaired loans owned by the Company at
the end of each period and the related specific valuation allowance for those
loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
======================= ==========================
LOAN RELATED LOAN RELATED
BALANCE ALLOWANCE BALANCE ALLOWANCE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Impaired loan balances and related
specific valuation allowances:
Loans performing in conformity with
contractual terms................ $ 984 $ 164 $ 941 $ 160
Loans for which interest income is
not being recognized............. 667 277 740 165
--------- ---------- ---------- ---------
Total............................ $ 1,651 $ 441 $ 1,681 $ 325
========= ========== ========== =========
</TABLE>
The Bank's policy on interest income on impaired loans is to reverse all accrued
interest against interest income if a loan becomes more than 90 days delinquent
and cease accruing interest thereafter. Such interest ultimately collected is
credited to income in the period of recovery.
7
<PAGE>
4. REGULATORY CAPITAL
The Company's subsidiary, Fidelity Federal Savings Bank of Florida, is a
regulated financial institution. Its regulatory capital amounts and ratios are
presented in the following table:
<TABLE>
<CAPTION>
To be Considered
Minimum for Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
-------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
-------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996 Stockholders' Equity
and ratio to total assets....................... 9.4% $ 81,723
====
Net unrealized increase in market value of assets
available for sale (net of applicable
income taxes)................................... (782)
Goodwill............................................. (755)
----------
Tangible capital and ratio to adjusted total assets.. 9.2% $ 80,186 1.5% $13,072
==== ========== === =======
Tier 1 (core) capital and ratio to adjusted
total assets.................................... 9.2% $ 80,186 3.0% $26,144 5.0% $43,574
==== ========== === ======= ==== =======
Tier 1 (core) capital and ratio to risk-weighted
total assets.................................... 17.9% $ 80,186 6.0% $26,915
==== ========== ==== =======
General loan valuation allowances.................... 1,822
Equity investments................................... (97)
----------
Tier 2 capital....................................... $ 1,725
==========
Total risk-based capital and ratio to risk-weighted
total assets.................................... 18.3% $ 81,911 8.0% $35,886 10.0% $44,858
==== ========== === ======= ==== =======
Total assets......................................... $ 873,562
==========
Adjusted total assets................................ $ 871,472
==========
Risk-weighted assets................................. $ 448,579
==========
As of September 30, 1997 Stockholders' Equity
and ratio to total assets....................... 8.1% $ 84,294
====
Net unrealized increase in market value of assets
available for sale (net of applicable
income taxes)................................... (1,290)
Goodwill............................................. (543)
Disallowed servicing assets and deferred tax assets.. (24)
----------
Tangible capital and ratio to adjusted total assets.. 7.9% $ 82,437 1.5% $15,642
==== ========== === =======
Tier 1 (core) capital and ratio to adjusted
total assets.................................... 7.9% $ 82,437 3.0% $31,285 5.0% $52,142
==== ========== === ======= ==== =======
Tier 1 (core) capital and ratio to risk-weighted
total assets.................................... 15.4% $ 82,437 6.0% $32,082
==== ==== =======
General loan valuation allowances.................... 1,822
Equity investments................................... (1)
----------
Tier 2 capital....................................... $ 1,821
==========
Total risk-based capital and ratio to risk-weighted
total assets.................................... 15.8% $ 84,258 8.0% $42,776 10.0% $53,471
==== ========== === ======= ==== =======
Total assets......................................... $1,044,688
==========
Adjusted total assets................................ $1,042,831
==========
Risk-weighted assets................................. $ 534,705
==========
</TABLE>
8
<PAGE>
5. EARNINGS PER SHARE
The weighted-average number of shares, including the adjustments for the Bank's
leveraged Employee Stock Ownership Plan (ESOP), Management Recognition Plan
(MRP) and stock options for the three months ended September 30, 1996 and 1997,
are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Net income................................................ $ (924,000) $ 2,010,000
================= ===================
Primary Shares:
Shares Outstanding.................................... 6,721,078 6,775,466
Adjustments to reflect:
Uncommitted ESOP shares........................... (136,538) (106,178)
Unearned MRP shares (treasury stock method)....... (2,497) -
Common stock options (treasury stock method)...... 84,133 110,762
------------------- -------------------
Total 6,666,176 6,780,050
=================== ===================
Earnings per share.................................... $ (0.14) $ 0.30
=================== ===================
</TABLE>
The computations of fully diluted shares outstanding is the same as for primary
shares, above.
The weighted-average number of shares, including the adjustments for the Bank's
leveraged Employee Stock Ownership Plan (ESOP), Management Recognition Plan
(MRP) and stock options for the nine months ended September 30, 1996 and 1997,
are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Net income $ 1,947,000 $ 4,709,000
================== ==================
Primary Shares:
Shares Outstanding.................................. 6,719,820 6,766,858
Adjustments to reflect:
Uncommitted ESOP shares........................ (144,099) (113,711)
Unearned MRP shares (treasury stock method).... (2,675) -
Common stock options (treasury stockmethod).... 90,106 99,549
------------------- -------------------
Total 6,663,152 6,752,696
=================== ===================
Earnings per share.................................. $ 0.29 $ 0.70
=================== ===================
</TABLE>
The computations of fully diluted shares outstanding is the same as for primary
shares, above.
Pursuant to Statement of Position (SOP), 93-6, entitled "Employers' Accounting
for Employee Stock Ownership Plans," issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
(AICPA), ESOP shares that have not been committed to be released are not
considered to be outstanding.
9
<PAGE>
PRO FORMA EARNINGS PER SHARE
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share". This statement,
which changes the method of calculating earnings per share, is effective for
financial statements beginning after December 15, 1997. While earlier
application is not allowed, the Company is permitted to disclose pro forma
earnings per share in the notes to financial statements in periods prior to the
required adoption. The following table shows pro forma earnings per share as
though this statement had been adopted.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30, 1996 September 30, 1997
-------------------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------ --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss).......... $(924,000) $2,010,000
========= ==========
BASIC EPS
Income (loss) available to
common stockholders...... $(924,000) 6,584,540 (0.14) $2,010,000 6,669,288 0.30
====== =====
EFFECT OF DILUTIVE SHARES
Common stock options..... 84,133 110,762
--------- ---------
DILUTED EPS
Income (loss) available to
common stockholders...... $(924,000) 6,668,673 $(0.14) $2,010,000 6,780,050 $0.30
========= ========= ====== ========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
September 30, 1996 September 30, 1997
-------------------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------ --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income................. $1,947,000 $4,709,000
========== ==========
BASIC EPS
Income available to
common stockholders...... $1,947,000 6,575,721 0.30 $4,709,000 6,653,147 0.71
===== =====
EFFECT OF DILUTIVE SHARES
Common stock options..... 90,106 99,549
--------- ---------
DILUTED EPS
Income available to
common stockholders...... $1,947,000 6,665,827 $0.29 $4,709,000 6,752,696 $0.70
========== ========= ===== ========== ========= =====
</TABLE>
The guidance in AICPA, SOP 93-6 "Employers' Accounting for Employee Stock
Ownership Plans" continues to apply to earnings per share calculations under
Statement No. 128. Therefore, the weighted average shares outstanding in the
table above do not include uncommitted ESOP shares.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL.
On April 25, 1996, Fidelity Federal Savings Bank of Florida (the "Bank") adopted
an Agreement and Plan of Reorganization, (the "Plan") whereby the Bank would
become a wholly-owned subsidiary of a stock holding company, Fidelity
Bankshares, Inc. (the "Company"), a Delaware corporation. Pursuant to the Plan,
the Bank's mutual holding company parent would continue to own a majority of the
Company's outstanding common stock. In addition, as part of the Plan, each
share of the Bank's outstanding stock would be converted into one share of
Fidelity Bankshares, Inc. common stock. Consequently, following the
reorganization, each stockholder of the Bank would have the same ownership
interest in Fidelity Bankshares, Inc. as the stockholder had in the Bank. In
November, 1996, the Bank received regulatory approval to proceed with the
reorganization and on January 21, 1997, the Bank's stockholders approved the
Plan. On January 29, 1997, the transaction was consummated, resulting in the
Company owning all the outstanding common stock of the Bank.
The reorganization, which has been accounted for in the same manner as a pooling
of interests merger, did not result in any significant accounting adjustments.
The Company conducts no business other than holding the common stock of the
Bank. Consequently, its net income is derived from the Bank. The Bank's net
income, which is primarily dependent on its net interest income, which is the
difference between interest income earned on its investments in mortgage loans
and mortgage-backed securities, other investment securities and loans, and its
cost of funds consisting of interest paid on deposits and borrowings. The
Bank's net income also is affected by its provision for loan losses, as well as
by the amount of other income, including income from fees and service charges,
net gains and losses on sales of investments, and operating expense such as
employee compensation and benefits, deposit insurance premiums, occupancy and
equipment costs, and income taxes. Earnings of the Bank also are affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, which events are beyond the control of the Bank. In particular,
the general level of market rates tends to be highly cyclical. In periods of
high interest rates, earnings of the Bank are likely to be depressed, which in
turn would be likely to have a detrimental effect on the market value of any
investment in the Bank's common stock. In addition, legislative and regulatory
actions may result in diminishing the value of any investment in the Bank.
New Accounting Pronouncements - In June 1997, the Financial Accounting Standards
- -----------------------------
Board issued Statements of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income", which requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from non-owner sources; and No. 131 "Disclosures about Segments of an Enterprise
and Related Information", which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. Adoption of
these statements will not impact the Bank's consolidated financial position,
results of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
RECENT DEVELOPMENTS.
On August 1, 1997, the Bank entered into a contract to sell the property it owns
in downtown West Palm Beach, Florida for $7.2 million. The prospective buyer
has concluded its due diligence procedures and posted the necessary deposit.
The closing on the contract is scheduled for April 1999.
12
<PAGE>
On August 18, 1997, the Bank reached a definitive agreement to acquire
BankBoynton, a Federal Savings Bank based in Boynton Beach, Florida with $57.6
million in assets. The agreement has been approved by the board of directors of
both companies and BankBoynton's stockholders. The agreement is subject to the
approval of the appropriate regulatory agencies. The acquisition of BankBoynton
is expected to be completed during the fourth quarter of 1997. Following the
acquisition, BankBoynton's three offices are expected to closed and deposit
accounts existing at the BankBoynton facilities will be merged into Fidelity
Federal's existing branch network.
The BankBoynton acquisition will be accounted for as a purchase. Fidelity
Bankshares, Inc. will acquire all the outstanding common stock of BankBoynton
for $9.00 per share, cash. The total purchase price of approximately $5.6
million is one and one half times BankBoynton's net book value at July 31, 1997.
RESULTS OF OPERATIONS.
Net income for the nine months ended September 30, 1997 was $4.7 million,
representing an increase of $2.8 million when compared to $1.9 million for the
same period ended September 30, 1996. The primary reason for decreased earnings
in 1996, as more fully described later herein, was a one-time special assessment
of $3.6 million (approximately $2.2 million, after tax) to more adequately
capitalize the Savings Association Insurance Fund (SAIF). Had this one-time
special assessment not been incurred, net income for the nine months ended
September 30, 1996 would have been $4.2 million.
Net income for the quarter ended September 30, 1997 was $2.0 million,
representing an increase of $2.9 million from the comparable quarter in 1996.
The Bank incurred a net loss for the quarter ended September 30, 1996 of
$924,000 due predominantly to the SAIF one-time special assessment discussed
above. Had this charge not been incurred, the Bank's net income for the quarter
would have been $1.3 million.
INTEREST INCOME.
Interest income for the nine months ended September 30, 1997, totaled $52.4
million, an increase of $8.0 million or 18.0% from the same period in 1996. The
principal cause of this increase was an increase in interest income on the
Bank's loans of $7.3 million. This increase resulted from an increase in the
average balance of these loans to $713.7 million for the nine months ended
September 30, 1997 compared to $590.7 million from the comparable 1996 period.
Interest income from other investments for the nine months ended September 30,
1997 increased by $413,000 compared to the same period in 1996. The principal
reason for this increase was an increase in the average balance of these
investments to $29.3 million for the nine months ended September 30, 1997 from
$20.6 million for the nine months ended September 30, 1996. Interest income
from mortgage-backed securities also increased to $8.0 million for the nine
months ended September 30, 1997 from $7.6 million for the same 1996 period.
This increase was due primarily to an increase in the average balance of these
securities to $153.2 million from $138.0 million. Partially offsetting these
increases was a decrease in interest income from investment securities of
$128,000. This decline was the result of a decrease in the average yield on
these securities to 6.20% from 6.45% and a decrease in the average balance to
$11.6 million from $13.8 million for the nine months ended September 30, 1997
and 1996, respectively.
Interest income for the quarter ended September 30, 1997, totaled $18.7 million,
an increase of $3.3 million or 21.5% from the same quarter in 1996. The
principal cause of this increase was an increase in interest income on loans of
$2.5 million. This increase resulted from an increase in the average balance of
the Bank's loan portfolio to $751.2 million for the quarter ended September 30,
1997 compared to $629.1 million for the comparable 1996 quarter. Interest
income from mortgage-backed securities for the quarter ended September 30, 1997
was $3.1 million, an increase of $787,000 or 33.7% compared to $2.3 million for
the same quarter in 1996. The primary reason for this increase was an increase
in the average balance of these securities to $179.2 million for the quarter
ended September 30, 1997 from $128.7 million for the same quarter in 1996, which
was offset by a decline in the average rate of such investments of 7.25% in 1996
to 6.96% in 1997.
13
<PAGE>
Interest income also increased on other investments by
$60,000. This increase resulted from an increase in the average balance of
other investments to $28.2 million from $23.9 million for the quarters ended
September 30, 1997 and 1996, respectively.
INTEREST EXPENSE.
Interest expense was $29.7 million for the nine months ended September 30, 1997,
representing a $6.3 million or 26.9% increase when compared to the same period
in 1996. The principal cause of this increase was an increase in the cost of
deposits of $5.7 million. This resulted from an increase in the average balance
of interest-bearing deposits to $722.8 million for the nine months ended
September 30, 1997 compared to $596.5 million for the same period in 1996 and an
increase in the average yield on deposits to 4.56% from 4.24% for the periods
ended September 30, 1997 and 1996, respectively. Interest expense on borrowed
funds increased by $555,000, caused primarily by an increase in the average
balance on such funds to $103.3 million for the nine months ended September 30,
1997 compared to $86.1 million for the same period in 1996. The average yield
on borrowed funds decreased to 6.47% from 6.90% for the nine months ended
September 30, 1997 and 1996, respectively.
Interest expense was $10.9 million for the quarter ended September 30, 1997,
representing a $2.6 million or 31.6% increase when compared to the same quarter
in 1996. The principal cause for this increase was an increase in the cost of
deposits of $2.1 million. This resulted from an increase in the average balance
of deposits to $754.5 million for the quarter ended September 30, 1997 compared
to $620.0 million for the same quarter in 1996 and an increase in the average
yield on deposits to 4.67% from 4.34% for the quarters ended September 30, 1997
and 1996, respectively. Interest expense on borrowed funds also increased by
$514,000, caused primarily by a increase in the average balance on such funds to
$129.0 million for the quarter ended September 30, 1997 compared to $88.6
million for the same quarter in 1996. The average yield on borrowed funds
decreased to 6.31% for the quarter ended September 30, 1997 from 6.87% for the
comparable 1996 quarter.
NET INTEREST INCOME.
While the Bank's interest income increased by $8.0 million for the nine months
ended September 30, 1997, compared to the same period in 1996, interest expense
also increased by $6.3 million, resulting in net interest income of $22.7
million for the nine months ended September 30, 1997. This represents a $1.7
million or 8.0% increase when compared to the same period in 1996.
During the quarter ended September 30, 1997, the Bank's interest income
increased by $3.3 million compared to the same quarter in 1996, while interest
expense increased by $2.6 million, resulting in net interest income of $7.8
million for the quarter ended September 30, 1997, $704,000 or 9.9% more than
realized in 1996.
PROVISION FOR LOAN LOSSES.
The Bank's provision for loan losses was $129,000 for the nine months ended
September 30, 1997, representing a $15,000 increase when compared to $114,000
for the nine months ended September 30, 1996. The provision for loan losses for
the nine months ended September 30, 1997 was determined adequate by management
in light of the Bank's historical loan loss experience. The Bank's total
allowance for loan losses at September 30, 1997 of $2.1 million was deemed
adequate by management, in light of the risks inherent in the Bank's loan
portfolio.
The provision for loan losses was $57,000 for the quarter ended September 30,
1997, representing a $3,000 increase when compared to $54,000 for the quarter
ended September 30, 1996. The provision for the quarter ended September 30,
1997 is deemed adequate by management in light of the Bank's historical loan
loss experience.
14
<PAGE>
OTHER INCOME.
Other income for the nine months ended September 30, 1997 was $3.7 million, an
increase of $443,000 from the comparable period in 1996. This increase is
attributable to an increase in servicing income and other fees of $181,000 and
an increase in gain on sale of loans, investments and mortgage-backed securities
of $253,000.
Other income for the quarter ended September 30, 1997 was $1.8 million, an
increase of $822,000 compared to the same quarter in 1996. This increase is due
primarily to an increase of $756,000 in net gain on sale of loans, investments
and mortgage-backed securities. This increase was also attributable to an
increase in servicing income and other fees of $113,000 for the quarter ended
September 30, 1997 compared to the same quarter in 1996.
OPERATING EXPENSE.
Operating expenses decreased by $2.7 million to $18.1 million for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996. This decline is the result of a decrease in federal deposit insurance
premium of $4.3 million, due primarily to the resolution of the SAIF issue
through a one-time special assessment charged in the third quarter of 1996.
Offsetting this decline, employee compensation and benefits increased by $1.0
million for the nine months ended September 30, 1997 when compared to the same
1996 period. Of this increase, approximately $225,000 is attributable to
expanded operations at two of the Bank's offices, together with its LPO office.
In addition, hospitalization insurance costs have increased by $170,000, ESOP
costs have increased by $191,000 due to an increase in the market value of the
company's stock and the amount allocated to the cost of loan originations under
SFAS 91 have decreased by $111,000. The Bank's occupancy and equipment cost for
the nine months ended September 30, 1997 was $101,000 more than experienced in
1996. Marketing expense increased by $33,000 for the nine months ended
September 30, 1997 when compared to the 1996 period. Other operating expenses
increased by $523,000 due largely to increased stock costs and legal fees of
$272,000 relating to the Bank's newly formed stock holding company. These
increases were only partially offset by an increase in gain on real estate owned
of $26,000 for the nine months ended September 30, 1997 compared to 1996.
Operating expenses decreased by $3.5 million for the quarter ended September 30,
1997 compared to the same quarter ended September 30, 1996. As previously
discussed, this decrease is the direct result of a decrease in Federal deposit
insurance premium of $3.9 million due to the SAIF one-time special assessment
charged in the third quarter of 1996. Employee compensation and benefits
increased by $280,000 to $3.6 million for the quarter ended September 30, 1997
from $3.3 million for the comparable 1996 quarter. The Bank's occupancy and
equipment expense increased to $1,227,000 from $1,155,000 for the quarters ended
September 30, 1997 and 1996, respectively. Other operating expenses also
increased by $157,000. Slightly offsetting these increases was an increase in
gain on real estate owned of $133,000 for the quarter ended September 30, 1997
compared to the 1996 quarter.
INCOME TAXES.
The income tax provision was $3.5 million for the nine months ended and $1.5
million for the quarter ended September 30, 1997, respectively. These expenses
approximate the rates paid by the Company for Federal and State income taxes
applied to the Company's pre-tax income.
ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS.
At September 30, 1997, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing in
the same period by $17.7 million, representing a cumulative one-year gap ratio
of a negative 9.75%. This compares to a negative gap ratio of 11.41% at
December 31, 1996, at which date the Bank had total interest bearing liabilities
maturing or repricing within one year that
15
<PAGE>
exceeded total interest-earning assets maturing or repricing during the same
period by $99.7 million. The Bank has an Asset-Liability Management Committee
which is responsible for reviewing the Bank's assets and liability policies. The
Committee meets weekly and reports monthly to the Board of Directors on interest
rate risks and trends, as well as liquidity and capital ratios and requirements.
LIQUIDITY AND CAPITAL RESOURCES.
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The required ratio currently is 5.0%. The Bank's
liquidity ratio averaged 6.03% during the month of September, 1997. Liquidity
ratios averaged 6.31% for the quarter ended September 30, 1997. The Bank adjusts
its liquidity levels in order to meet funding needs of deposit outflows, payment
of real estate taxes on mortgage loans, and repayment of borrowings and loan
commitments. The Bank also adjusts liquidity as appropriate to meet its asset
and liability management objectives.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities and other short-term investments, as well
as earnings and funds provided from operations. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. The Bank manages
the pricing of its deposits to maintain a desired deposit balance. In addition,
the Bank invests excess funds in short-term interest-earning and other assets,
which provide liquidity to meet lending requirements. Short-term interest-
bearing deposits with the FHLB of Atlanta amounted to $23.5 million and $27.0
million at September 30, 1997 and December 31, 1996, respectively. Other assets
qualifying for liquidity at September 30, 1997 and December 31, 1996, amounted
to $26.3 million and $19.8 million, respectively. For additional information
about cash flows from the Company's operating, financing and investing
activities, see Consolidated Statements of Cash Flows included in the Financial
Statements. A major portion of the Bank's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing and financing
activities. The primary sources of cash were net income, principal repayments
on loans and mortgage-backed securities, increases in deposit accounts and
additional advances from the FHLB.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. At September 30, 1997, the Bank had $139.7 million in advances
from the FHLB. At September 30, 1997, the Bank had commitments outstanding to
originate or purchase loans of $40.8 million. This amount does not include the
unfunded portion of loans in process. Certificates of deposit scheduled to
mature in less than one year at September 30, 1997, totaled $416.3 million.
Based on prior experience, management believes that a significant portion of
such deposits will remain with the Bank.
CHANGES IN FINANCIAL CONDITION.
The Company's assets increased by $172.1 million from December 31, 1996 to
September 30, 1997. Loans receivable-net increased by $107.7 million and assets
available for sale, principally mortgage-backed securities, increased by $61.6
million. Funds for the increase in assets were provided by an increase in the
Bank's deposits and repurchase agreements of $99.1 million, advances from the
FHLB of $57.2 million and increases in all other liabilities of $11.8 million.
The Company's equity at September 30, 1997 increased by $4.1 million from
December 31, 1996 as a result of net income for the nine months of $4.7 million
plus a change in the fair value of assets available for sale, net of applicable
income taxes. This amount was offset by dividends declared for the nine months
of $1.9 million.
16
<PAGE>
FIDELITY BANKSHARES, INC.
AND SUBSIDIARY
Part II - Other Information
Item 1 Legal Proceedings
The Company and its subsidiary are not involved in any litigation, nor
is the Company aware of any pending litigation, other than legal
proceedings incident to the business of the Company, such as foreclosure
actions filed on behalf of the Company. Management, therefore, believes
the results of any current litigation would be immaterial to the
consolidated financial condition or results of operation of the Company.
Item 2 Changes in Securities
Not applicable.
Item 3 Default Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) All required exhibits are included in Part I under Consolidated
Financial Statements (pages 2 through 4), Notes to Unaudited
Consolidated Financial Statements (pages 5 through 10) and
Management's Discussion and Analysis of Financial Condition and
Results of Operations (pages 11 through 16), and are incorporated
by reference, herein.
(b) On August 22, 1997, the Company filed the disclosure of its
acquisition of BankBoynton, a Federal Savings Bank on Form 8-K.
This matter is more fully described in Part 1, Item 1, "Notes to
Unaudited Consolidated Financial Statements" under General and Part
1, Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations" under Recent Developments.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
FIDELITY BANKSHARES, INC.
Date: November 7, 1997 By: /s/ Vince A. Elhilow
------------------------
Vince A. Elhilow
President and Chief
Executive Officer
Date: November 7, 1997 By: /s/ Richard D. Aldred
------------------------
Richard D. Aldred
Executive Vice President
Chief Financial Officer
18
<PAGE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company, the Trust Issuer or
the Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... 1
Fidelity Bankshares, Inc.................................................. 1
Summary Consolidated Financial Information and Other Data................. 8
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 18
Market for the Preferred Securities....................................... 18
Accounting Treatment...................................................... 18
Capitalization............................................................ 19
Description of the Preferred Securities................................... 20
Description of the Junior Subordinated Debentures......................... 30
Description of the Guarantee.............................................. 39
Relationship Among the Preferred Securities, the Junior Subordinated
Debentures, the Expense Agreement and the Guarantee..................... 42
Certain Federal Income Tax Consequences................................... 43
ERISA Considerations...................................................... 46
Underwriting.............................................................. 46
Validity of Securities.................................................... 48
Experts................................................................... 48
</TABLE>
- ------------------------------------------------------------------------------
Logo
$25,000,000
FIDELITY CAPITAL TRUST I
____% Cumulative Trust Preferred Securities
(Liquidation Amount
$10 per Preferred Security)
Guaranteed, as Described Herein, by
FIDELITY BANKSHARES, INC.
PROSPECTUS
__________, 1997
RYAN, BECK & CO.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Amount
------
<S> <C> <C>
* Legal Fees and Expenses...................... $ 75,000
* Printing and Mailing......................... 25,000
* Accounting Fees and Expenses................. 55,000
* Marketing Fees and Expenses.................. 1,033,750
* Filing Fees.................................. 8,500
Nasdaq Listing Fee........................... 17,500
* Other Expenses............................... 20,000
----------
* Total........................................ $1,234,750
==========
</TABLE>
- --------------
* Estimated
Item 15. Indemnification of Directors and Officers
Article TENTH of the Certificate of Incorporation of Fidelity Bankshares,
Inc. (the "Company") provides for indemnification of directors and officers of
the Company as follows:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director of Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring
II-1
<PAGE>
suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
Under the Trust Agreement of the Trust Issuer, Fidelity Bankshares, Inc.
will agree to indemnify each of the Trustees of the Trust Issuer or any
predecessor trustee for the Trust Issuer, and to hold harmless against, any
loss, damage, claim, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of the Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties under the Trust Agreement.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules:
The exhibits and financial statement schedules filed as part of this
registration statement are as follows:
(a) List of Exhibits
<TABLE>
<S> <C>
1.1 Engagement letter between Fidelity Bankshares, Inc. and Ryan, Beck & Co.
1.2 Form of Underwriting Agreement
2 Plan of acquisition, reorganization, arrangement, liquidation or
succession**
3.1 Certificate of Incorporation of Fidelity Bankshares, Inc.**
3.2 Bylaws of Fidelity Bankshares, Inc.**
4.1 Form of Indenture with respect to Fidelity Bankshares, Inc.'s ____% Junior
Subordinated Deferrable Interest Debentures
4.2 Form of Specimen ___% Junior Subordinated Deferrable Interest Debenture
(included as an exhibit to Exhibit 4.1)
4.3 Certificate of Trust of Fidelity Capital Trust I
4.4 Trust Agreement of Fidelity Capital Trust I
4.5 Form of Amended and Restated Trust Agreement of Fidelity Capital Trust I
4.6 Form of Guarantee Agreement for Fidelity Capital Trust I
4.7 Form of Agreement as to Expenses and Liabilities (included as an exhibit
to Exhibit 4.5)
4.8 Form of Certificate Evidencing Preferred Securities of Fidelity Capital
Trust I (included as an exhibit to Exhibit 4.5)
5.1 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. as to the validity
of the Guarantee and the issuance of the ___% Junior Subordinated
Deferrable Interest Debentures to be issued by Fidelity Capital Trust I.
5.2 Opinion of Morris, Nichols, Arsht & Tunnell as to the validity of the
Preferred Securities to be issued by Fidelity Capital Trust I*
8.1 Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
10.1 Employment Agreement with Vince A. Elhilow**
10.2 Severance Agreement with Richard D. Aldred**
10.3 Severance Agreement with Robert Fugate**
10.4 Severance Agreement with Joseph Bova**
10.5 1994 Stock Option Plan for Outside Directors**
10.6 1994 Incentive Stock Option Plan**
10.7 Recognition and Retention Plan for Employees**
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.8 Recognition Plan for Outside Directors**
12 Statements re: calculations of ratios
13.1 Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996
(included in Part I of the Registration Statement)
13.2 Quarterly Report on Form 10-Q for the Fiscal Quarter Ended March 31,
1997***
13.3 Quarterly Report on Form 10-Q for the Fiscal Quarter Ended June 30,
1997****
13.4 Quarterly Report on Form 10-Q for the Fiscal Quarter Ended September 30,
1997 (included in Part I of this Registration Statement)
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (set forth in
Exhibit 5.1)
23.3 Consent of Morris, Nichols, Arsht & Tunnell (set forth in Exhibit 5.2)
24 Power of attorney (set forth on the signature pages to this Registration
Statement)
25.1 Form T-1: Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
25.2 Form T-1: Statement of Eligibility of The Bank of New York to act as
trustee under the Amended and Restated Trust Agreement
25.3 Form T-1: Statement of Eligibility of The Bank of New York to act as
trustee under the Guarantee Agreement for Fidelity Capital Trust I
27 Financial Data Schedule*****
</TABLE>
- --------------------
* To be filed by amendment.
** Filed as exhibits to the Company's Registration Statement on Form S-4
under the Securities Act of 1933, filed with the Securities and Exchange
Commission on December 12, 1996 (Registration No. 333-17737). All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
*** Filed with the Securities and Exchange Commission on May 13, 1997.
**** Filed with the Securities and Exchange Commission on August 14, 1997.
***** Filed as exhibits to the Company's Form 10-K under the Securities Act of
1934, filed with Securities and Exchange Commission on March 28, 1997.
All of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-K.
(b) Financial Statement Schedules
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
II-4
<PAGE>
Item 17. Undertakings
Each of the undersigned Registrant hereby undertakes:
(a) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of Fidelity Bankshares, Inc.'s annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c)(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrants pursuant to Rule 424 (b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fidelity
Bankshares, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in West Palm Beach, Florida on the 11th day of December , 1997.
FIDELITY BANKSHARES, INC.
By: /s/ Vince A. Elhilow
------------------------------------
Vince A. Elhilow
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Fidelity Bankshares,
Inc. (the "Company") hereby severally constitute and appoint Vince A. Elhilow as
our true and lawful attorney and agent, to do any and all things in our names in
the capacities indicated below which said Vince A. Elhilow may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-2 relating
to the offering of the Company's Preferred Securities, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby approve, ratify and
confirm all that said Vince A. Elhilow shall do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Vince A. Elhilow President, Chief Executive December 11, 1997
- ---------------------------- Officer and Director (Principal
Vince A. Elhilow Executive Officer)
/s/ Richard D. Aldred Executive Vice President, Chief December 11, 1997
- ---------------------------- Financial Officer and Treasurer
Richard D. Aldred (Principal Financial and
Accounting Officer)
/s/ Joseph B. Shearouse, Jr. Chairman of the Board December 11, 1997
- ----------------------------
Joseph B. Shearouse, Jr.
/s/ Keith D. Beaty Director December 11, 1997
- ----------------------------
Keith D. Beaty
/s/ F. Ted Brown, Jr. Director December 11, 1997
- ----------------------------
F. Ted Brown, Jr.
</TABLE>
II-6
<PAGE>
<TABLE>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Christopher H. Cook
- ----------------------------
Christopher H. Cook Director December 11, 1997
/s/ Donald E. Warren Director December 11, 1997
- ----------------------------
Donald E. Warren
</TABLE>
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Fidelity
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in West Palm Beach, Florida, on the 11th day of December
1997.
FIDELITY CAPITAL TRUST I
By: /s/ Vince A. Elhilow
-------------------------------------
Vince A. Elhilow
Administrative Trustee
By: /s/ Richard D. Aldred
-------------------------------------
Richard D. Aldred
Administrative Trustee
By: /s/ Christopher H. Cook
-------------------------------------
Christopher H. Cook
Administrative Trustee
We, the undersigned administrative trustees of Fidelity Capital Trust
I (the "Trust Issuer") hereby severally constitute and appoint Vince A. Elhilow
as our true and lawful attorney and agent, to do any and all things in our names
in the capacities indicated below which said Vince A. Elhilow may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1933,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-2 relating
to the offering of the Trust Issuer's Preferred Securities, including
specifically, but not limited to, power and authority to sign for us in our
names in the capacities indicated below the registration statement and any and
all amendments (including post-effective amendments) thereto; and we hereby
approve, ratify and confirm all that said Vince A. Elhilow shall do or cause to
be done by virtue thereof.
FIDELITY CAPITAL TRUST I
By: /s/ Vince A. Elhilow
-------------------------------------
Vince A. Elhilow
Administrative Trustee
By: /s/ Richard D. Aldred
-------------------------------------
Richard D. Aldred
Administrative Trustee
By: /s/ Christopher H. Cook
-------------------------------------
Christopher H. Cook
Administrative Trustee
II-8
<PAGE>
As filed with the Securities and Exchange Commission on December 12, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM S-2
--------------------
FIDELITY BANKSHARES, INC.
FIDELITY CAPITAL TRUST I
================================================================================
<PAGE>
EXHIBIT INDEX
=============
<TABLE>
<S> <C>
1.1 Engagement letter between Fidelity Bankshares, Inc. and Ryan, Beck & Co.
1.2 Form of Underwriting Agreement
2 Plan of acquisition, reorganization, arrangement, liquidation or
succession**
3.1 Certificate of Incorporation of Fidelity Bankshares, Inc.**
3.2 Bylaws of Fidelity Bankshares, Inc.**
4.1 Form of Indenture with respect to Fidelity Bankshares, Inc.'s ____% Junior
Subordinated Deferrable Interest Debentures
4.2 Form of Specimen ___% Junior Subordinated Deferrable Interest Debenture
(included as an exhibit to Exhibit 4.1)
4.3 Certificate of Trust of Fidelity Capital Trust I
4.4 Trust Agreement of Fidelity Capital Trust I
4.5 Form of Amended and Restated Trust Agreement of Fidelity Capital Trust I
4.6 Form of Guarantee Agreement for Fidelity Capital Trust I
4.7 Form of Agreement as to Expenses and Liabilities (included as an exhibit to
Exhibit 4.5)
4.8 Form of Certificate Evidencing Preferred Securities of Fidelity Capital
Trust I (included as an exhibit to Exhibit 4.5)
5.1 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. as to the validity of
the Guarantee and the issuance of the ___% Junior Subordinated Deferrable
Interest Debentures to be issued by Fidelity Capital Trust I.
5.2 Opinion of Morris, Nichols, Arsht & Tunnell as to the validity of the
Preferred Securities to be issued by Fidelity Capital Trust I.
8.1 Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
10.1 Employment Agreement with Vince A. Elhilow**
10.2 Severance Agreement with Richard D. Aldred**
10.3 Severance Agreement with Robert Fugate**
10.4 Severance Agreement with Joseph Bova**
10.5 1994 Stock Option Plan for Outside Directors**
10.6 1994 Incentive Stock Option Plan**
10.7 Recognition and Retention Plan for Employees**
10.8 Recognition Plan for Outside Directors**
12.1 Statements re: calculations of ratios
13.1 Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996
(included in Part I of the
Registration Statement)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13.2 Quarterly Report on Form 10-Q for the Fiscal Quarter Ended March 31,
1997***
13.3 Quarterly Report on Form 10-Q for the Fiscal Quarter Ended June 30,
1997****
13.4 Quarterly Report on Form 10-Q for the Fiscal Quarter Ended September 30,
1997 (included in Part I of this Registration Statement)
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (set forth in Exhibit
5.1)
23.3 Consent of Morris, Nichols, Arsht & Tunnell (set forth in Exhibit 5.2)
24 Power of attorney (set forth on the signature pages to this Registration
Statement)
25.1 Form T-1: Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
25.2 Form T-1: Statement of Eligibility of The Bank of New York to act as
trustee under the Amended and Restated Trust Agreement
25.3 Form T-1: Statement of Eligibility of The Bank of New York to act as
trustee under the Guarantee Agreement for Fidelity Capital Trust I
27 Financial Data Schedule*****
</TABLE>
- --------------------
* To be filed by amendment.
** Filed as exhibits to the Company's Registration Statement on Form S-4
under the Securities Act of 1933, filed with the Securities and Exchange
Commission on December 12, 1996 (Registration No. 333-17737). All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
*** Filed with the Securities and Exchange Commission on May 13, 1997.
**** Filed with the Securities and Exchange Commission on August 14, 1997.
***** Filed as an exhibit to the Company's Form 10-K under the Securities Act
of 1934, filed with Securities and Exchange Commission on March 28, 1997.
Such previously filed document is hereby incorporated herein by reference
in accordance with Item 601 of Regulation S-K.
<PAGE>
EXHIBIT 1.1
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
CONFIDENTIAL
October 29, 1997
Mr. Vince A. Elhilow
President and Chief Executive Officer
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, FL 33401-5679
Re: Proposed Cumulative Trust Preferred Securities Offering
Dear Mr. Elhilow:
We are pleased to submit this Engagement Letter which sets forth the terms of
the proposed services to be provided by Ryan, Beck & Co., Inc. ("Ryan, Beck") in
connection with an offering of Trust Preferred Securities ("Preferred") by
Fidelity Bankshares, Inc. ("the Company"). We have informed you of our interest
in providing capital raising and financial advisory services to the Company.
It is our understanding that the Company intends to pursue an offering of
Preferred. It is also our understanding that the Company wishes Ryan, Beck to
be the sole manager of that offering.
1. PROPOSED OFFERING
-----------------
It is presently contemplated that the Company will establish a statutory
business trust which will offer $25 million of Preferred. The actual offering
terms of the Preferred will be determined in consultation with Ryan, Beck
immediately prior to the sale of the Preferred but are expected to be
substantially similar to those summarized in the preliminary term sheet attached
hereto. The final terms will be based upon prevailing market conditions and a
number of other factors, including, but not limited to the following: (i) the
earnings of the Company, (ii) the current financial position and future
prospects of the Company, and (iii) the condition of the credit and equity
markets and particularly as they relate to securities of financial institutions.
2. SERVICES TO BE PROVIDED BY RYAN, BECK
-------------------------------------
The Preferred will be underwritten on a firm commitment basis by Ryan, Beck.
Ryan, Beck will also be granted an over-allotment option equal to 15% of the
total dollar amount of Preferred offered.
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
Mr. Vince A. Elhilow
October 29, 1997
Page 2
3. COMPENSATION RELATED TO UNDERWRITING
------------------------------------
a. For its services hereunder, the Company will pay:
(1) An underwriting fee of 3.875% of the dollar amount of Preferred in
accordance with the terms of the accompanying preliminary term
sheet, the exact amount of which will be negotiated upon execution
of the Underwriting Agreement; and
b. If (i) the Offering is abandoned or terminated by the Company, (ii) the
Offering is not consummated by March 31, 1998, (iii) Ryan, Beck
terminates this relationship either because there has been a material
adverse change in the financial condition or operations of the Company;
or (iv) immediately prior to commencement of the Offering, Ryan, Beck
terminates this relationship for one of the reasons set forth in
clauses (ii) or (iii) of paragraph 12(b) of this letter, Ryan, Beck
shall not be entitled to the fees set forth above under subparagraph
(a), but would be entitled to reimbursement of its reasonable out-of-
pocket expenses as set forth in paragraph 5 below.
4. DOCUMENTS
---------
The Preferred to be offered to the public will be the subject of a registration
statement meeting the requirements of all applicable securities laws, and the
rules and regulations promulgated thereunder. Such registration statement and
any related documentation will be satisfactory to Ryan, Beck and its counsel.
The registration statement will contain or incorporate by reference consolidated
financial statements of the Company audited by its independent public
accountants ("Accountants") as of and for the years ended December 31, 1996 and
1995 and shall be covered by an opinion of such firm containing no material
qualifications and such pro forma financial information and unaudited quarterly
statements as are appropriate based upon requirements of securities regulations.
In addition, the Company shall cause its Accountants to provide Ryan, Beck, upon
commencement of the Offering, with a comfort letter providing the usual
assurances with respect to all financial data contained in the registration
statement and update such letter upon the closing.
Ryan, Beck and its counsel will conduct an examination of relevant documents and
records of the Company and will make such other reasonable investigation as
deemed necessary and appropriate under the circumstances. The Company agrees to
make all such documents, records and other information deemed reasonably
necessary by the parties hereto, or their counsel, available to Ryan, Beck upon
request. Ryan, Beck's counsel will prepare, subject to the approval of the
Company's counsel, an underwriting agreement to be executed upon commencement of
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
Mr. Vince A. Elhilow
October 29, 1997
Page 3
the Offering by Ryan, Beck, setting forth the definitive terms of this
engagement, the substantive terms of which are reflected herein (the
"Underwriting Agreement"). Ryan, Beck acknowledges that any form of information
regarding the Company provided by the Company to Ryan, Beck or its
representatives to allow Ryan, Beck to provide the services contemplated by this
Engagement Letter, will be kept confidential by Ryan, Beck and its
representatives, except such of the information as has been made public, or
which the Company agrees may be disclosed or which Ryan, Beck is required by law
to disclose in which case Ryan, Beck will provide prompt notice of its intent to
disclose so that the Company may seek a protective order or other appropriate
remedy and/or permit disclosure of only that portion which is legally required.
From the date hereof until the offering is terminated, abandoned or consummated,
financial news releases and filings under the Securities and Exchange Act of
1934 will be provided to Ryan, Beck, with ample time to comment thereon, prior
to their being made public.
5. EXPENSES
--------
The Company will pay for all of its expenses in connection with the Offering,
including printing expenses, legal and accounting fees, "Blue Sky" legal fees,
state and federal filing fees, and advertising expenses. The Company will
reimburse Ryan, Beck for its reasonable out-of-pocket expenses in connection
with this transaction, which shall include legal fees and associated expenses.
Ryan, Beck agrees to not incur underwriter's counsel fees in excess of $65,000
(excluding Blue Sky work) without the prior consent of the Company.
Ryan, Beck's general out-of-pocket and legal expenses will be billed to the
Company quarterly and be payable as submitted. Ryan, Beck agrees to cap its
general out-of-pocket expenses at $15,000.
6. BLUE SKY
--------
To the extent required by applicable state law, Ryan, Beck and the Company will
need to obtain or confirm exemptions, qualifications or registration of the
Preferred under applicable state securities laws and NASD policies. The
reasonable cost of such legal work and related filing fees will be paid by the
Company to the law firm furnishing such legal work.
7. INDEMNIFICATION
---------------
The Underwriting Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities under Securities Act
of 1933 (the "Act"). The Company also agrees to defend, indemnify and hold
harmless Ryan, Beck and its officers,
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
Mr. Vince A. Elhilow
October 29, 1997
Page 4
directors, employees and agents against all claims, losses, actions, judgments,
damages or expenses, including but not limited to attorneys' fees, arising
solely out of the engagement described herein, except that such indemnification
shall not apply to Ryan, Beck's own negligence, if such negligence is determined
to be material.
8. NASD MATTERS
------------
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Securities Dealers ("NASD") in
connection with the sale of the Preferred. The Company agrees to cooperate with
Ryan, Beck and provide such information as may be necessary for Ryan, Beck to
comply with all NASD requirements applicable to it in connection with its
participation as contemplated herein. Ryan, Beck is, and will remain through
completion of the Offering, a member in good standing of the NASD and will
comply with all applicable NASD requirements.
9. MARKET MAKING
-------------
Ryan, Beck agrees to be a market maker in the Preferred.
10. TIMING
------
The offering is expected to take place during the fourth quarter of 1997. This
schedule could, of course, be delayed if unexpected circumstances develop.
11. ARBITRATION
-----------
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in West Palm Beach, Florida before one
or three arbitrators, each of whom shall be knowledgeable in the field of
securities law and investment banking. Such arbitration shall otherwise be
conducted in accordance with the rules then obtaining of the American
Arbitration Association. The parties hereto agree to share equally the
responsibility for all fees of the arbitrators, abide by any decision rendered
as final and binding, and waive the right to appeal the decision or otherwise
submit the dispute to a court of law for a jury or non-jury trial. The parties
hereto specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
Mr. Vince A. Elhilow
October 29, 1997
Page 5
otherwise. Judgment upon any award granted by such an arbitrator may be enforced
in any court having jurisdiction thereof.
12. OBLIGATIONS
-----------
a. Except as set forth below, this Engagement Letter is merely a statement of
intent. This letter is not intended to constitute a binding agreement to
enter into an Underwriting Agreement. While the parties agree in principle
to the contents hereof and propose to proceed promptly and in good faith to
work out the arrangements with respect to the Offering, any legal
obligations between Ryan, Beck and the Company arising hereunder shall be
only those set forth herein in paragraph 5 regarding reimbursement for
certain expenses and paragraph 11 regarding arbitration and as set forth in
a duly negotiated and executed Underwriting Agreement.
b. The obligations of Ryan, Beck hereunder shall be subject to, among other
things, the approval of the Ryan, Beck Commitment Committee and there being,
in Ryan, Beck's opinion, which shall have been formed in good faith after
reasonable determination and consideration of all relevant factors; (i) no
material adverse change in the condition or operation of the Company; (ii)
satisfactory disclosure of all relevant financial information in the
disclosure documents and determination that the sale of the Preferred is
reasonable given such disclosures; (iii) no market conditions which might
render the sale of the Preferred by the Company hereby contemplated
inadvisable.
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
Mr. Vince A. Elhilow
October 29, 1997
Page 6
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office. We look
forward to working with you.
RYAN, BECK & CO., INC.
BY: /s/ Ben A. Plotkin
-----------------------------------------------------
Ben A. Plotkin, President and Chief Executive Officer
ACCEPTED AND AGREED TO THIS 7 DAY OF NOVEMBER, 1997.
FIDELITY BANKSHARES, INC.
BY: /s/ Vince A. Elhilow
______________________________________________________
Vince A. Elhilow, President and Chief Executive Officer
<PAGE>
Fidelity Bankshares, Inc.
Cumulative Trust Preferred Securities
PRELIMINARY SUMMARY OF PRINCIPAL TERMS
Issuer: Fidelity Capital Trust I (the "Capital Trust"),
a statutory business trust created under
Delaware law. Fidelity Bankshares, Inc. (the
"Company") will own all the common securities
(approximately 3-4% of capitalization)
representing undivided beneficial interests in
the assets of the Capital Trust.
Securities Offered: Cumulative Trust Preferred Securities
("Preferred Securities") representing undivided
preferred beneficial interests in Capital
Trust.
Offering Amount: $25 Million
Offering Price and Liquidation $10.00 Per Preferred Security
Value:
Underwriters' Over-allotment 15% of Offering Amount
Option:
Use of Proceeds: Capital Trust Will use the Trust Preferred
Securities issuance proceeds to purchase
Junior Subordinated Debentures issued by the
Company. The Company will use Junior
Subordinated Debenture proceeds for general
corporate purposes.
Guarantee: The Company will guarantee payments of
distributions and payments of liquidation or
redemption, but only to the extent funds are
held by Capital Trust.
Distribution (Dividend) Rate: Fixed for the life of the issue at a rate
approximately 240-255 basis points above the 30
year "old" Treasury bond. Distributions will be
cumulative and payable quarterly in arrears.
Underwriting Discount: 3.875% of total Offering Amount including
Underwriter's Over-allotment Option.
<PAGE>
Ryan, Beck & Co.
Conversion rights: None
Rating: None
Term: The Preferred Securities have no stated
maturity.
Mandatory Redemption: The Preferred Securities are subject to
mandatory redemption at Liquidation Value, in
whole or in part, upon repayment of Junior
Subordinated Debentures at stated maturity or
earlier redemption.
Stated Maturity of Junior _____________, 2027.
Subordinated Debentures:
Company's Option to Redeem The Company, at its sole discretion (if
Junior Subordinated Debentures: certain conditions are met, including prior
regulatory approval if then required under
applicable capital guidelines or regulatory
policies), can redeem the Junior Subordinated
Debentures in whole or in part after
____________, 2002. In all cases the
redemption price is equal to 100% of the
principal amount of Junior Subordinated
Debentures. Notwithstanding the foregoing, if
the Company shall have undergone a "full
conversion" or "second-step transaction" then
the Company shall be permitted to redeem the
Junior Subordinated Debentures prior to
_____________, 2002, but not prior to
_____________, 1999 at a redemption price
equal to 107% of the Liquidation Amount.
Company's Option to Redeem At any time, within 180 days following the
Junior Subordinated Debentures occurrence and continuation of a Tax Event,
Upon Occurrence of Certain Investment Company Event or Capital Treatment
Events: Event, the Company may redeem in whole but not
in part the Junior Subordinated Debentures at
a price equal to 100% of principal amount.
Tax Event: Receipt of opinion of counsel that (i) income
received by Capital Trust is taxable (ii)
interest paid by the Company is not deductible
or (iii) the Capital Trust will become subject
to more than a "de minimis" amount of taxes or
other government charges.
Investment Company Event: Receipt of opinion of counsel that Capital
Trust is or will be required to be registered
under the Investment Company Act.
Capital Treatment Event: Reasonable determination by the Company that
the ability to treat the Preferred Securities
as "Tier 1 Capital" is impaired.
Company's Option to Distribute The Company has the right at any time, subject
Junior Subordinated Debentures: to the receipt of any required regulatory
approvals, to terminate the Capital Trust and
cause the Junior Subordinated Debentures to be
distributed to holders of Preferred Securities
in liquidation of the Capital Trust.
<PAGE>
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
Interest Payments of Junior Interest on the Junior Subordinated Debentures
Subordinated Debentures: is payable quarterly in arrears, at an annual
rate equal to the Distribution Rate on the
Trust Preferred Securities. No distributions
will be declared, paid or reserved on the
Company's obligations or stock ranking junior
to or on a parity with the Junior Subordinated
Debentures in any quarterly period unless
interest is paid on the Junior Subordinated
Debentures.
Voting Rights: The holders of Preferred Securities will have
no voting rights except in limited
circumstances.
Dividends Received Deduction: Not eligible.
Extension of Interest Payment The Company has the right at any time, so long
Period: as no event of default has occurred, to defer
interest payments on the Junior Subordinated
Debentures for twenty consecutive quarters,
provided that no deferral can extend beyond
stated maturity. Distributions on Preferred
Securities will be deferred during any such
Extended Interest Payment Period. Interest on
the Junior Subordinated Debentures and
Distributions on Preferred Securities will
continue to accrue and compound quarterly.
Tax Consequences of Extended Should an Extended Interest Period occur,
Interest Payment Period for holders of Preferred Securities will be
Investors: required to include deferred interest income
in their gross income for United States
federal income tax purposes in advance of
receipt of the cash distributions with respect
to such deferred interest payments. The
Company, will represent that it has no current
intention of exercising its right to defer
payments of interest by extending the interest
payment period on the Junior Subordinated
Debentures.
Tax Opinion: Company Counsel will opine that the Junior
Subordinated Debentures will be classified as
indebtedness for tax purposes and that there
is no original issue discount upon issuance of
the Preferred Securities.
<PAGE>
Exhibit 1.2
FIDELITY CAPITAL TRUST I
(a Delaware business trust)
2,500,000 Preferred Securities
___% Cumulative Trust Preferred Securities
(Liquidation Acount $10 per Preferred Security)
UNDERWRITING AGREEMENT
----------------------
___________, 1997
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Ladies and Gentlemen:
Fidelity Capital Trust I (the "Trust"), a statutory business trust
organized under the Business Trust Act (the "Delaware Act") of the State of
Delaware (Chapter 38, Title 12, of the Delaware Business Code, 12 Del. C.
Section 3801 et seq.), and Fidelity Bankshares, Inc., a Delaware corporation
(the "Company") as depositor of the Trust and as guarantor (hereafter the Trust
and the Company are referred to collectively as the "Offerors"), hereby confirm
their agreement (the "Agreement") with Ryan Beck & Co., Inc. (the
"Underwriter"), with respect to the issue and sale by the Trust and the purchase
by the Underwriter of 2,500,000 (the "Initial Securities") of the Trust's ___%
Cumulative Trust Preferred Securities (the "Preferred Securities"). The Trust
and the Company also propose to issue and sell to the Underwriter, at the
Underwriter's option, up to an additional 375,000 Preferred Securities (the
"Option Securities") as set forth herein. The term "Preferred Securities" as
used herein, unless indicated otherwise, shall mean the Initial Securities and
the Option Securities.
The Preferred Securities and the Common Securities (as defined herein)
are to be issued pursuant to the terms of an Amended and Restated Trust
Agreement dated as of ___________, 1997 (the "Trust Agreement"), among the
Company, as depositor, and Bank of New York ("Trust Company"), a New York
banking corporation, as property trustee ("Property Trustee") and Bank of New
York (Delaware), as Delaware trustee ("Delaware Trustee") and ___________
<PAGE>
(the "Administrative Trustees" and together with the Property Trustee and the
Delaware Trustee, the "Trustees") and the holders from time to time of undivided
interests in the assets of the Trust. The Preferred Securities will be
guaranteed by the Company, on a subordinated basis and subject to certain
limitations, with respect to distributions and payments upon liquidation,
redemption or otherwise (the "Guarantee") pursuant to the Preferred Securities
Guarantee Agreement to be dated as of ___________, 1997 (the "Guarantee
Agreement") between the Company and the Trust Company, as guarantee trustee (the
"Guarantee Trustee"). The assets of the Trust will consist of ___% junior
subordinated debentures due ___________, 2028 (the "Junior Subordinated
Debentures") of the Company which will be issued under the Indenture to be dated
as of ___________, 1997 (the "Indenture"), between the Company and the Trust
Company, as trustee (the "Indenture Trustee"). The Company has agreed to pay
all costs, expenses and liabilities of the Trust payable to third parties, with
certain exceptions, pursuant to the Agreement as to Expenses and Liabilities,
dated as of ___________, 1997, between the Company and the Trust (the "Expense
Agreement"). Under certain circumstances, the Junior Subordinated Debentures
will be distributable to the holders of undivided beneficial interests in the
assets of the Trust. The entire proceeds from the sale of the Preferred
Securities will be combined with the entire proceeds from the sale by the Trust
to the Company of the Trust's common securities (the "Common Securities"), and
will be used by the Trust to purchase an equivalent amount of the Junior
Subordinated Debentures.
The initial public offering price for the Preferred Securities, the
purchase price to be paid by the Underwriter for the Preferred Securities, the
commission per Preferred Security to be paid by the Company to the Underwriter
and the rate of interest to be paid on the Preferred Securities shall be agreed
upon by the Company and the Underwriter, and such agreement shall be set forth
in a separate written instrument substantially in the form of Exhibit A hereto
(the "Price Determination Agreement"). The Price Determination Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company and the Underwriter and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Preferred
Securities will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and delivery
of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and all references herein to "this Agreement" shall be deemed to
include, the Price Determination Agreement.
The Offerors have prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 (File Nos.
333-___________ and 333-___________-01) covering the registration of the
Preferred Securities, the Guarantee and the Junior Subordinated Debentures under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses, and, if such registration statement has
not become effective, the Company will prepare and file, prior to the effective
date of such registration statement, an amendment to such registration
statement, including a final prospectus. Each prospectus used before the time
such registration statement becomes effective is herein called a "preliminary
prospectus". Such registration statement, including the exhibits thereto and
the documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the 1933 Act, at the time it becomes effective, is herein called the
"Registration Statement", and the prospectus, including the
2
<PAGE>
documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the 1933 Act, included in the Registration Statement at the time it
becomes effective is herein called the "Prospectus," except that if any revised
prospectus provided to the Underwriter by the Company for use in connection with
the offering of the Preferred Securities differs from the prospectus included in
the Registration Statement at the time it becomes effective (whether or not such
prospectus is required to be filed pursuant to Rule 424(b)), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first furnished to the Underwriter for such use.
The Company understands that the Underwriter proposes to make a public
offering of the Preferred Securities (the "Offering") as soon as possible after
the Registration Statement becomes effective. The Underwriter may assemble and
manage a selling group of broker-dealers that are members of the National
Association of Securities Dealers, Inc. ("NASD") to participate in the
solicitation of purchase orders for the Preferred Securities.
Section 1. Representations and Warranties.
------------------------------
(a) The Offerors jointly and severally represent and warrant to and
agree with the Underwriter that:
(i) The Company meets the requirements for use of Form S-2 under
the 1933 Act and when the Registration Statement on such form shall become
effective and at all times subsequent thereto up to the Closing Time
referred to below and with respect to Option Securities, up to the Date of
Delivery referred to below, (A) the Registration Statement and any
amendments and supplements thereto will comply in all material respects
with the requirements of the 1933 Act and the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations"); (B) neither the
Registration Statement nor any amendment or supplement thereto will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and (C) neither the Prospectus nor any amendment or supplement thereto will
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made
in reliance upon and in conformity with information furnished in writing to
the Offerors by the Underwriter expressly for use in the Registration
Statement or the Prospectus, or any information contained in any Form T-1
which is an exhibit to the Registration Statement. The statements contained
under the caption "Underwriting" in the Prospectus constitute the only
information furnished to the Offerors in writing by the Underwriter
expressly for use in the Registration Statement or the Prospectus.
(ii) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-2 under the 1933 Act, at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Securities Exchange Act of
3
<PAGE>
1934, as amended (the "1934 Act"), and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read together
and with the other information in the Prospectus, at the time the
Registration Statement becomes effective and at all times subsequent
thereto up to the Closing Time, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, in each case after excluding any statement that does not
constitute a part of the Registration Statement or the Prospectus pursuant
to Rule 412 of the 1933 Act Regulations.
(iii) Deloitte & Touche LLP, who are reporting upon the audited
financial statements included or incorporated by reference in the
Registration Statement, are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) This Agreement has been duly authorized, executed and delivered
by the Offerors and, when duly executed by the Underwriter, will constitute
the valid and binding agreement of the Offerors enforceable against the
Offerors in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, or reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles. The Guarantee Agreement, the Junior
Subordinated Debentures, the Trust Agreement, the Expense Agreement and the
Indenture have each been duly authorized and when validly executed and
delivered by the Company and, in the case of the Guarantee, by the
Guarantee Trustee, in the case of the Trust Agreement, by the Trustees, and
in the case of the Indenture, by the Indenture Trustee, will constitute
valid and legally binding obligations of the Company enforceable in
accordance with their respective terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, or reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or
general equitable principles; the Junior Subordinated Debentures are
entitled to the benefits of the Indenture; and the Guarantee Agreement, the
Junior Subordinated Debentures, the Trust Agreement, the Expense Agreement
and the Indenture conform in all material respects to the descriptions
thereof in the Prospectus. The Trust Agreement, the Guarantee Agreement,
and the Indenture have been duly qualified under the Trust Indenture Act.
(v) The consolidated financial statements, audited and unaudited
(including the notes thereto), included or incorporated by reference in the
Registration Statement present fairly the consolidated financial position
of the Company and its subsidiaries as of the dates indicated and the
consolidated results of operations and cash flows of the Company and its
subsidiaries for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as
otherwise stated therein. The financial statement schedules, if any,
included in the Registration Statement present fairly the information
required to be stated therein. The selected financial, pro forma and
statistical data included in the Prospectus are accurate in all material
respects and present fairly the information
4
<PAGE>
shown therein and have been compiled on a basis consistent with that of the
audited and unaudited consolidated financial statements included or
incorporated by reference in the Registration Statement.
(vi) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with corporate
power and authority under such laws to own, lease and operate its
properties and conduct its business as described in the Prospectus. Each
subsidiary of the Company is an entity duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of
organization with corporate power and authority under such laws to own,
lease and operate its properties and conduct its business. The Company and
each of its subsidiaries is duly qualified to transact business as a
foreign corporation and is in good standing in each other jurisdiction in
which it owns or leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except to the extent
that the failure to so qualify or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the Company and
its subsidiaries, considered as one enterprise.
(vii) The Company is duly registered with the Office of Thrift
Supervision as a savings and loan holding company under the Home Owners'
Loan Act of 1933, as amended; each subsidiary of the Company that conducts
business as a bank is duly authorized to conduct such business in each
jurisdiction in which such business is currently conducted; and the deposit
accounts of Fidelity Federal Savings Bank of Florida (the "Bank") are
insured by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"), up to the maximum allowable limits thereof.
The Offerors have all such power, authority, authorization, approvals and
orders as may be required to enter into this Agreement, to carry out the
provisions and conditions hereof and to issue and sell the Preferred
Securities.
(viii) The Bank is a federally chartered savings bank duly organized,
validly existing and in good standing under the laws of the United States
of America with corporate power and authority under such laws to own, lease
and operate its properties and conduct its business; the Bank is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs, assets
or business prospects of the Company and its subsidiaries, considered as
one enterprise. All of the outstanding shares of capital stock of the Bank
have been duly authorized and validly issued and are fully paid and non-
assessable and are owned by the Company directly, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance of
any kind. All of the outstanding shares of capital stock of the Company's
subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable and are owned by either
5
<PAGE>
the Company or the Bank directly, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind.
(ix) Except for the Bank, the Company does not have any "significant
subsidiaries" as defined in Rule 1-02 of Regulation S-X under the 1933 Act.
(x) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus under the caption
"Capitalization".
(xi) The Preferred Securities have been duly and validly
authorized by the Trust for issuance and sale to the Underwriter pursuant
to this Agreement and, when executed and authenticated in accordance with
the terms of the Trust Agreement and delivered by the Trust to the
Underwriter pursuant to this Agreement against payment of the consideration
set forth herein, will be validly issued and fully paid and non-assessable
and will constitute valid and legally binding obligations of the Trust
enforceable in accordance with their terms and entitled to the benefits
provided by the Trust Agreement. The Trust Agreement has been duly
authorized and, when executed by the Property Trustee, the Delaware Trustee
and the Administrative Trustees of the Trust and delivered by the Trust,
will have been duly executed and delivered by the Trust and will constitute
the valid and legally binding instrument of the Trust, enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting enforcement
of creditors' rights generally or by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or
at law). The Preferred Securities conform, in all material respects, to the
statements relating thereto contained in the Prospectus and such
description conforms, in all material respects, to the rights set forth in
the instruments defining the same; the holders of the Preferred Securities
(the "Securityholders") 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; and
the issuance of the Preferred Securities is not subject to the preemptive
or other similar rights of any securityholder of the Company.
(xii) The Common Securities have been duly and validly authorized by
the Trust and upon delivery by the Trust to the Company against payment
therefor as described in the Prospectus, will be duly and validly issued
and fully paid undivided beneficial interests in the assets of the Trust
and will conform, in all material respects, to the description thereof
contained in the Prospectus; the issuance of the Common Securities is not
subject to preemptive or other similar rights; and at the Closing Time, all
of the issued and outstanding Common Securities of the Trust will be
directly owned by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
(xiii) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware Act with the
power and authority to own, lease and operate its properties and conduct
its business as described in the Prospectus, and the Trust
6
<PAGE>
has conducted no business to date, and it will conduct no business in the
future that would be inconsistent with the description of the Trust set
forth in the Prospectus; the Trust is not a party to or bound by any
agreement or instrument other than this Agreement, the Trust Agreement and
the agreements and instruments contemplated by the Trust Agreement or
described in the Prospectus; the Trust has no liabilities or obligations
other than those arising out of the transactions contemplated by this
Agreement and the Trust Agreement and described in the Prospectus; and the
Trust is not a party to or subject to any action, suit or proceeding of any
nature.
(xiv) The issuance and sale of the Preferred Securities and the
Common Securities by the Trust, the compliance by the Trust with all of the
provisions of this Agreement, the purchase of the Junior Subordinated
Debentures by the Trust, and the consummation of the transactions herein
contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, loan
agreement, mortgage, deed of trust or other agreement or instrument to
which the Trust is a party or by which the Trust is bound or to which any
of the property or assets of the Trust is subject, nor will such action
result in any violation of the provisions of the Trust Agreement or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Trust or any of its properties,
except in any case for such conflicts, breaches, defaults or violations
that would not have a material adverse effect on the condition (financial
or otherwise), earnings, business affairs, assets or business prospects of
the Company and its subsidiaries, considered as one enterprise; and no
consent, approval, authorization, order, license, certificate, permit,
registration or qualification of or with any such court or other
governmental agency or body is required to be obtained by the Trust for the
issue and sale of the Preferred Securities and the Common Securities by the
Trust, the purchase of the Junior Subordinated Debentures by the Trust or
the consummation by the Trust of the transactions contemplated by this
Agreement and the Trust Agreement, except for such consents, approvals,
authorizations, licenses, certificates, permits, registrations or
qualifications as have already been obtained, or as may be required under
the 1933 Act or the 1933 Act Regulations, 1934 Act or 1934 Act Regulations,
state securities laws or under the Trust Indenture Act of 1939, as amended
("TIA").
The issuance by the Company of the Guarantee and the Junior
Subordinated Debentures, the compliance by the Company with all of the
provisions of this Agreement, the execution, delivery and performance by
the Company of the Trust Agreement, the Junior Subordinated Debentures, the
Guarantee Agreement, the Expense Agreement and the Indenture, and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any material indenture, loan
agreement, mortgage, deed of trust, or other material agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of
the Certificate of Incorporation or by-laws of the
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Company or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company, any of its subsidiaries or any of their respective
properties; and no consent, approval, authorization, order, license,
certificate, permit, registration or qualification of or with any such
court or other governmental agency or body is required for the issue of the
Guarantee and the Junior Subordinated Debentures or the consummation by the
Company of the other transactions contemplated by this Agreement, except
for such consents, approvals, authorizations, licenses, certificates,
permits, registrations or qualifications as have already been obtained, or
as may be required under the 1933 Act or the 1933 Act Regulations, 1934 Act
or 1934 Act Regulations, state securities laws or under the TIA.
(xv) The Trust is not, and after giving effect to the offering and
sale of the Preferred Securities will not be, an "investment company," or
an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xvi) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and non-
assessable, and none of the outstanding shares of capital stock was issued
in violation of the preemptive rights of any stockholder of the Company.
(xvii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business, (B)
any transaction entered into by the Company or any subsidiary, other than
in the ordinary course of business, that is material to the Company and its
subsidiaries, considered as one enterprise, or (C) any dividend or
distribution of any kind declared, paid or made by the Company on its
capital stock. Neither the Company, the Bank, nor any other subsidiary has
any material liability of any nature, contingent or otherwise, except as
set forth in the Prospectus.
(xviii) Neither the Company, the Bank nor any other subsidiary is in
violation of any provision of its certificate of incorporation, charter or
by-laws or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to
which it is a party or by which it may be bound or to which any of its
properties may be subject, except for such defaults that would not have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the Company and
its subsidiaries, considered as one enterprise.
(xix) Except as disclosed in the Prospectus, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, domestic or foreign,
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now pending or, to the knowledge of the Company, threatened against the
Company, the Bank or any other subsidiary that is required to be disclosed
in the Prospectus or that could reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the Company and
its subsidiaries, considered as one enterprise, or that could reasonably be
expected to materially and adversely affect the properties or assets of the
Company and its subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the consummation
of the transactions contemplated in this Agreement; all pending legal or
governmental proceedings to which the Company, the Bank or any other
subsidiary is a party that are not described in the Prospectus, including
ordinary routine litigation incidental to its business, if decided in a
manner adverse to the Company, would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as one
enterprise.
(xx) There are no material contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not
described and filed as required.
(xxi) The Company and its subsidiaries, including the Bank, each has
good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as (A) are described in the
Prospectus or (B) are neither material in amount nor materially significant
in relation to the business of the Company and its subsidiaries, considered
as one enterprise; all of the leases and subleases material to the business
of the Company and its subsidiaries, considered as one enterprise, and
under which the Company, the Bank or any other subsidiary holds properties
described in the Prospectus, are in full force and effect, and neither the
Company, the Bank nor any other subsidiary has any notice of any material
claim that has been asserted by anyone adverse to the rights of the
Company, the Bank or any other subsidiary under any of the leases or
subleases mentioned above, or affecting or questioning the rights of such
corporation to the continued possession of the leased or subleased premises
under any such lease or sublease.
(xxii) Each of the Company and its subsidiaries, including the Bank,
owns, possesses or has obtained all material governmental licenses,
permits, certificates, consents, orders, approvals and other authorizations
necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as presently conducted, and neither
the Company, the Bank nor any other subsidiary has received any notice of
any restriction upon, or any notice of proceedings relating to revocation
or modification of, any such licenses, permits, certificates, consents,
orders, approvals or authorizations.
(xxiii) No labor problem exists with the employees of the Company or
with employees of the Bank or any other subsidiary, or to the best
knowledge of the Company, is imminent that could materially adversely
affect the Company and its subsidiaries, considered
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as one enterprise, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its, the Bank's or any other
subsidiary's principal suppliers, contractors or customers that could
reasonably be expected to materially adversely affect the condition
(financial or otherwise), earnings, business affairs or business prospects
of the Company and its subsidiaries, considered as one enterprise.
(xxiv) Except as disclosed in the Prospectus, there are no persons
with registration or other similar rights to have any securities of the
Company registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxv) Except as disclosed in the Prospectus, the Company and its
subsidiaries, including the Bank, own or possess all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets
or other unpatented and/or unpatentable proprietary or confidential
information systems or procedures), trademarks, servicemarks and tradenames
(collectively, "patent and proprietary rights") currently employed by them
in connection with the business now operated by them except where the
failure to so own, possess or acquire such patent and proprietary rights
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries considered as one enterprise, and neither the
Company, the Bank nor any other subsidiary has received any notice nor is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any patent or proprietary rights, and which
infringement or conflict (if the subject of any unfavorable decision, rule
and refinement, singly or in the aggregate) could reasonably be expected to
result in any material adverse change in the condition (financial or
otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise.
(xxvi) The Company and each subsidiary of the Company have filed all
Federal, state and local income, franchise or other tax returns required to
be filed and have made timely payments of all taxes due and payable in
respect of such returns and no material deficiency has been asserted with
respect thereto by any taxing authority.
(xxvii) The Company has filed with the NASD all documents and notices
required by the NASD of companies that have issued securities that are
listed or traded on The Nasdaq Stock Market, Inc. (the "Nasdaq Stock
Market").
(xxviii) Neither the Trust, the Company nor any subsidiary has taken
or will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation, under the Exchange Act or
otherwise, of the price of the Preferred Securities.
(xxix) Neither the Company, the Bank nor any other subsidiary is or
has been (by virtue of any action, omission to act, contract to which it is
a party or by which it is bound,
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or any occurrence or state of facts whatsoever) in violation of any
applicable foreign, Federal, state, municipal, or local statutes, laws,
ordinances, rules, regulations and/or orders issued pursuant to foreign,
federal, state, municipal, or local statutes, laws, ordinances, rules, or
regulations (including those relating to any aspect of banking, savings
bank holding companies, environmental protection, occupational safety and
health, and equal employment practices) heretofore or currently in effect,
except such violation that has been fully cured or satisfied without
recourse or that is not reasonably likely to have a material adverse effect
on the condition (financial or otherwise), earnings, business affairs,
assets or business prospects of the Company and its subsidiaries,
considered as one enterprise.
(xxx) Neither the Company, the Bank nor any other subsidiary has any
agreement or understanding with any entity concerning the future
acquisition by the Company or the Bank of a controlling interest in any
entity that is required by the 1933 Act or the 1933 Act Regulations to be
disclosed by the Company that is not disclosed in the Prospectus; neither
the Company, the Bank nor any other subsidiary has any agreement or
understanding with any entity concerning the future acquisition of a
controlling interest in the Company, the Bank or any other subsidiary by
any entity that is required by the 1933 Act or the 1933 Act Regulations to
be disclosed by the Company that is not disclosed in the Prospectus.
(b) Any certificate signed by any authorized officer of the Company or
the Bank and delivered to the Underwriter or to counsel for the Underwriter
pursuant to this Agreement shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
Section 2. Sale and Delivery to the Underwriter; Closing.
---------------------------------------------
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Trust
agrees to sell to the Underwriter, and the Underwriter agrees to purchase from
the Trust, 2,500,000 Initial Securities at the purchase price and terms set
forth herein and in the Price Determination Agreement.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Trust
hereby grants an option to the Underwriter to purchase up to an additional
375,000 Preferred Securities in accordance with the terms set forth herein and
in the Price Determination Agreement. The option hereby granted will expire at
5:00 p.m. on the 30th day after the date the Registration Statement is declared
effective by the Commission (or at 5:00 p.m. on the next business day if such
30th day is not a business day) and may be exercised, on one occasion only,
solely for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Securities upon
notice by you to the Company setting forth the number of Option Securities as to
which the Underwriter is exercising the option and the time, date and place of
payment and delivery for the Option Securities. Such time and date of delivery
(the "Option Closing Date") shall be determined by the Underwriter but shall not
be later than five full business days after the exercise of said option, nor
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<PAGE>
in any event prior to Closing Time, as hereinafter defined, nor earlier than the
second business day after the date on which the notice of the exercise of the
option shall have been given.
(b) Payment of the purchase price for, and delivery of certificates
for, the Initial Securities shall be made at the offices of Luse Lehman Gorman
Pomerenk & Schick ("Luse Lehman"), 5335 Wisconsin Avenue, N.W., Washington, D.C.
20015, or at such other place as shall be agreed upon by the Company and the
Underwriter, at 9:30 a.m. on the third full business day after the effective
date of the Registration Statement, or at such other time not earlier than three
nor more than ten full business days thereafter as you and the Company shall
determine (such date and time of payment and delivery being herein called the
"Closing Time"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriter, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned office of Luse Lehman, or at such other place as shall be agreed
upon by the Company and the Underwriter, on the Option Closing Date as specified
in the notice from the Underwriter to the Company. Payment for the Initial
Securities and the Option Securities, if any, shall be made to the Company by
wire transfer of immediately available funds, against delivery to the
Underwriter for the account of the Underwriter of Preferred Securities to be
purchased by it.
(c) The Initial Securities shall be issued in the form of one or more
fully registered global securities (the "Global Securities") in book-entry form
in such denominations and registered in the name of the nominee of The
Depository Trust Company (the "DTC") or in such names as the Underwriter may
request in writing at least one business day before the Closing Date or the
Option Closing Date, as the case may be. The Global Securities representing the
Initial Securities or the Option Securities to be purchased will be made
available for examination by the Underwriter and counsel to the Underwriter not
later than 10:00 A.M. on the business day prior to the Closing Time or the
Option Closing Date, as the case may be.
Section 3. Certain Covenants of the Offerors. Each of the Offerors
----------------------------------
covenants jointly and severally with the Underwriter as follows:
(a) The Offerors will use their best efforts to cause the Registration
Statement to become effective and will notify the Underwriter immediately, and
confirm the notice in writing, (i) when the Registration Statement, or any post-
effective amendment to the Registration Statement, shall have become effective,
or any supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request of the Commission to amend the Registration Statement or amend or
supplement the Prospectus or for additional information and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Preferred Securities or capital stock, for offering or sale in any jurisdiction,
or of the institution or threatening of any proceedings for any of such
purposes. The Offerors will use every reasonable effort to prevent the issuance
of any such stop order or of any order preventing or suspending such use and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
moment.
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(b) The Offerors will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement if the Offerors have
elected to rely upon Rule 430A, to the Prospectus (including documents
incorporated by reference into such prospectus or to the Prospectus) of which
the Underwriter shall not have previously been advised and have previously been
furnished a copy, or to which the Underwriter or counsel for the Underwriter
shall reasonably object.
(c) The Offerors have furnished or will furnish to you as many signed
and conformed copies of the Registration Statement as originally filed and of
each amendment thereto, whether filed before or after the Registration Statement
becomes effective, copies of all exhibits and documents filed therewith
(including documents incorporated by reference into the Prospectus pursuant to
Item 12 of Form S-2 under the 1933 Act) and signed copies of all consents and
certificates of experts as you may reasonably request.
(d) The Offerors will deliver or cause to be delivered to the
Underwriter, without charge, from time to time until the effective date of the
Registration Statement, as many copies of each preliminary prospectus as the
Underwriter may reasonably request, and the Offerors hereby consent to the use
of such copies for purposes permitted by the 1933 Act. The Offerors will deliver
or cause to be delivered to the Underwriter, without charge, as soon as the
Registration Statement shall have become effective (or, if the Offerors have
elected to rely upon Rule 430A, as soon as practicable after the Price
Determination Agreement has been executed and delivered) and thereafter from
time to time as requested during the period when the Prospectus is required to
be delivered under the 1933 Act, such number of copies of the Prospectus (as
supplemented or amended) as the Underwriter may reasonably request.
(e) The Company will comply to the best of its ability with the 1933
Act and the 1933 Act Regulations, and the 1934 Act and the 1934 Act Regulations,
so as to permit the completion of the distribution of the Preferred Securities
as contemplated in this Agreement and in the Prospectus. If, at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Preferred Securities, any event shall occur or condition exist as a
result of which it is necessary, in the reasonable opinion of counsel for the
Underwriter or counsel for the Offerors, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of either such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the Registration Statement
or the Prospectus comply with such requirements.
(f) The Offerors will use their best efforts, in cooperation with the
Underwriter, to qualify the Preferred Securities and the Junior Subordinated
Debentures, for offering and sale
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<PAGE>
under the applicable securities laws of such states and other jurisdictions as
the Underwriter may designate and to maintain such qualifications in effect for
a period of not less than one year from the effective date of the Registration
Statement; provided, however, that the Company shall not be obligated to file
------------------
any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Preferred Securities have been qualified as above provided.
(g) The Company will make generally available (within the meaning of
Rule 158) to its securityholders, the Underwriter and the Securityholders as
soon as practicable, but not later than 90 days after the close of the period
covered thereby, an earnings statement of the Company and its subsidiaries (in
form complying with the provisions of Rule 158 of the 1933 Act Regulations)
covering a period of at least 12 months beginning after the effective date of
the Registration Statement but not later than the first day of the Company's
fiscal quarter next following such effective date.
(h) The Trust shall apply the proceeds from its sale of the Preferred
Securities, combined with the entire proceeds from the issuance by the Trust to
the Company of the Trust's Common Securities, to purchase an equivalent amount
of Junior Subordinated Debentures. The Company and the Bank will use the net
proceeds received by them from the sale of the Junior Subordinated Debentures in
the manner specified in the Prospectus under the caption "Use of Proceeds".
(i) The Offerors, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file promptly all documents required to be
filed with the Commission pursuant to Section 13 or 14 of the 1934 Act
subsequent to the time the Registration Statement becomes effective.
(j) For a period of five years after the Closing Time, the Company
will furnish to the Underwriter copies of all annual reports, quarterly reports
and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or
such other similar forms as may be designated by the Commission, and such other
documents, reports, Proxy Statements and information as shall be furnished by
the Company to its stockholders generally.
(k) The Offerors will file with the Nasdaq Stock Market all documents
and notices required by the Nasdaq Stock Market of companies that have issued
securities that are traded on the National Market, in the over-the-counter
market and quotations for which are reported by the Nasdaq Stock Market.
(l) The Company shall pay the legal fees and related filing fees of
counsel to the Underwriter to prepare one or more "blue sky" surveys (each, a
"Blue Sky Survey") for use in connection with the offering of the Preferred
Securities as contemplated by the Prospectus and a
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copy of such Blue Sky Survey or surveys shall be delivered to each of the
Company and the Underwriter.
(m) If, at the time the Registration Statement becomes effective, any
information shall have been omitted therefrom in reliance upon Rule 430A of the
1933 Act Regulations, then the Offerors will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule 424(b),
copies of an amended Prospectus, or, if required by such Rule 430A, a post-
effective amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted.
(n) The Company will, at its expense, subsequent to the issuance of
the Preferred Securities, prepare and distribute to the Underwriter and counsel
to the Underwriter, copies of the documents used in connection with the issuance
of the Preferred Securities.
(o) The Offerors will not, prior to the Option Closing Date or thirty
(30) days after the date of this Agreement, whichever occurs first, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business, or any
transaction with a related party which is required to be disclosed in the
Prospectus pursuant to Item 404 of Regulation S-K under the 1933 Act, except as
contemplated by the Prospectus.
(p) During a period of thirty (30) days from the date of the
Prospectus, neither the Trust nor the Company will, without the prior written
consent of the Underwriter, directly or indirectly, offer, sell, offer to sell,
or otherwise dispose of any Preferred Securities, any other beneficial interests
in the assets of the Trust, or any preferred securities or other securities of
the Trust or the Company that are substantially similar to the Preferred
Securities, including any guarantee of such securities. The foregoing sentence
shall not apply to any of the Preferred Securities to be sold hereunder.
Section 4. Payment of Expenses.
--------------------
(a) The Company will pay and bear all costs and expenses incident to
the performance of its and the Trust's obligations under this Agreement,
including (a) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), as originally filed and as
amended, the preliminary prospectuses and the Prospectus and any amendments or
supplements thereto, and the cost of furnishing copies thereof to the
Underwriter, (b) the preparation, printing and distribution of this Agreement,
the Preferred Securities and the Blue Sky Survey, (c) the issuance and delivery
of the Preferred Securities to the Underwriter, including any transfer taxes
payable upon the sale of the Preferred Securities to the Underwriter, (d) the
fees and disbursements of the Company's counsel and accountants, (e) NASD filing
fees, (f) fees and disbursements of counsel to the Underwriter in connection
with the Blue Sky Survey, (g) the qualification of the Preferred Securities
under the applicable securities laws in accordance with Section 3(f) and any
filing fee for review of the offering with the NASD, (h) the legal fees and
expenses of the Underwriter's counsel (such counsel's fees shall not exceed
$65,000 exclusive of
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out-of-pocket expenses of counsel) and general out-of-pocket expenses of the
Underwriter not to exceed $15,000, (i) the fees and expenses of the Indenture
Trustee, including the fees and disbursements of counsel for the Indenture
Trustee, in connection with the Indenture and the Junior Subordinated
Debentures; (j) the fees and expenses of the Property Trustee and Delaware
Trustee, including the fees and disbursements of counsel for the Property
Trustee and the Delaware Trustee, in connection with the Trust Agreement and the
Certificate of Trust, and (k) all other costs incident to the performance of the
Offerors' obligations hereunder.
If (i) the Closing Time does not occur on or before June 30, 1998,
(ii) the Company abandons or terminates the Offering, or (iii) this Agreement is
terminated by the Underwriter in accordance with the provisions of Section 5 or
11(a), the Company shall reimburse the Underwriter for its reasonable out-of-
pocket expenses, as set forth in this Section 4, including the reasonable fees
and disbursements of counsel for the Underwriter.
Section 5. Conditions of Underwriter's Obligations. The obligations
---------------------------------------
of the Underwriter to purchase and pay for the Preferred Securities that it has
agreed to purchase pursuant to this Agreement are subject to the accuracy of the
representations and warranties of the Offerors contained herein or in
certificates of the officers or trustees of the Offerors or any subsidiary
delivered pursuant to the provisions hereof, to the performance by the Offerors
of their obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date of this Agreement or, with your consent, at a later
time and date not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time or on such later date as you
may agree to in writing; at the Closing Time, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to the Underwriter's knowledge or the knowledge of the Offerors,
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter. If the Offerors have elected to
rely upon Rule 430A, a prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received:
(i) The favorable opinion, dated as of Closing Time, of Luse Lehman,
special counsel for the Company, in form and substance reasonably
satisfactory to counsel for the Underwriter, substantially in the form set
forth in Exhibit B.
(ii) The favorable opinion, dated as of Closing Time, of Morris,
Nichols, Arsht & Tunnell, special Delaware counsel for the Offerors, in
form and substance satisfactory to counsel for the Underwriter,
substantially in the form set forth in Exhibit C.
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(iii) The favorable opinion, dated as of Closing Time, of
___________, counsel for the Indenture Trustee and the Delaware Trustee, in
form and substance satisfactory to counsel for the Underwriter,
substantially in the form set forth in Exhibit D.
(iv) The favorable opinion, dated as of Closing Time, of Stearns
Weaver Miller Weissler Alhadeff & Sitterson, P.A., counsel for the
Underwriter, in form and substance satisfactory to the Underwriter.
In giving such opinions, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the federal law of the United
States, upon opinions of other counsel, who shall be counsel satisfactory to
counsel for the Underwriter (the Underwriter agrees and acknowledges that Luse
Lehman and Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. will rely
on the opinion of Morris, Nichols, Arsht & Tunnell with respect to matters of
Delaware law), in which case the opinion shall state that counsel believes that
you and your counsel are entitled to so rely. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company, the Bank
and the Trust and certificates of public officials.
(c) At the Closing Time and again at the Option Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations, the Offerors shall have complied in all material respects with Rule
430A (if they shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any material adverse
change in the condition (financial or otherwise), earnings, business affairs,
assets or business prospects of the Company and its subsidiaries, considered as
one enterprise, whether or not arising in the ordinary course of business, (iii)
no action, suit or proceeding at law or in equity shall be pending or, to the
knowledge of the Offerors, threatened against the Company or any subsidiary or
the Trust that would be required to be set forth in the Prospectus other than as
set forth therein and no proceedings shall be pending or, to the knowledge of
the Offerors, threatened against the Offerors or any subsidiary before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding could reasonably be expected to
materially adversely affect the condition (financial or otherwise), earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise, other than as set forth in the
Prospectus, (iv) each of the Offerors shall have complied, in all material
respects, with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Time or Option Closing Date,
as applicable, (v) the other representations and warranties of the Offerors set
forth in Section l(a) shall be accurate in all material respects as though
expressly made at and as of the Closing Time or Option Closing Date, as
applicable, and (vi) no stop order suspending the effectiveness of the
Registration
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<PAGE>
Statement shall have been issued and no proceeding for that purpose been
initiated or, to the knowledge of the Offerors, threatened by the Commission. At
the Closing Time, the Underwriter shall have received a certificate of the
Chairman and of the Chief Financial Officer or Controller of the Company, dated
as of the Closing Time, to such effect.
(d) At the time that this Agreement is executed by the Company, you
shall have received from Deloitte & Touche LLP a letter or letters, dated such
date, in form and substance satisfactory to you, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the 1933 Act and the published 1933 Act Regulations, and stating in
effect that with respect to the Company:
(i) in their opinion, the consolidated financial statements as of
December 31, 1996 and 1995, and for each of the years in the three year
period ended December 31, 1996 and the related financial statement
schedules, if any, included or incorporated by reference in the
Registration Statement and the Prospectus and covered by their opinions
included therein comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published 1933
Act Regulations;
(ii) on the basis of procedures (but not an audit in accordance with
generally accepted accounting standards) specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in SAS No. 71, Interim Financial Information,
-----------------------------
including a reading of the unaudited interim consolidated financial
statements of the Company for the three-month and nine-month periods ending
September 30, 1996 and September 30, 1997, a reading of the minutes of all
meetings of the Board of Directors of the Company and the Bank and of the
Audit and Executive Committees of the Board of Directors since October 1,
1997, inquiries of certain officials of the Company and its subsidiaries
responsible for financial and accounting matters, and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) the unaudited interim consolidated financial statements do not
comply as to form in all material respects with applicable accounting
requirements of the 1933 Act, or are not presented in conformity with
generally accepted accounting principles applied on a basis consistent
with that of the audited financial statements included in the
Prospectus;
(B) at a specified date not more than three days prior to the date of
this Agreement, there was any increase in [total borrowings, real
estate owned, Federal Home Loan Bank advances or allowance for loan
losses] of the Company and its consolidated subsidiaries or any
decrease in total assets, total deposits or stockholders' equity of
the Company and its consolidated subsidiaries or any increase in the
number of outstanding shares of capital stock of the Company and its
consolidated subsidiaries, in each case as compared with amounts shown
in the financial statements at
18
<PAGE>
September 30, 1997 included in the Registration Statement, except in
allcases for changes, increases or decreases that the Registration
Statement discloses have occurred or may occur; or
(C) for the period from October 1, 1997 to a specified date not more
than three days prior to the date of this Agreement, there was any
decrease in consolidated net interest income, non-interest income or
[net income per common and common equivalent share or any increase in
the consolidated provision for loan losses], in each case as compared
with a period of comparable length in the preceding year, except in
all cases for increases or decreases that the Registration Statement
discloses have occurred or may occur; and
(iii) in addition to the procedures referred to in clause (ii) above,
they have performed other specified procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement (including the Selected
Consolidated Financial Data) (having compared such items with, and have
found such items to be in agreement with, the financial statements of the
Company or general accounting records of the Company, as applicable, which
are subject to the Company's internal accounting controls or other data and
schedules prepared by the Company from such records); and
(e) At the Closing Time, the Underwriter shall have received from
Deloitte & Touche LLP a letter, in form and substance satisfactory to the
Underwriter and dated as of the Closing Time, to the effect that it reaffirms
the statements made in the letter furnished pursuant to Section 5(d), except
that the inquiries specified in Section 5(d) shall be made based upon the latest
available unaudited interim consolidated financial statements and the specified
date referred to shall be a date not more than three days prior to the Closing
Time.
(f) At the Closing Time, counsel for the Underwriter shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling them to pass upon the issuance and sale of the
Preferred Securities as contemplated in this Agreement and the matters referred
to in Section 5(c) and in order to evidence the accuracy and completeness of any
of the representations, warranties or statements of the Offerors, the
performance of any of the covenants of the Offerors, or the fulfillment of any
of the conditions herein contained; all proceedings taken by the Company at or
prior to the Closing Time in connection with the authorization, issuance and
sale of the Preferred Securities and the Junior Subordinated Debentures as
contemplated in this Agreement shall be satisfactory in form and substance to
the Underwriter and to counsel for the Underwriter.
(g) Between the date of this Agreement and the Closing Time, (i) no
downgrading shall have occurred in the rating accorded any securities of the
Company or any deposit instruments of the Bank by any "nationally recognized
statistical rating organization," as that term is defined by the Commission for
purposes of Rule 436(g) (2) under the 1933 Act and (ii) no such organization
19
<PAGE>
shall have given any notice of any intended or potential downgrading or of any
surveillance or review, with possible negative implications, of its rating of
any of the Company's securities or any deposit instruments of the Bank.
(h) The Company shall have paid, or made arrangements satisfactory to
the Underwriter for the payment of, all such expenses as may be required by
Section 4 hereof.
(i) In the event the Underwriter exercises its option provided in
Section 2 hereof to purchase all or any portion of the Option Securities, the
obligations of the Underwriter to purchase the Option Securities that they have
agreed to purchase shall be subject to the accuracy of the representations and
warranties of the Offerors contained herein and of the statements in any
certificates furnished by the Offerors hereunder as of such Option Closing Date
(as if made on such date), to the performance by the Offerors of their
obligations hereunder and to the receipt by you on the Option Closing Date of:
(1) A certificate, dated the Option Closing Date, of the
Chairman and of the Chief Financial Officer or Controller of the
Company confirming that the certificate delivered on the Closing
Time pursuant to Section 5(c) hereof remains true as of the
Option Closing Date;
(2) The favorable opinion of Luse Lehman, counsel for the
Company, addressed to you and dated the Option Closing Date, in
form satisfactory to counsel to the Underwriter, relating to the
Option Securities and otherwise to the same effect as the
opinion required by Section 5(b) hereof;
(3) The favorable opinion of Morris, Nichols, Arsht &
Tunnell, special Delaware counsel for the Offerors, addressed to
you and dated the Option Closing Date, in form satisfactory to
counsel to the Underwriter, relating to the Option Securities
and otherwise to the same effect as the opinion required by
Section 5(b) hereof;
(4) The favorable opinion of ___________, counsel for the
Indenture Trustee and the Delaware Trustee, addressed to you and
dated the Option Closing Date, in form satisfactory to counsel
to the Underwriter, relating to the Option Securities and
otherwise to the same effect as the opinion required by Section
5(b) hereof;
(5) The favorable opinion of Stearns Weaver Miller Weissler
Alhadeff & Sitterson, P.A., dated the Option Closing Date,
relating to the Option Securities and otherwise to the same
effect as the opinion required by Section 5(b) hereof; and
20
<PAGE>
(6) A letter from Deloitte & Touche LLP addressed to the
Underwriter and dated the Option Closing Date, in form and
substance satisfactory to the Underwriter and substantially the
same in form and substance as the letter furnished to the
Underwriter pursuant to Section 5(d) hereof.
(j) The Preferred Securities, the Guarantee and the Junior
Subordinated Debentures shall have been qualified or registered for sale, or
subject to an available exemption from such qualification or registration, under
the Blue Sky or securities laws of such jurisdictions as shall have been
reasonably specified by the Underwriter and the offering contemplated by this
Agreement shall have been cleared by the NASD.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by the Underwriter on notice to the Offerors at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other Party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 6, 7, 10 and 12
shall remain in effect.
Section 6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Underwriter,
officers, directors, employees, agents and counsel of the Underwriter, and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20(a) of the 1934 Act, against any loss, liability,
claim, damage, and expense whatsoever (which shall include, but not be limited
to, amounts incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim or investigation whatsoever
and any and all amounts paid in settlement of any claim or litigation), as and
when incurred, arising out of, based upon or in connection with (i) any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, contained in (A) any
Preliminary Prospectus, the Registration Statement, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto
or in any document incorporated by reference therein or required to be delivered
with any Preliminary Prospectus or the Prospectus or (B) in any application or
other document or communication (collectively called an "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify the
Preferred Securities under the "blue sky" or securities laws thereof or filed
with the Commission, the NASD or any securities exchange, unless such statement
or omission or alleged statement or omission was made in reliance upon and in
conformity with written information concerning the Underwriter, the Underwriting
Agreement or the compensation of the Underwriter furnished to the Company by or
on behalf of the Underwriter expressly for inclusion in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation,
21
<PAGE>
warranty, covenant or agreement of the Company contained in the Underwriting
Agreement. For purposes of this section, the term "expense" shall include, but
not be limited to, counsel fees and costs, court costs, out-of-pocket costs and
compensation for the time spent by the Underwriter's directors, officers,
employees and counsel according to his or her normal hourly billing rates. The
indemnification provisions shall also extend to all affiliates of the
Underwriter, its respective directors, officers, employees, legal counsel,
agents and controlling persons within the meaning of the federal securities
laws. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have to the Underwriter or the persons
entitled to the benefit of these indemnification provisions.
(b) The Underwriter agrees to indemnify and hold harmless the
Offerors, their directors, officers who signed the Registration Statement, and
each person, if any, who controls the Offerors within the meaning of Section 15
of the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) above, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) or any application in
reliance upon and in conformity with written information about the Underwriter,
the Underwriting Agreement or the compensation of the Underwriter, furnished to
either of the Offerors by the Underwriter expressly for use in the Registration
Statement (or any amendment thereto) or such Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) or in any application.
(c) An indemnified party shall give prompt notice to the indemnifying
party if any action, suit, proceeding or investigation is commenced in respect
of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve the indemnifying party from its obligations
to indemnify hereunder, except to the extent that the indemnifying party has
been prejudiced in any material respect by such failure. If it so elects within
a reasonable time after receipt of such notice, an indemnifying party may assume
the defense of such action, including the employment of counsel satisfactory to
the indemnified parties and payment of all expenses of the indemnified party in
connection with such action. Such indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such action
or the indemnifying party shall not have promptly employed counsel satisfactory
to such indemnified party or parties or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties that are different from or
additional to those available to one or more of the indemnifying parties, in any
of which events such fees and expenses shall be borne by the indemnifying party
and the indemnifying party shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties. The Company shall be
liable for any settlement of any claim against the Underwriter (or its
directors, officers, employees, affiliates or controlling persons), made with
the Company's written consent, which consent shall not be unreasonably withheld.
The Company
22
<PAGE>
shall not, without the written consent of the Underwriter, settle or compromise
any claim against them based upon circumstances giving rise to an
indemnification claim against the Company hereunder unless such settlement or
compromise provides that the Underwriter and the other indemnified parties shall
be unconditionally and irrevocably released from all liability in respect to
such claim.
(d) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court that such indemnification may not
be enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and the
Underwriter, on the other hand, shall contribute to the amount paid or payable
by such indemnified persons as a result of such loss, liability, claim, damage
and expense in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other hand, from the underwriting, and also the relative fault of the Company,
on the one hand, and the Underwriter, on the other hand, in connection with the
statements, acts or omissions which resulted in such loss, liability, claim,
damage and expense, and any other relevant equitable considerations shall also
be considered. No person found liable for a fraudulent misrepresentation or
omission shall be entitled to contribution from any person who is not also found
liable for such fraudulent misrepresentation or omission. Notwithstanding the
foregoing, the Underwriter shall not be obligated to contribute any amount
hereunder that exceeds the amount of the underwriting commission paid by the
Company to the Underwriter with respect to the Preferred Securities purchased by
the Underwriter.
(e) The indemnity and contribution agreements contained herein are in
addition to any liability which the Company may otherwise have to the
Underwriter.
(f) Neither termination nor completion of the engagement of the
Underwriter nor any investigation made by or on behalf of the Underwriter shall
affect the indemnification obligations of the Company or the Underwriter
hereunder, which shall remain and continue to be operative and in full force and
effect.
Section 7. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. The representations, warranties, indemnities, agreements and other
- --------
statements of the Offerors or its officers or trustees set forth in or made
pursuant to this Agreement will remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Offerors or the
Underwriter or any controlling person and will survive delivery of and payment
for the Preferred Securities.
Section 8. Offering by the Underwriter. The Trust and the Company
---------------------------
are advised by the Underwriter that the Underwriter proposes to make a public
offering of the Preferred Securities, on the terms and conditions set forth in
the Registration Statement from time to time as and when the Underwriter deems
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the
23
<PAGE>
offering of the Preferred Securities is being made in compliance with the
applicable provisions of Rule 2810 of the NASD's Conduct Rules.
Section 9. Termination of Agreement.
------------------------
(a) You may terminate this Agreement, by notice to the Offerors, at
any time at or prior to the Closing Time (i) if there has been, since the
respective dates as of which information is given in the Registration Statement,
any material adverse change in the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any outbreak or escalation of existing
hostilities or other national or international calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
the Underwriter's reasonable judgment, impracticable to market the Preferred
Securities or enforce contracts for the sale of the Preferred Securities, or
(iii) if trading in any securities of the Company has been suspended by the
Commission or the National Association of Securities Dealers, Inc., or if
trading generally on the New York Stock Exchange or in the over-the-counter
market has been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been required, by such
exchange or by order of the Commission, the National Association of Securities
Dealers, Inc. or any other governmental authority with appropriate jurisdiction
over such matters, or (iv) if a banking moratorium has been declared by either
federal or Florida authorities, or (v) if there shall have been such material
and substantial change in the market for securities in general or in political,
financial or economic conditions as in your reasonable judgment makes it
inadvisable to proceed with the Offering, sale and delivery of the Preferred
Securities on the terms contemplated by the Prospectus, or (vi) if you
reasonably determine (which determination shall be in good faith) that there has
not been satisfactory disclosure of all relevant financial information relating
to the Offerors in the Offerors' disclosure documents and that the sale of the
Preferred Securities is inadvisable given such disclosures.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6 and 7 shall remain in effect.
Section 10. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices shall be addressed as follows:
If to the Underwriter:
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Attention: Bruce G. Miller, Senior Vice President
24
<PAGE>
with a copy to:
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
Suite 2200
150 West Flagler Street
Miami, Florida 33130
Attention: Alison W. Miller
If to the Company or the Trust:
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, Florida 33401
Attention: Vince A. Elhilow, President and Chief Executive
Officer
with a copy to:
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Washington, D.C. 20015
Attention: Alan Schick, Esq.
Section 11. Parties. This Agreement is made solely for the benefit
-------
of the Underwriter, and the officers, directors, employees, agents and counsel
of the Underwriter specified in Section 6, the Trust and the Company and, to the
extent expressed, any person controlling the Trust, the Company or the
Underwriter, and the directors of the Company, or trustees of the Trust, their
respective officers who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such
purchaser, from the Underwriter of the Preferred Securities.
Section 12. Arbitration. Any claims, controversies, demands,
-----------
disputes or differences between or among the parties hereto or any persons bound
hereby arising out of, or by virtue of, or in connection with, or otherwise
relating to this Agreement shall be submitted to and settled by arbitration
conducted in West Palm Beach, Florida before one or three arbitrators, each of
whom shall be knowledgeable in the field of securities law and investment
banking. Such arbitration shall otherwise be conducted in accordance with the
rules then obtaining of the American Arbitration Association. The parties hereto
agree to share equally the responsibility for all fees of the arbitrators, abide
by any decision rendered as final and binding and waive the right to appeal the
decision or otherwise submit the dispute to a court of law for a jury or non-
jury trial. The parties hereto specifically agree that neither party may appeal
or subject the award or decision of any such arbitrator to appeal or review in
any court of law or in equity or in any other tribunal, arbitration
25
<PAGE>
system or otherwise. Judgment upon any award granted by such arbitrator may be
enforced in any court having jurisdiction thereof.
Section 13. Governing Law and Time. This Agreement shall be governed
----------------------
by the laws of the State of New Jersey. Specified times of the day refer to New
York City time.
Section 14. Counterparts. This Agreement may be executed in one or
------------
more counterparts, and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
26
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
FIDELITY CAPITAL TRUST I
By:
------------------------------------
Name:
Title: Trustee
FIDELITY BANKSHARES, INC.
By:
------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
RYAN, BECK & CO., INC.
By:
-----------------------------
Name:
Title:
27
<PAGE>
EXHIBIT A
---------
FIDELITY CAPITAL TRUST I
(a Delaware business trust)
2,500,000 Preferred Securities
___% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Preferred Security)
PRICE DETERMINATION AGREEMENT
-----------------------------
___________, 1997
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated the date hereof
(the "Underwriting Agreement"), among Fidelity Capital Trust I, a Delaware
business trust (the "Trust"), Fidelity Bankshares, Inc. (the "Company" and
together with the Trust, the "Offerors") and the Ryan, Beck & Co., Inc. (the
"Underwriter"). The Underwriting Agreement provides for the purchase by the
Underwriter from the Trust, subject to the terms and conditions set forth
therein, of 2,500,000 of the ___% Cumulative Trust Preferred Securities of the
Trust (the "Preferred Securities"), subject to a 375,000 adjustment (to cover
over-allotments, if any). This Agreement is the Price Determination Agreement
referred to in the Underwriting Agreement.
Pursuant to Section 2 of the Underwriting Agreement, the Offerors
agree with the Underwriter as follows:
1. The public offering price per Preferred Security shall be $10.
1
<PAGE>
2. The purchase price for the Preferred Securities to be paid by
the Underwriter shall be $10 per Preferred Security.
3. The commission per Preferred Security to be paid by the Company to
the Underwriter for its commitment hereunder shall be $___________ per Preferred
Security.
4. The distribution rate on the Preferred Securities shall
be ___% per annum.
The Offerors represent and warrant to the Underwriter that the
representations and warranties of the Offerors set forth in Section 1(a) of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
This Agreement shall be governed by the laws of the State of
New Jersey.
2
<PAGE>
If the foregoing is in accordance with the understanding of the
Underwriter of the agreement between the Underwriter and the Offerors, please
sign and return to the Company a counterpart hereof, whereupon this instrument,
along with all counterparts and together with the Underwriting Agreement, shall
be a binding agreement between the Underwriter and the Offerors in accordance
with its terms and the terms of the Underwriting Agreement.
Very truly yours,
FIDELITY CAPITAL TRUST I
By:
--------------------------------
Name:
Title: Trustee
FIDELITY BANKSHARES, INC.
By:
--------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
RYAN, BECK & CO., INC.
By:
------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT B
---------
The opinion of special counsel to the Company to be delivered pursuant to
Section 5(b)(i) of the Underwriting Agreement shall be substantially to the
effect that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with requisite corporate power
and authority to own, lease and operate its properties and conduct its business
as described in the Registration Statement and is registered as a savings and
loan holding company under the Home Owner's Loan Act of 1933, as amended. Each
of the Company's subsidiaries is duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, with
requisite corporate power and authority to own, lease and operate its respective
properties and conduct its business as described in the Registration Statement,
except where the failure to be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings, business
affairs, assets or business prospects of the Company and its subsidiaries,
considered as one enterprise. The Bank is chartered under the laws of the
United States to transact the business of a federal savings bank and its Charter
is in full force and effect with the Office of Thrift Supervision.
2. The Company and each subsidiary are duly qualified to transact business as
foreign corporations under the corporation laws of each jurisdiction in which
the Company or such subsidiary, as the case may be, owns or leases property of a
nature, has an office, or transacts business of a type, that would make such
qualification necessary, except where the failure to so qualify would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries, considered as one enterprise.
3. The deposit accounts of the Bank are insured by the Savings Association
Insurance Fund of the FDIC up to the maximum amount allowable by law and, to
such counsel's knowledge, no proceedings for the termination or revocation of
such membership or insurance are pending or threatened.
4. All of the issued and outstanding shares of capital stock of each of the
Company's subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable and, to such counsel's knowledge, are owned by the
Company or the Bank, as the case may be, free and clear of any security
interests, liens, pledges, claims or other encumbrances, except where the
failure to own such shares free and clear of any security interests, liens,
pledges, claims or other encumbrances would not have a material adverse effect
on the condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise.
5. The authorized and outstanding capital stock of the Company at September
30, 1997 is as set forth in the Prospectus under the heading "Capitalization".
1
<PAGE>
6. The Company and the Trust each has full corporate power and authority to
execute, deliver and perform the Underwriting Agreement and to issue, sell and
deliver the Preferred Securities to be sold by it to the Underwriter as provided
therein; the Underwriting Agreement has been duly authorized, executed and
delivered by the Company and the Trust, and constitutes a legal, valid, and
binding obligation of each of the Company and the Trust and is enforceable
against each of the Company and the Trust in accordance with its terms, except
as enforceability of the Underwriting Agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, and by equitable principles limiting the right to specific
performance or other equitable relief and except as the obligations of the
Company under the indemnification and contribution provisions of Section 6 of
the Underwriting Agreement may be limited by laws or unenforceable as against
public policy, as to which no opinion is expressed, and an implied covenant of
good faith and fair dealing.
7. The Trust Agreement has been duly authorized, executed and delivered by the
Company, and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights generally, and by
general equity principles (whether considered in a proceeding in equity or at
law).
8. The Guarantee Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights generally, and by
general equity principles (whether considered in a proceeding in equity or at
law).
9. The Expense Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights generally and by
general equity principles (whether considered in a proceeding in equity or at
law).
10. The Indenture has been duly authorized, executed and delivered by the
Company, has been duly qualified under the Trust Indenture Act, and is a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally, and by general equity
principles (whether considered in a proceeding in equity or at law).
11. The Subordinated Debentures have been duly authorized, executed and
delivered by the Company and, when duly authenticated in accordance with the
Indenture and delivered and paid for in accordance with the Debenture
Subscription Agreement, will be valid and binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy,
2
<PAGE>
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally, and by general equity principles (whether
considered in a proceeding in equity or at law).
12. Neither the Company nor the Trust is an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
13. The statements set forth in the Registration Statement under the captions
"Description of Preferred Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee" and "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the Guarantee," insofar as
they purport to describe the provisions of the laws referred to therein, fairly
summarize the legal matters described therein.
14. The statements of law or legal conclusions and opinions set forth in the
Registration Statement under the caption "Certain Federal Income Tax
Consequences," subject to the assumptions and conditions described therein,
constitute such counsel's opinion.
15. The Registration Statement was declared effective under the 1933 Act as of
the date and time specified in such order, any required filing of the Prospectus
or any supplement thereto pursuant to Rule 424(b) has been made in the manner
and within the time period required by Rule 424(b) and, to such counsel's
knowledge and information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act and no proceedings
therefor have been initiated or threatened by the Commission.
16. The Registration Statement (including the Rule 430A Information, if
applicable) and the Prospectus and any amendment or supplement thereto (except
for the financial statements and other financial and statistical data included
therein or omitted therefrom, as to which such counsel need express no opinion),
as of their respective effective or issue dates, comply or complied as to form
in all material respects to the applicable requirements of the 1933 Act and the
1933 Act Regulations.
17. The documents incorporated by reference in the Prospectus (except for the
financial statements and other financial or statistical data included therein or
omitted therefrom, as to which such counsel expresses no opinion, and except to
the extent that any statement therein is modified or superseded in the
Prospectus), as of the dates they were filed with the Commission, complied as to
form in all material respects to the applicable requirements of the 1934 Act and
the 1934 Act Regulations.
18. Such counsel knows of no legal or governmental proceedings pending to which
the Company or any subsidiary is a party or of which any property of the Company
or any subsidiary is the subject that are required to be disclosed in the
Registration Statement or that would affect the consummation of the transactions
contemplated in the Underwriting Agreement or the Indenture; and such counsel
knows of no such proceedings that are threatened or contemplated by governmental
authorities or threatened by others.
3
<PAGE>
19. Such counsel knows of no contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described in the Registration
Statement or to be filed as exhibits thereto other than those described therein
or filed or incorporated by reference as exhibits thereto, and such instruments
as are summarized in the Registration Statement are fairly summarized in all
material respects.
20. No approval, authorization, consent, registration, qualification or other
order of any public board or body is required in connection with the execution
and delivery of the Underwriting Agreement, the Trust Agreement, the Guarantee
Agreement, the Expense Agreement and the Indenture or the issuance and sale of
the Preferred Securities or the consummation by the Company of the other
transactions contemplated by the Underwriting Agreement, the Trust Agreement,
the Guarantee Agreement, the Expense Agreement or the Indenture, except such as
have been obtained under the 1933 Act, the 1934 Act and the Trust Indenture Act
or such as may be required under the blue sky or securities laws of various
states in connection with the offering and sale of the Preferred Securities.
21. To such counsel's knowledge, the Company and each of its subsidiaries,
including the Bank, each has all material licenses, permits and other
governmental authorizations currently required for the conduct of its business
as presently conducted.
22. The execution and delivery of the Underwriting Agreement, the Trust
Agreement, the Guarantee Agreement, the Expense Agreement and the Indenture, the
issue and sale of the Preferred Securities and the Subordinated Debentures, the
compliance by the Company with the provisions of the Preferred Securities, the
Subordinated Debentures, the Indenture, the Guarantee Agreement, the Expense
Agreement and the Underwriting Agreement and the consummation of the
transactions therein contemplated will not conflict with or constitute a breach
of, or default under, the certificate of incorporation or by-laws of the Company
or any subsidiary or a breach or default under any contract, indenture,
mortgage, loan agreement, note, lease or other instrument known to such counsel
to which either the Company or any subsidiary is a party or by which any of them
or any of their respective properties may be bound except for such breaches as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries considered as one enterprise, nor will such action
result in a violation on the part of the Company or any subsidiary of any
applicable law or regulation or of any administrative, regulatory or court
decree known to such counsel.
23. Counsel will supplementally provide a written statement that such counsel
has participated in the preparation of the Registration Statement and Prospectus
and has reviewed the documents incorporated by reference in the Prospectus and
no facts have come to the attention of such counsel to lead it to believe (a)
that the Registration Statement (including the Rule 430A Information, if
applicable) or any amendment thereto (except for the financial statements and
other financial or statistical data included therein or omitted therefrom, as to
which such counsel need express no opinion), at the time the Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein
4
<PAGE>
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (b) that the Prospectus or any amendment
or supplement thereto (except for the financial statements and other financial
or statistical data included therein or omitted therefrom, as to which such
counsel need express no opinion), at the time the Prospectus was issued, or at
the Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (c) that the documents incorporated by reference in the
Prospectus (except for the financial statements and other financial or
statistical data contained therein or omitted therefrom, as to which such
counsel expresses no opinion, and except to the extent that any statement
therein is modified or superceded in the Prospectus), as of the dates they were
filed with the Commission, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
5
<PAGE>
EXHIBIT C
---------
The opinion of counsel, as special Delaware counsel to the Company and the Trust
to be delivered pursuant to Section 5(b)(ii) of the Underwriting Agreement shall
be substantially to the effect 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, 12 Del. C. Section 3801
et seq. (the "Delaware Act"), and all filings required under the laws of the
State of Delaware with respect to the creation and valid existence of the Trust
as a business trust have been made.
2. Under the Delaware Act and the Trust Agreement, the Trust has the trust
power and authority to own its property and to conduct its business, all as
described in the Prospectus.
3. The Trust Agreement constitutes a valid and binding obligation of the
Company and the Property Trustee and the Delaware Trustee, and is enforceable
against the Company and the Trustees, in accordance with its terms.
4. Under the Delaware Act and the Trust Agreement, the Trust has the trust
power and authority to execute and deliver, and to perform its obligations
under, the Underwriting Agreement and to issue and perform its obligations under
the Preferred Securities and the Common Securities.
5. Under the Delaware Act and the Trust Agreement, the execution and delivery
by the Trust of the Underwriting Agreement, and the performance by the Trust of
its obligations thereunder, have been duly authorized by all necessary trust
action on the part of the Trust.
6. The Preferred Securities have been duly authorized by the Trust Agreement
and are duly and validly issued and, when issued against payment therefor as set
forth in the Underwriting Agreement will be, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust and are entitled to
the benefits of the Trust Agreement. The Holders, as beneficial owners of the
Trust, will be entitled to the same limitations 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 Holders may be
obligated pursuant to the Trust Agreement, (i) to provide indemnity and/or
security in connection with and pay taxes or governmental charges arising from
transfers or exchanges of Preferred Securities Certificates and the issuance of
replacement Preferred Securities Certificates, and (ii) to provide security or
indemnity in connection with requests of or directions to the Property Trustee
to exercise its rights and powers under the Trust Agreement.
7. Under the Delaware Act and the Trust Agreement, the issuance of the
Preferred Securities and Common Securities is not subject to preemptive rights.
1
<PAGE>
8. The Common Securities have been duly authorized by the Trust Agreement and
are duly and validly issued undivided beneficial interests in the assets of the
Trust and are entitled to the benefits of the Trust Agreement.
9. The issuance and sale by the Trust of the Preferred Securities and Common
Securities, the purchase by the Trust of the Subordinated Debentures, the
execution, delivery and performance by the Trust of the Underwriting Agreement,
the consummation by the Trust of the transactions contemplated by the
Underwriting Agreement and the compliance by the Trust with its obligations
thereunder will not violate (i) any of the provisions of the Certificate of
Trust or the Trust Agreement or (ii) any applicable Delaware law or
administrative regulation.
2
<PAGE>
EXHIBIT D
---------
The opinion of counsel to Trust Company and Delaware Trustee to be delivered
pursuant to Section 5(b)(iii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust Company is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of New York.
2. The Delaware Trustee is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of Delaware.
3. The Indenture Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Indenture, and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of the Indenture.
4. The Guarantee Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Guarantee Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of the Guarantee Agreement.
5. The Property Trustee has the requisite power and authority to execute and
deliver the Trust Agreement, and has taken all necessary corporate action to
authorize the execution and delivery of the Trust Agreement.
6. The Delaware Trustee has the requisite power and authority to execute and
deliver the Trust Agreement, and has taken all necessary corporate action to
authorize the execution and delivery of the Trust Agreement.
7. Each of the Indenture and the Guarantee Agreement has been duly executed and
delivered by the Indenture Trustee and the Guarantee Trustee, respectively, and
constitutes a legal, valid and binding obligation of the Indenture Trustee and
the Guarantee Trustee, respectively, enforceable against the Indenture Trustee
and the Guarantee Trustee, respectively, in accordance with its respective
terms, except that certain payment obligations may be enforceable solely against
the assets of the Trust and except that such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent
conveyance and transfer or other similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether such enforceability is considered in a proceeding
in equity or at law), and by the affect of applicable public policy on the
enforceability of provisions relating to indemnification or contribution.
8. The Subordinated Debentures delivered on the date hereof have been duly
authenticated by the Indenture Trustee in accordance with the terms of the
Indenture.
1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 4.1
FIDELITY BANKSHARES, INC.
AND
THE BANK OF NEW YORK,
AS TRUSTEE
INDENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
DUE __________, 2027
DATED AS OF __________, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS 2
Section 1.1 Definitions of Terms 2
ARTICLE II ISSUE, DESCRIPTION, TERMS, CONDITIONS 10
REGISTRATION AND EXCHANGE OF THE
DEBENTURES
Section 2.1 Designation And Principal Amount 10
Section 2.2 Maturity 10
Section 2.3 Form And Payment 10
Section 2.4 Interest 11
Section 2.5 Execution And Authentications 12
Section 2.6 Registration of Transfer And Exchange 13
Section 2.7 Temporary Debentures 14
Section 2.7A Global Securities 14
Section 2.8 Mutilated, Destroyed, Lost or Stolen Debentures 15
Section 2.9 Cancellation 16
Section 2.10 Benefit of Indenture 17
Section 2.11 Authentication Agent 17
Section 2.12 Right of Set-off 17
Section 2.13 Cusip Numbers 18
ARTICLE III REDEMPTION OF DEBENTURES 18
Section 3.1 Redemption 18
Section 3.2 Special Event Redemption 18
Section 3.2A Conversion Event Redemption 18
Section 3.3 Optional Redemption by Company 19
Section 3.4 Notice of Redemption 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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----
<S> <C> <C>
Section 3.5 Payment Upon Redemption 20
Section 3.6 No Sinking Fund 20
ARTICLE IV EXTENSION OF INTEREST PAYMENT PERIOD 21
Section 4.1 Extension of Interest Payment Period 21
Section 4.2 Notice of Extension 21
Section 4.3 Limitation on Transactions 22
ARTICLE V PARTICULAR COVENANTS OF THE COMPANY 22
Section 5.1 Payment of Principal And Interest 22
Section 5.2 Maintenance of Agency 22
Section 5.3 Paying Agents 23
Section 5.4 Appointment to Fill Vacancy in Office of Trustee 24
Section 5.5 Compliance With Consolidation Provisions 24
Section 5.6 Limitation on Transactions 24
Section 5.7 Covenants as to The Trust 25
Section 5.8 Covenants as to Purchases 25
ARTICLE VI DEBENTURE HOLDERS' LISTS AND REPORTS BY THE COMPANY 26
AND THE TRUSTEES
Section 6.1 Company to Furnish Trustee Names And Addresses 26
of Debenturesholders
Section 6.2 Preservation of Information Communications With 26
Debenture Holders
Section 6.3 Reports by The Company 26
Section 6.4 Reports by The Trustee 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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----
<S> <C> <C>
Section 6.5 Statements As to Default 27
ARTICLE VII REMEDIES OF THE TRUSTEE AND DEBENTURE HOLDERS ON 28
EVENT OF DEFAULT
Section 7.1 Events of Default 28
Section 7.2 Collection of Indebtedness And Suits For 30
Enforcement by Trustee
Section 7.3 Application of Moneys Collected 31
Section 7.4 Limitation on Suits 31
Section 7.5 Rights And Remedies Cumulative; Delay or 32
Omission Not Waiver
Section 7.6 Control by Debenture Holders 33
Section 7.7 Undertaking to Pay Costs 33
Section 7.8 Direct Action by Holders of Preferred Securities 34
ARTICLE VIII FORM OF DEBENTURE AND ORIGINAL ISSUE 34
Section 8.1 Form of Debenture 34
Section 8.2 Original Issue of Debentures 34
ARTICLE IX CONCERNING THE TRUSTEE 34
Section 9.1 Certain Duties And Responsibilities 34
Section 9.2 Notice of Defaults 36
Section 9.3 Certain Rights of Trustee 36
Section 9.4 Trustee Not Responsible For Recitals, Etc. 37
Section 9.5 May Hold Debentures 37
Section 9.6 Moneys Held in Trust 38
Section 9.7 Compensation And Reimbursement 38
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
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<S> <C> <C>
Section 9.8 Reliance on Officers' Certificate 39
Section 9.9 Disqualification: Conflicting Interests 39
Section 9.10 Corporate Trustee Required Eligibility 39
Section 9.11 Resignation And Removal; Appointment of 39
Successor
Section 9.12 Acceptance of Appointment by Successor 41
Section 9.13 Merger, Conversion, Consolidation or Succession 41
to Business
Section 9.14 Preferential Collection of Claims Against The 42
Company
ARTICLE X CONCERNING THE DEBENTURE HOLDERS 42
Section 10.1 Evidence of Action by Holders 42
Section 10.2 Proof of Execution by Debenture Holders 42
Section 10.3 Who May Be Deemed Owners 43
Section 10.4 Certain Debentures Owned by Company Disregarded 43
Section 10.5 Actions Binding on Future Debenture Holders 43
ARTICLE XI SUPPLEMENTAL INDENTURES 44
Section 11.1 Supplemental Indentures Without The Consent of 44
Debenture Holders
Section 11.2 Supplemental Indentures With Consent of Debenture 45
Holders
Section 11.3 Effect of Supplemental Indentures 46
Section 11.4 Debentures Affected by Supplemental Indentures 46
Section 11.5 Execution of Supplemental Indentures 46
ARTICLE XII SUCCESSOR CORPORATION 47
Section 12.1 Company May Consolidate, Etc. 47
</TABLE>
iv
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C> <C>
Section 12.2 Successor Corporation Substituted 47
Section 12.3 Evidence of Consolidation, Etc. to Trustee 48
ARTICLE XIII SATISFACTION AND DISCHARGE 48
Section 13.1 Satisfaction And Discharge of Indenture 48
Section 13.2 Discharge of Obligations 48
Section 13.3 Deposited Money to Be Held in Trust 49
Section 13.4 Payment of Monies Held by Paying Agents 49
Section 13.5 Repayment to Company 49
ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS 50
AND DIRECTORS
Section 14.1 No Recourse 50
ARTICLE XV MISCELLANEOUS PROVISIONS 50
Section 15.1 Effect on Successors And Assigns 50
Section 15.2 Actions by Successor 50
Section 15.3 Surrender of Company Powers 51
Section 15.4 Notices 51
Section 15.5 Governing Law 51
Section 15.6 Treatment of Debentures as Debt 51
Section 15.7 Compliance Certificates And Opinions 51
Section 15.8 Payments on Business Days 52
Section 15.9 Conflict With Trust Indenture Act 52
Section 15.10 Counterparts 52
Section 15.11 Separability 52
Section 15.12 Assignment 52
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C> <C>
Section 15.13 Acknowledgment of Rights 53
ARTICLE XVI SUBORDINATION OF DEBENTURES 53
Section 16.1 Agreement to Subordinate 53
Section 16.2 Default on Senior Debt or Subordinated Debt 53
Section 16.3 Liquidation; Dissolution; Bankruptcy 54
Section 16.4 Subrogation 55
Section 16.5 Trustee to Effectuate Subordination 56
Section 16.6 Notice by The Company 56
Section 16.7 Rights of The Trustee; Holders of Senior 57
Indebtedness
Section 16.8 Subordination May Not Be Impaired 57
</TABLE>
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<PAGE>
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(b)
313(c) 6.4(a)
6.4(b)
313(d) 6.4(c)
314(a) 6.3(a)
314(b) N/A
314(c) 15.7
314(d) N/A
314(e) 15.7
314(f) N/A
</TABLE>
vii
<PAGE>
<TABLE>
Section of Trust Indenture Act of 1939, as amended Section of Indenture
<S> <C>
315(a) 9.1(a)
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
317(b) 5.3
318(a) 15.9
</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.
viii
<PAGE>
INDENTURE
INDENTURE, dated as of __________, 1997, between FIDELITY BANKSHARES, INC.,
a Delaware corporation (the "Company"), and THE BANK OF NEW YORK, a New York
banking corporation (the "Trustee").
RECITALS
WHEREAS, for its lawful corporate purposes, the Company 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 __________, 2027 (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, Fidelity Capital Trust I, a Delaware statutory business trust (the
"Trust"), has offered to the public $__________ 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 Company of $_________ aggregate liquidation amount of its Common
Securities (as defined herein), in $__________ aggregate principal amount of the
Debentures; and
WHEREAS, the Company 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 Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, 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 Company has duly authorized the
execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW, THEREFORE, 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:
1
<PAGE>
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.
"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 Company or any
duly authorized committee of such Board.
2
<PAGE>
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors 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 federal or state banking institutions in
the Borough of Manhattan, The City of New York, or the State of Delaware are
authorized or required by law, executive order or regulation to close, or a day
on which the 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 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) applied as if the Company (or its successor) were a bank
holding company 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 Company.
"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 Company. 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.
"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.
3
<PAGE>
"Company" means Fidelity Bankshares, Inc., a corporation duly organized and
existing under the laws of the State of Delaware, and, subject to the provisions
of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Conversion Event" shall have the meaning set forth in Section 3.2A.
"Corporate Trust Office" means 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 101 Barclay Street, Floor 21 West,
New York, New York 10286, Attention: Corporate Trust Trustee Administration.
"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 Company 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 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.
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"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"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 Company pursuant to Section 2.3. The initial
Depositary shall be The 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
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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, means the date specified in the Debenture or in a
Board Resolution or in an indenture supplemental hereto with respect to the
Debentures as the fixed date on which an installment of interest with respect to
the Debentures is due and payable.
"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, to the effect that, as a result of 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 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
Company, 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;
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(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.
"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 moneys or Governmental Obligations in the necessary amount
shall have been deposited in trust with the Trustee or with any paying agent
(other than the Company) or shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own paying agent); provided,
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, joint-stock company, unincorporated organization or government or any
agency or political subdivision thereof.
"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.
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"Preferred Securities Guarantee" means the Preferred Securities Guarantee,
as amended from time to time, by and between the Company, 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.
"Responsible Officer" when used with respect to the Trustee means any vice
president, any assistant vice president, any assistant secretary, any assistant
treasurer, any corporate trust officer or any other officer or assistant officer
of the Trustee customarily performing functions similar to those performed by
the Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Scheduled Maturity Date" means __________, 2027.
"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 Company 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 Company which when
incurred and without respect to any election under Section 1111 (b) of the
United States Bankruptcy Code of 1978, as amended, was without recourse to the
Company; (ii) any Debt of the Company to any of its subsidiaries; and (iii) any
Debt to any employee of the Company.
"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 Company 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 Company (other than the Debentures), except that
Subordinated Debt shall not include debentures sold by the Company to the Trust.
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"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, 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 Company on the Debentures is not, or
within 90 days after the date of such Opinion of Counsel, shall not be,
deductible by the Company, 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
Company shall request and receive such Opinion of Counsel with regard to such
matters within a reasonable period of time after the Trust or the Company shall
have become aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
"Trust" means Fidelity Capital Trust I, a Delaware statutory business trust
created by the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
__________, 1997, of the Trust, as amended, modified or supplemented in
accordance with the applicable provisions thereof, among the trustees of the
trust named therein, the Company, 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 The Bank of New York 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.
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"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 statute
successor 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.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION
AND EXCHANGE OF THE DEBENTURES
Section 2.1 Designation And Principal Amount.
There is hereby authorized Debentures designated the "____% Junior
Subordinated Deferrable Interest Debentures due ____________2027," limited in
aggregate principal amount to $__________ which amount shall be as set forth in
any written order of the Company 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 Company 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.
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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 1, June
1, September 1 and December 1 of each year (each, an "Interest Payment Date,"
commencing on March 1, 1998), to the Person in whose name such Debenture or any
Predecessor Debenture is registered, at the close of business on the regular
record date for such interest installment, 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, 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 nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company 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 2.5 Execution And Authentications.
(a) The Debentures shall be signed on behalf of the Company by its Chief
Executive Officer, 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 Company may use the
facsimile signature of any Person who shall have been a Chief Executive Officer,
President or Vice President thereof, or of any Person who shall have been a
Secretary or
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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 Chief Executive Officer, President or a Vice President, or
the Secretary or an Assistant Secretary, of the Company. The seal of the Company
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.
(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 Company may deliver Debentures executed by the Company to
the Trustee for authentication, together with a written order of the Company for
the authentication and delivery of such Debentures signed by its Chief Executive
Officer, 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 Company 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
Company 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 Company shall keep, or cause to be kept, at its office or agency
designated for such purpose or such other location designated by the Company a
register or registers (herein referred to as the "Debenture Register") in which,
subject to such reasonable regulations as it may
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prescribe, the Company 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 Company
designated for such purpose, the Company 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 Company or the Debenture Registrar) by a
written instrument or instruments of transfer, in form satisfactory to the
Company 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 Company 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 Company 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.
(e) Notwithstanding any other provision of this Indenture, transfers and
exchanges of Debentures and beneficial interests in a Global Security 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 as provided in this
Section 2.6.
(ii) A beneficial interest in a Global Security may be exchanged for a
Debenture that is not a Global Security as provided in Section 2.7A.
Section 2.7 Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may execute,
and the Trustee shall authenticate and make available, 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 Company. Every
temporary Debenture shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in
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substantially the same manner, and with like effect, as the definitive
Debentures. Without unnecessary delay the Company 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 Company 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 Company advises the Trustee to the effect that definitive
Debentures need not be executed and furnished until further notice from the
Company. 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 Company for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for 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
Company is unable to locate a qualified successor, (ii) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depositary, or (iii) there shall
have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other 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 Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article 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 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 written instructions of the Depositary. The Trustee shall not be liable for
any delay in delivery of such
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written instructions and may conclusively rely on, and shall be fully protected
in relying on, such written instructions.
(d) 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 Company (subject to the next succeeding
sentence) shall execute, and upon the Company'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 Company 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 Company 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 Company. Upon the issuance of any substituted Debenture, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith. In case any Debenture
that has matured or is about to mature shall become mutilated or be destroyed,
lost or stolen, the Company 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 Company and the Trustee such security or indemnity as they may require to
save them harmless, and, in case of
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destruction, loss or theft, evidence to the satisfaction of the Company 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 Company
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 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 Company 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 Company at the time of such surrender, the
Trustee shall deliver to the Company 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 Company 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 Authentication 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
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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 Company 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 Company. The Trustee may at any
time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. 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 Company 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 Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Preferred
Securities Guarantee relating to such 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 Company 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 Company will promptly notify
the Trustee of any change in the CUSIP numbers.
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ARTICLE III
REDEMPTION OF DEBENTURES
Section 3.1 Redemption.
Subject to the Company having received prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies, the Company
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 Company 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 Company 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 180 days following the occurrence of such
Special Event (the "180-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 at the
time there is available to the Company the opportunity to eliminate, within the
180-Day Period, a 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 Company, the Trust
or the holders of the Trust Securities issued by the Trust, the Company shall
pursue such Ministerial Action in lieu of redemption, and, provided further,
that the Company 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 Company
determines, provided that the Company 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 3.2A Conversion Event Redemption.
In the event the Company chooses to redeem the Debentures prior to
____________, 2002 but not prior to ____________, 1999 following a Conversion
Event, then notwithstanding Section 3.3, the Company 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 at a redemption
price equal to 107% of the principal amount to be redeemed plus any accrued and
unpaid interest thereon to the date of such redemption (the "Conversion Event
Redemption Price"). The Conversion Event 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 Company determines, provided that the Company shall deposit with the
Trustee an amount sufficient to pay the Conversion Event Redemption Price by
10:00 a.m. New York time, on the date such Conversion Event Redemption Price is
to be paid. A Conversion Event shall occur if the mutual holding company parent
of the Company is merged into the Company or
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the Company's wholly-owned subsidiary, Fidelity Federal Savings Bank of Florida
("Fidelity") with the Company or Fidelity as the surviving entity.
Section 3.3 Optional Redemption by Company.
Except as otherwise may be specified in this Indenture, the Company shall
have the right to redeem the Debentures, in whole or in part, from time to time,
on or after ____________, 2002, 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 Company
determines provided that the Company 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 3.4 Notice of Redemption.
(a) In case the Company 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 Company shall, or shall cause the Trustee to, upon receipt of 45 days
written notice from the Company, 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 Company 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 Company 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,
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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 Company 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 Company in writing of the numbers of
the Debentures to be redeemed, in whole or in part. The Company may, if and
whenever it shall so elect pursuant to the terms hereof, by delivery of
instructions signed on its behalf by its 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 Company. In any
case in which notice of redemption is to be given by the Trustee or any such
paying agent, the Company 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, 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 Company shall default in the payment of
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 be payable to the registered holder at the close of business on the
applicable record date pursuant to Section 2.4).
(b) Upon presentation of any Debenture that is to be redeemed in part only,
the Company 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 Company, 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.
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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 Company
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
Company shall calculate (and deliver such calculation to the Trustee, certified
by an officer of the Company) and pay all interest accrued and unpaid on the
Debentures, including any Additional Interest and Compounded Interest (together,
"Deferred Interest") that shall be payable to the holders of the Debentures in
whose names the Debentures are registered in the Debenture Register on the first
record date after the end of the Extended Interest Payment Period. Before the
termination of any Extended Interest Payment Period, the Company may further
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 Company may commence a new Extended Interest Payment Period, subject to the
foregoing requirements. No interest shall be due and payable during an Extended
Interest Payment Period, except at the end thereof, but the Company may prepay
at any time all or any portion of the interest accrued during an Extended
Interest Payment Period.
Section 4.2 Notice of Extension.
(a) If the Property Trustee is the only registered holder of the Debentures
at the time the Company selects an Extended Interest Payment Period, the Company
shall give written notice to the Administrative Trustees, the Property Trustee
and the Trustee of its selection of such Extended Interest Payment Period one
Business Day before the earlier of (i) the next succeeding date on which
Distributions 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 Nasdaq Stock Market's National Market of
other applicable self-regulatory organization 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 Company selects an Extended Interest Payment Period, the Company shall
give the holders of the Debentures and the Trustee written notice of its
selection of such Extended Interest Payment Period
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at least one Business Day before the earlier of (i) the next succeeding Interest
Payment Date; or (ii) the date the Company is required to give notice of the
record or payment date of such interest payment to The Nasdaq Stock Market's
National Market or other applicable self-regulatory organization or to holders
of the Debentures.
(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 Company shall exercise its right to defer payment of interest as
provided in Section 4.1; (ii) there shall have occurred any Event of Default; or
(iii) the Company is in default with respect to its obligations under the
Preferred Securities Guarantee, then (a) the Company 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 Company's capital stock (other than (1) the reclassification of any class of
the Company's capital stock into another class of its capital stock; (2)
dividends or distributions payable in any class of the Company'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
Company's common stock related to the rights under any of the Company's benefit
plans for its or its subsidiaries' directors, officers or employees); (b) the
Company 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 Company which rank pari passu with or junior to the
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any Subsidiary of the Company if such
guarantee ranks pari passu with or junior to the Debentures; provided, however,
that notwithstanding the foregoing the Company may make payments pursuant to its
obligations under the Preferred Securities Guarantee; and (c) the Company 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 COMPANY
Section 5.1 Payment of Principal And Interest.
The Company 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.
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So long as any of the Debentures remain Outstanding, the Company shall
maintain an 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 Company 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 Company shall, by written notice signed by its 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 Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
notices and demands. In addition to any such office or agency, the Company 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 Company may from time to time rescind such designation
as the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Place of Payment for
such purposes. The Company shall give the Trustee prompt written notice of any
such designation or rescission thereof.
Section 5.3 Paying Agents.
(a) If the Company shall appoint one or more paying agents for the
Debentures, other than the Trustee, the Company 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 Company 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 Company (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.
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(b) If the Company 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 Company 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 Company 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 Company 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 Company 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 Company or such paying agent; and, upon such payment by any
paying agent to the Trustee, such paying agent shall be released from all
further liability with respect to such money.
Section 5.4 Appointment To Fill Vacancy In Office Of Trustee.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 5.5 Compliance With Consolidation Provisions.
The Company 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 Company or convey,
transfer or lease substantially all of its properties and assets to the Company,
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 Company shall be in default with respect to its payment of any obligations
under the Preferred Securities Guarantee relating to the Trust; or (iii) the
Company 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
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continuing, then (a) the Company may not, and may 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 (1) the reclassification of any class of the
Company's capital stock into another class of capital stock, (2) dividends or
distributions payable in any class of the Company'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 Company's common
stock related to the rights under any of the Company's benefit plans for its or
its subsidiaries' directors, officers or employees); (b) the Company shall not
make any payment of interest, principal or premium, if any, or repay, repurchase
or redeem any debt securities issued by the Company which rank pari passu with
or junior to the Debentures; provided, however, that the Company may make
payments pursuant to its obligations under the Preferred Securities Guarantee;
and (c) the Company 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
Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of the
Common Securities; (ii) not voluntarily terminate, 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 Company shall use its best efforts to list such
Debentures on The Nasdaq Stock Market's National Market or on such other
exchange as the Preferred Securities are then listed.
Section 5.8 Covenants As To Purchases.
Prior to __________, 2002, the Company shall not purchase any Debentures,
in whole or in part, from the Trust, except as contemplated pursuant to Section
3.2A herein.
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ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 6.1 Company To Furnish Trustee Names And Addresses Of
Debenture Holders
The Company shall furnish or cause to be furnished to the Trustee (a)
within one Business Day after January and June 30th of each year a list, in such
form as the Trustee may reasonably require, of the names and addresses of the
holders of the Debentures as of such regular record date, provided that the
Company 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 Company; and (b) at such other times as the
Trustee may request in writing within 30 days after the receipt by the Company
of any such request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished; provided, however, that,
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).
(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.
Section 6.3 Reports By The Company.
(a) The Company covenants and agrees to file with the Trustee, within 15
days after the Company is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Company may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of such Sections, then to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
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information, documents and reports that may be required pursuant to Section 13
of the Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from to time
by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable over-night delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to subsections (a) and (b) of this Section
6.3 and delivered to Debenture holders or the Company's stockholders as may be
required by rules and regulations prescribed from time to time by the
Commission.
(d) Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
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
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 Company will
promptly notify the Trustee when any Debentures become listed on any stock
exchange.
Section 6.5 Statements As To Default.
(a) The Company will deliver to the Trustee annually, within 120 days after
the end of each of its fiscal years commencing April 30, 1998, a certificate,
from its principal executive officer, principal financial officer or principal
accounting officer, stating whether or not to the best
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knowledge of the signer thereof the Company is in compliance (without regard to
periods of grace or notice requirements) with all conditions and covenants under
this Indenture, and if the Company shall not be in compliance, specifying such
non-compliance and the nature and status thereof of which such signer may have
knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and in
any event within five days after the Company 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
Company proposes to take with respect thereto.
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 Company 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 Company in accordance with the terms of this Indenture
shall not constitute a default in the payment of interest for this
purpose;
(ii) the Company 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 Company 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 Company by
the Trustee, by registered or certified mail, or to the Company and
the Trustee by the holders of at least 25% in aggregate principal
amount of the Debentures at the time Outstanding;
(iv) the Company 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
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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 Company in an
involuntary case; (ii) appoints a Custodian of the Company for all or
substantially all of its property; or (iii) orders the liquidation of
the Company, 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 Company (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 moneys 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 Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum 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 (with 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 9.6; 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 Company and the Trustee shall be restored
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respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company 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 Company 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 Company 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 Company 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 Company or other obligor upon the
Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company 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 Company 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
Company under this Indenture at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys 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 Moneys Collected.
Any moneys 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 moneys on
account of principal or interest, upon presentation of the Debentures, and
notation thereon 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 Company
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 Company.
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
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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; and (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 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.
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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 has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; 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 Trust 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 Trust 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 Company,
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.
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,
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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
Company 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 Company may not amend this Indenture to remove this right to
institute a suit directly against the Company 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 Company 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
Company, signed by its Chairman, its Vice Chairman, its President, or any Vice
President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.
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
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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:
(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 Debentures 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 written
direction of the holders of not less than a majority in principal amount
of the Debentures at the time outstanding 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.
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Section 9.2 Notice Of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Debentures, the Trustee shall transmit by mail to all holders of the Debentures,
as their names and addresses appear in the Debenture Register, notice of such
default, unless such default shall have been cured or waived; 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; and provided, further, that in the case of any default of the
character specified in Section 7.1(a)(iii), no such notice to holders of
Debentures need be sent until at least 30 days after the occurrence thereof. 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:
(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;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by the 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 Company 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
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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 Company, 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 Company,
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 Company of any of the Debentures or of the proceeds of such Debentures,
or for the use or application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture, or for the use or application
of any moneys received by any paying agent other than the Trustee.
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 Company with
the same rights it would have if it were not Trustee, paying agent or Debenture
Registrar.
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Section 9.6 Moneys Held In Trust SECTION 9.6MONEYS HELD IN TRUST .
Subject to the provisions of Section 13.5, all moneys 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 moneys received by it hereunder except such as it
may agree in writing with the Company to pay thereon.
Section 9.7 Compensation And Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as the
Company 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 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.
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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
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
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
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 Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 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 Company 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 Company 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
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appointment within 30 days after the mailing of such notice of resignation, the
resigning Trustee may petition at the expense of the Company 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 Company 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 Company 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
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 Company
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 Company and may appoint a successor Trustee with
the consent of the Company. 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 Company 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.
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(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 Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder.
(b) Upon request of any successor trustee, the Company 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 Company 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 Company 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 Company.
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 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
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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 Company.
The Trustee shall comply with Section 31l(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 Company shall solicit from the Debentureholders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Debentureholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Company shall have
no obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the 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:
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(a) The fact and date of the execution by any such Person of 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.
Section 10.3 Who May Be Deemed Owners.
Prior to the due presentment for registration of transfer of any Debenture,
the Company, 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 Company 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 Company 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 Company 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 Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling or
controlled by, or under common control with the Company 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 Company 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
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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
Company, 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 Company 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, in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place
of certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the holders
of all or any of the Debentures or to surrender any right or power herein
conferred upon the Company;
(e) to evidence the succession of another corporation to the Company, and
the assumption by any such successor of the covenants of the Company 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 Company 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;
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(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 Company 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 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 Company 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 Company, 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 written 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 Company'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 Company 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, 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
Company, 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 Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, 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 Company, accompanied by their 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
Company in the execution of such supplemental indenture unless such supplemental
indenture 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 Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Company 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 Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
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ARTICLE XII
SUCCESSOR CORPORATION
Section 12.1 Company May Consolidate, Etc.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, 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 Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, the
Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, 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 Company 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 Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company 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 Company, 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 Company, as the case may be, such
successor corporation shall succeed to and be substituted for the Company, with
the same effect as if it had been named as the Company 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.
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(c) Nothing contained in this Indenture or in any of the Debentures shall
prevent the Company 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 Company).
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 Company 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 Company (and thereupon repaid to the Company or
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
Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys 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 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 Company shall also pay or cause to be
paid all other sums payable hereunder by the Company; 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
Company and at the cost and expense of the Company, 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 Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental
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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 Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then after the date such
moneys or Governmental Obligations, as the case may be, are deposited with the
Trustee, the obligations of the Company 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 Moneys 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
Company acting as its own paying agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
The Company 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
moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
Section 13.5 Repayment To Company.
Any monies or Governmental Obligations deposited with any paying agent or
the Trustee, or then held by the Company 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 Company, as the case may be, on May 31 of
each year or (if then held by the Company) 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 money's 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 Company for the
payment thereof.
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ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 No Recourse.
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 Company or of any predecessor
or successor corporation, either directly or through the Company 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 Company 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.
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 Company shall bind their 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
Company 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 Company.
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Section 15.3 Surrender Of Company Powers.
The Company 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 Company, and thereupon such power so surrendered shall
terminate both as to the Company, 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 Company 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 Company with the
Trustee), as follows: Fidelity Bankshares, Inc., 218 Datura Street, West Palm
Beach, Florida 33401, Attention: President. Any notice, election, request or
demand by the Company 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 New York 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 or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (1) a statement that the
Person making such certificate or opinion has read such
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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 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 Company 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 Company, provided that, in the event of any such
assignment, the Company 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.
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Section 15.13 Acknowledgment Of Rights.
The Company 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 Company to enforce such Property Trustee's rights under
this Indenture without first instituting any legal proceedings against such
Property Trustee or any other person 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 Company 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 Company 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.
ARTICLE XVI
SUBORDINATION OF DEBENTURES
Section 16.1 Agreement To Subordinate.
The Company 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 Company 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 Company in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or 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
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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 Company 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 Company or distribution of assets of the
Company 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 Company, all amounts due upon all
Senior Indebtedness of the Company shall first be paid in full, or payment
thereof provided for in money in accordance with its terms, before any payment
is made by the Company on account of the principal 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 Company, or distribution of assets of the Company 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 Company,
except for the provisions of this Article XVI, shall be paid by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the 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 Company (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders,
as calculated by the Company) or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness may have been issued, 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 Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness of the Company 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 Company, for application to the payment of all Senior Indebtedness of the
Company, 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.
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(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness of the Company, 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 Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company 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
Company, 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 Company, 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 Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article 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.
(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 Company, its
creditors (other than the holders of Senior Indebtedness of the Company), and
the holders of the Debentures, the obligation of the Company, 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 Company, as the
case may be, other than the holders of Senior Indebtedness of the Company, 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
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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 Company, as the case may be, received upon the exercise of any
such remedy.
(c) Upon any payment or distribution of assets of the Company 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 Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 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 Company.
(a) The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the 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 Company or a holder or holders of Senior Indebtedness or from any
trustee therefor, and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.1, shall not 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.
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(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 Company
(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 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 Company,
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 Company 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 Company to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
holders of the Debentures, without incurring
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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 Company and any other Person.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
FIDELITY BANKSHARES, INC.
By:
----------------------------------------
Name: Vince A. Elhilow
Title: President and Chief Executive Officer
THE BANK OF NEW YORK, as trustee
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
<PAGE>
Exhibit A
FACE OF DEBENTURE
No. $__________
CUSIP No. _________
FIDELITY BANKSHARES, INC.
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE __________, 2027
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR
ITS AGENT FOR REGISTRATION OF TRANSFER EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
FIDELITY BANKSHARES, INC., a Delaware corporation (the "Company,"
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to The Bank of New
York, as Property Trustee for Fidelity Capital Trust I, or registered assigns,
the principal sum of Dollars ($__________) on __________, 2027 (the "Stated
Maturity"), and to pay interest on said principal sum from __________, 1997, 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 1, June 1, September 1,
December 1 of each year commencing March 1, 1998, 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. 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
<PAGE>
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 close of business on the business day next preceding such 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 Company 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.
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 New York and for all purposes shall be construed in accordance with
the laws of New York 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.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
FIDELITY BANKSHARES, INC.
By:
----------------------------------------
Name: Vince A. Elhilow
Title: President and Chief Executive Officer
Attest:
----------------------
By:
----------------------
Name:
----------------------
Title:
----------------------
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK as Trustee or Authentication Agent
By: By:
-------------------------- ----------------------
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfer 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 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: __________________________________________________________
__________________
/1./ 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.
<PAGE>
REVERSE OF DEBENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
(CONTINUED)
This Debenture is one of the junior subordinated debentures of the Company
(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
__________, 1997 (the "Indenture") duly executed and delivered between the
Company and The Bank of New York, as Trustee (the "Trustee"), to which Indenture
reference is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures. The Debentures are limited in aggregate principal
amount as specified in the Indenture.
The Company has the right to redeem this Debenture at the option of the
Company, without premium or penalty (i) at any time on or after __________, 2002
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") or
(iii) any time prior to ____________, 2002 but not prior to ____________, 1999,
in whole, but not in part, in the event that Fidelity Bankshares, MHC, the
mutual holding company parent of the Company is merged into the Company or
Fidelity Federal Savings Bank of Florida (the "Bank") with the Company or the
Bank as the surviving entity. In the event of a redemption pursuant to (iii)
the Redemption Price shall be equal to 107% of the principal amount plus any
accrued but unpaid interest, to the date of redemption. 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 Company determines. 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 Company, the Debentures shall be redeemed pro rata or
by lot or by any other 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 Company 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
<PAGE>
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 Company, 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.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of the 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 Company 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 Company
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. 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 Company 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 Company, 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
Company 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 Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, 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
<PAGE>
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 Company 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 Company 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
Company or any of its subsidiaries or other affiliates.
<PAGE>
CERTIFICATE OF TRUST
OF
FIDELITY CAPITAL TRUST I
THIS Certificate of Trust of Fidelity Capital Trust I (the "Trust"), dated
as of December 10, 1997, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. (S)3801, et seq.).
- --- - -- ---
1. Name. The name of the business trust formed hereby is Fidelity Capital
----
Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust with a principal place of business in the State of Delaware are The Bank
of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first-above written.
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Mary Jane Morrissey
---------------------------------
Name: Mary Jane Morrissey
Title: Authorized Signatory
THE BANK OF NEW YORK, as Property Trustee
By: /s/ Paul J. Schmalzel
---------------------------------
Name: Paul J. Schmalzel
Title: Assistant Vice President
VINCE A. ELHILOW, as Administrative Trustee
-------------------------------------
RICHARD D. ALDRED, as Administrative Trustee
-------------------------------------
CHRISTOPHER H. COOK, as Administrative Trustee
-------------------------------------
<PAGE>
CERTIFICATE OF TRUST
OF
FIDELITY CAPITAL TRUST I
THIS Certificate of Trust of Fidelity Capital Trust I (the "Trust"),
dated as of December 10, 1997, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del.C. (S)3801, et seq.).
------ -- ---
1. Name. The name of the business trust formed hereby is Fidelity Capital
----
Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust with a principal place of business in the State of Delaware are The Bank
of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first-above written.
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By:
---------------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Property Trustee
By:
---------------------------------------------
Name:
Title:
VINCE A. ELHILOW, as Administrative Trustee
/s/ Vince A. Elhilow
------------------------------------------------
RICHARD D. ALDRED, as Administrative Trustee
/s/ Richard S. Aldred
------------------------------------------------
CHRISTOPHER H. COOK, as Administrative Trustee
/s/ Christopher H. Cook
------------------------------------------------
<PAGE>
Exhibit 4.4
TRUST AGREEMENT
OF
FIDELITY CAPITAL TRUST I
THIS TRUST AGREEMENT, dated as of December 10, 1997, is made among Fidelity
Bankshares, Inc., a Delaware corporation, as "Depositor," Vince A. Elhilow,
Richard D. Aldred, and Christopher H. Cook as "Administrative Trustees," The
Bank of New York as "Property Trustee" and The Bank of New York (Delaware) as
"Delaware Trustee" (the Delaware Trustee, the Property Trustee and the
Administrative Trustees together, the "Trustees"). The Depositor and the
Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Fidelity Capital Trust I"
(the "Trust"), in which name the Trustees or the Depositor, to the extent
provided herein, may conduct the business of the Trust, make and execute
contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. It is the intention of the parties hereto that the Trust
created hereby constitute a business trust under Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. (S) 3801, et seq. (the "Business Trust Act"), and that
------- -- ---
this document constitute the governing instrument of the Trust. The Trustees
are hereby authorized and directed to execute and file a certificate of trust
with the Delaware Secretary of State in such form as the Trustees may approve.
3. An amended and restated Trust Agreement satisfactory to each party to
it and substantially in the form to be included as an exhibit to the
Registration Statement (the "1933 Act Registration Statement") referred to
below, or in such other form as the parties thereto may approve, will be entered
into to provide for the contemplated operation of the Trust created hereby and
the issuance of the Preferred or Capital Securities and Common Securities
referred to therein. Prior to the execution and delivery of such amended and
restated Trust Agreement, the Trustees shall not have any duty or obligation
hereunder or with respect of the trust estate, except as otherwise required by
applicable law or as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by applicable law or
otherwise. Notwithstanding the foregoing, the Trustees may take all actions
deemed proper as are necessary to effect the transactions contemplated herein.
4. The Depositor, as the Depositor of the Trust, is hereby authorized (i)
to file with the Securities and Exchange Commission (the "Commission") and to
execute, in the case of the 1933 Act Registration Statement and 1934 Act
Registration Statement (as herein defined), on behalf of the Trust, (a) the 1933
Act Registration Statement, including pre-effective or post-effective amendments
to such Registration Statement, relating to the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of the Preferred or Capital
Securities of the Trust, (b) any preliminary prospectus or prospectus or
supplement thereto relating to the Capital or Preferred Securities required to
be filed pursuant to the 1933 Act, and (c) a Registration Statement on Form 8-A
or other appropriate form (the "1934 Act Registration Statement") (including all
pre-effective and post-effective amendments thereto) relating to the
registration of the Preferred or Capital Securities of the Trust under the
Securities Exchange Act of 1934, as amended; (ii) to file with the
<PAGE>
Nasdaq Stock Market or other exchange, and execute on behalf of the Trust a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Preferred or Capital Securities to be listed on the Nasdaq Stock Market or such
other exchange; (iii) to file and execute on behalf of the Trust such
applications, reports, surety bonds, irrevocable consents, appointments of
attorney for service of process and other papers and documents as shall be
necessary or desirable to register the Preferred or Capital Securities under the
securities or "Blue Sky" laws of such jurisdictions as the Depositor, on behalf
of the Trust, may deem necessary or desirable; and (iv) to execute, deliver and
perform on behalf of the Trust an underwriting agreement with the Depositor and
the underwriter or underwriters of the Preferred or Capital Securities of the
Trust. In the event that any filing referred to in clauses (i)-(iii) above is
required by the rules and regulations of the Commission, the Nasdaq Stock Market
or other exchange, or state securities or Blue Sky laws to be executed on behalf
of the Trust by the Trustees, the Trustees, in their capacities as trustees of
the Trust, are hereby authorized and directed to join in any such filing and to
execute on behalf of the Trust any and all of the foregoing, it being understood
that the Trustees, in their capacities as trustees of the Trust, shall not be
required to join in any such filing or execute on behalf of the Trust any such
document unless required by the rules and regulations of the Commission, the
Nasdaq Stock Market or other exchange, or state securities or Blue Sky laws. In
connection with all of the foregoing, the Trustees, solely in their capacities
as trustees of the Trust, and the Depositor hereby constitute and appoint Vince
A. Elhilow as his, her or its, as the case may be, true and lawful attorney-in-
fact and agent with full power of substitution and resubstitution for the
Depositor or in the Depositor's name, place and stead, in any and all
capacities, to sign any and all amendments (including all pre-effective and
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
any other documents in connection therewith, with the Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his respective substitute or substitutes, shall do or cause to be done
by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be five and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Depositor which
may increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Depositor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware (without regard to conflict of laws
principles).
-2-
<PAGE>
8. The Trust may terminate without issuing any securities at the election of
the depositor.
<PAGE>
EXHIBIT 4.5
AMENDED AND RESTATED TRUST AGREEMENT
among
FIDELITY BANKSHARES, INC., as Depositor
THE BANK OF NEW YORK, as Property Trustee
THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF __________, 1997
FIDELITY CAPITAL TRUST I
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINED TERMS 2
Section 101. Definitions 2
ARTICLE II ESTABLISHMENT OF THE TRUST 10
Section 201. Name 10
Section 202. Office of The Delaware Trustee; Principal Place of 10
Business
Section 203. Initial Contribution of Trust Property; 11
Organizational Expenses
Section 204. Issuance of The Preferred Securities 11
Section 205. Issuance of The Common Securities; Subscription 11
And Purchase of Debentures
Section 206. Declaration of Trust 12
Section 207. Authorization to Enter Into Certain Transactions 12
Section 208. Assets of Trust 16
Section 209. Title to Trust Property 16
ARTICLE III PAYMENT ACCOUNT 16
Section 301. Payment Account 16
ARTICLE IV DISTRIBUTIONS; REDEMPTION 16
Section 401. Distributions 16
Section 402. Redemption 17
Section 403. Subordination of Common Securities 19
Section 404. Payment Procedures 20
Section 405. Tax Returns And Reports 20
Section 406. Payments of Taxes, Duties, Etc. of The Trust 20
Section 407. Payments Under Indenture 21
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V TRUST SECURITIES CERTIFICATES 21
Section 501. Initial Ownership 21
Section 502. The Trust Securities Certificates 21
Section 503. Execution And Delivery of Trust Securities 22
Certificates
Section 503a. Global Preferred Securities 22
Section 504. Registration of Transfer And Exchange of Preferred 24
Securities Certificates
Section 505. Mutilated, Destroyed, Lost or Stolen Trust 25
Securities Certificates
Section 506. Persons Deemed Securityholders 26
Section 507. Access to List of Securityholders' Names And 26
Addresses
Section 508. Maintenance of Office or Agency 26
Section 509. Appointment of Paying Agent 26
Section 510. Ownership of Common Securities by Depositor 27
Section 511. Notices to Clearing Agency 27
Section 511a. Definitive Preferred Securities And Temporary 27
Preferred Securities
Section 512. Rights of Securityholders 28
Section 513. CUSIP Numbers 30
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; 31
VOTING
Section 601. Limitations on Voting Rights 31
Section 602. Notice of Meetings 32
Section 603. Meetings of Preferred Securityholders 32
Section 604. Voting Rights 32
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 605. Proxies, Etc. 32
Section 606. Securityholder Action by Written Consent 33
Section 607. Record Date For Voting And Other Purposes 33
Section 608. Acts of Securityholders 33
Section 609. Inspection of Records 34
ARTICLE VII REPRESENTATIONS AND WARRANTIES 34
Section 701. Representations And Warranties of The Property 34
Trustee And The Delaware Trustee
Section 702. Representations And Warranties of Depositor 36
ARTICLE VIII TRUSTEES 36
Section 801. Certain Duties And Responsibilities 36
Section 802. Certain Notices 37
Section 803. Certain Rights of Property Trustee 38
Section 804. Not Responsible For Recitals or Issuance of 40
Securities
Section 805. May Hold Securities 40
Section 806. Compensation; Indemnity; Fees 40
Section 807. Corporate Property Trustee Required; Eligibility of 41
Trustees
Section 808. Conflicting Interests 41
Section 809. Co-trustees And Separate Trustee 42
Section 810. Resignation And Removal; Appointment of 43
Successor
Section 811. Acceptance of Appointment by Successor 44
Section 812. Merger, Conversion, Consolidation or Succession to 45
Business
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 813. Preferential Collection of Claims Against Depositor 45
or Trust
Section 814. Reports by Property Trustee 45
Section 815. Reports to The Property Trustee 46
Section 816. Evidence of Compliance With Conditions Precedent 46
Section 817. Number of Trustees 46
Section 818. Delegation of Power 47
Section 819. Voting 47
ARTICLE IX DISSOLUTION, LIQUIDATION AND 47
MERGER
Section 901. Dissolution Upon Expiration Date 47
Section 902. Early Dissolution 47
Section 903. Termination 48
Section 904. Liquidation 48
Section 905. Mergers, Consolidations, Amalgamations or 50
Replacements of The Trust
ARTICLE X MISCELLANEOUS PROVISIONS 51
Section 1001. Limitation of Rights of Securityholders 51
Section 1002. Amendment 51
Section 1003. Separability 52
Section 1004. Governing Law 52
Section 1005. Payments Due on Non-business Day 52
Section 1006. Successors 53
Section 1007. Headings 53
Section 1008. Reports, Notices And Demands 53
Section 1009. Agreement Not to Petition 54
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1010. Trust Indenture Act; Conflict With Trust Indenture 54
Act
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee 55
And Indenture
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>
-v-
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Section of Amended
Trust Indenture Act 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(b) 808
311(a) 813
311(b) 813
312(a) 507
312(b) 507
312(c) 507
313(a) 814(a)
313(a)(4) 814(b)
313(b) 814(b)
313(c) 1008
313(d) 814(c)
314(a) 815
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
315(a) 801(a), 803(a)
315(b) 802, 1008
315(c) 801(a)
315(d) 801, 803
316(a)(2) Not Applicable
316(b) Not Applicable
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.
<PAGE>
TRUST AGREEMENT
TRUST AGREEMENT, dated as of __________, 1997, among (i) Fidelity
Bankshares, Inc., a Delaware corporation (including any successors or assigns,
the "Depositor"), (ii) The Bank of New York, a New York banking corporation, as
property trustee (in such capacity, the "Property Trustee"), (iii) The Bank of
New York (Delaware), a Delaware banking corporation, as Delaware Trustee (the
"Delaware Trustee"), (iv) ______________, an individual, and
__________________, an individual, each of whose address is c/o Fidelity
Bankshares, Inc., 218 Datura Street, West Palm Beach, Florida 33401 (each an
"Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee, the Delaware Trustee and the Administrative Trustees referred
to collectively as the "Trustees"), and (v) the several Holders (as hereinafter
defined).
RECITALS
WHEREAS, the Depositor, the Property Trustee and the Delaware Trustee
have heretofore duly declared and established a business trust, Fidelity Capital
Trust I, pursuant to the Delaware Business Trust Act by the entering into of
that certain Trust Agreement, dated as of __________, 1997 (the "Original Trust
Agreement"), and by the execution and filing by the Delaware Trustee, the
Depositor and the Administrative Trustees with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on ____________, 1997, 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.
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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
(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 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.
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"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.
"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; 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 60 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 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 shall make 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 a day other than a Saturday or Sunday, a day on
which banking institutions in the Borough of Manhattan, The City of New York, or
the State of Delaware are authorized or required by law, executive order or
regulation to remain closed, or a day on which the Property Trustee's Corporate
Trust Office or the Corporate Trust Office of the Debenture Trustee is closed
for business.
"Capital Treatment Event" has the meaning specified in Section 1.1 of
the Indenture.
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"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 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.
"Conversion Transaction" shall have the meaning set forth at Section
402(c)(2).
"Corporate Trust Office" means (i) when used with respect to the
Property Trustee, the principal corporate trust office of the Property Trustee
located in New York, New York, and (ii) when used with respect to the Debenture
Trustee, the principal corporate trust office of the Debenture Trustee located
in New York, New York.
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"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 The Bank of New York, a banking corporation
organized under the laws of the State of New York, and any successor thereto, as
trustee under the Indenture.
"Debentures" means the aggregate principal amount of the Depositor's
____% Junior Subordinated Deferrable Interest Debentures due 2027, 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.
"Delaware Trustee" means the Person identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor Trustee appointed as
herein provided.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Depositary" means with respect any Global Preferred Security issuable
or issued in whole or in part in the form of one or more Global Preferred
Security, 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):
(a) the occurrence of a Debenture Event of Default; or
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(b) default by the Trust or the Property Trustee 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 or the Property Trustee 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 preference 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 The Bank of New York,
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 __________, 1997 between
the Depositor and the Debenture Trustee, as trustee, as amended or supplemented
from time to time.
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"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.
"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).
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, Chief Executive Officer, President or a Vice President and by the
Chief Financial Officer, the Treasurer 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 816
shall be the principal executive, financial or accounting officer of the
Depositor. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
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(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 legal counsel, who
may be counsel for the Trust, the Property Trustee, or the Depositor, but not an
employee of any thereof, and who shall be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals
to this Trust Agreement.
"Outstanding", when used with respect to 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 (a) 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 (b)
the foregoing shall not apply at any time when all of the outstanding Preferred
Securities are owned by the Depositor, one or more of the 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 Bank of New York.
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"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with The Bank of New York in
its trust department for the benefit of the Securityholders 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.
"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.
"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, paid by the Depositor upon the concurrent
redemption of a Like Amount of Debentures, allocated on a pro rata basis (based
on Liquidation Amounts) among the Trust Securities.
"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 Fidelity Capital Trust I, a Delaware business trust
created and continued hereby.
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"Trust Agreement" means this 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 trusts of this Trust
Agreement.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
__________, 1997, including exhibits, among the Trust, the Depositor and the
Underwriter named therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
Section 201. Name.
The Trust created and continued hereby shall be known as "Fidelity
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 Delaware Trustee; Principal Place of Business.
The address of the Property Trustee in the State of Delaware is c/o
The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711, Attention: Corporate Trust Department, or such other address in the State
of Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal executive office of the Trust
is c/o Fidelity Bankshares, Inc., 218 Datura Street, West Palm Beach, Florida
33401.
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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, which
constitutes 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 _________ Preferred Securities having an aggregate
Liquidation Amount of $__________ against receipt of the aggregate purchase
price of such Preferred Securities of $__________, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee. If the
underwriters exercise their Option and there is an Option Closing Date (as such
terms are 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 _______ Preferred Securities having an aggregate
Liquidation Amount of up to $_________ against receipt of the aggregate purchase
price of such Preferred Securities of $_________, 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 Option and there is an Option
Closing Date, then an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502 and
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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 Delaware Trustee shall be one of the Trustees of the
Trust for the sole and limited purpose of fulfilling the requirements of Section
3807 of the Delaware Business Trust Act.
Section 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 shall have
the power and authority to act on behalf of the Trust with respect to the
following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver
and perform on behalf of the Trust, the 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;
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(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 Stock Market's National 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;
(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:
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(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 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 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
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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 and the Debentures, 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 Stock Market's
National Market or a national stock exchange or other
organizations for listing upon notice of issuance 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
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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 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
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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 __________,1997,
and, except during any Extended Interest Payment Period with respect to the
Debentures, shall be payable quarterly in arrears on __________, ________,
_______ and __________ each year, commencing on __________, 1998. If any date on
which a Distribution is otherwise payable on the Trust Securities is not a
Business Day, then the payment of such Distribution shall be made on the next
succeeding day that is a Business Day (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, payment of such Distribution shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on 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. The amount of Distributions for any partial period shall be
computed on the basis of the number of days elapsed in 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. The amount of
Distributions payable for any period shall include the Additional Amounts, 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 15th day of the month in which the Distribution is payable.
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
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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, and that a new
security will be issued for the unredeemed portion;
(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;
and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
(c)(1) 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.
(c)(2) The Trust Securities may be redeemed in whole but not in part,
prior to ____________, 2002, but not prior to ____________, 1999
in the event that Fidelity Bankshares, MHC, the mutual holding
company parent of the Depositor is merged into the Depositor or
into the Depositor's wholly owned subsidiary Fidelity Federal
Savings Bank of Florida ("Fidelity"), with the Depositor or
Fidelity as the surviving entity. Under such circumstances the
Redemption Price shall be equal to the accrued and unpaid interest
to the Redemption Date plus 107% of the Liquidation Amount.
(d) If the Property Trustee gives a notice of redemption in respect of
any Preferred Securities, then, by 10:00 a.m., New York City time, on the
Redemption Date, subject to Section 402(c), the Property Trustee will, so long
as 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 Holders thereof.
If 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,
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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 Distribution payable on or prior to the
Redemption Date, 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
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment shall be made on the
immediately preceding Business Day, in each case, with the same force and effect
as if made on 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.
(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 30 days prior
to the relevant Redemption Date if less than all the Outstanding Trust
Securities are to be redeemed, and 5 days prior to the relevant Redemption Date
if all of the Outstanding Trust Securities are to be redeemed; provided,
however, in the event that the Preferred Securities do not remain in book-entry
form, the relevant record date shall be the date 30 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 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.
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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 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 with
respect to the Preferred Securities 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, 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 the Preferred Securities are held by a Clearing
Agency, such Distributions shall be made to the Clearing Agency in immediately
available funds, which will credit the relevant accounts on the applicable
Distribution Dates. Payments in respect of the Common Securities shall be made
in such manner as shall be mutually agreed between the Property Trustee and the
Common Securityholder.
Section 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
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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
512(b) or (c) hereof.
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,
except as provided in Section 503. 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
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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'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 option to purchase additional Preferred Securities, as applicable (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, Chief Executive Officer or
President or any Vice President and the Chief Financial Officer, Treasurer or an
Assistant 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 the Clearing
Agency for such Global Preferred Securities or a nominee thereof 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
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through the Clearing Agency, (c) after the occurrence of a Debenture Event of
Default 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 shall be issued in an amount representing less than $_______
in Aggregate Liquidation Amount 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 Delaware Trustee,
the Property Trustee and the Administrative Trustees of the occurrence of such
event and of the availability of the Definitive Preferred Securities to such
Owners requesting the same; provided, however, that no Definitive Preferred
Securities 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 a Definitive Preferred Securities Certificate
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 the Definitive Preferred
Securities Certificate, the Trustees shall recognize the Holder of a 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 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 $_______ in Aggregate Liquidation Amount of
Preferred Securities. None of the Securities Registrar, the Trustees 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 Trustees and Administrative Trustees shall recognize
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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 Definitive 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 Definitive 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 Certificate are issued pursuant to Section 503B, the initial 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.
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 Certificates) and registration of transfers and exchanges of
Preferred Securities Certificates as herein provided. The Property Trustee shall
be the initial Securities Registrar.
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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.
(i) 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 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 and the Administrative Trustees such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Securities Certificate shall have been acquired by a bona fide
purchaser, the Administrative Trustees, or any one of them, on behalf of the
Trust shall execute 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 Trustees, 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 the most recent record date (a) within one Business Day
after January 1 and June 30 of each year; and (b) promptly after receipt by any
Administrative Trustee or the Depositor of a request therefor from the Property
Trustee in order to enable the Property Trustee to discharge its obligations
under this Trust Agreement, in each case to the extent such information is in
the possession or control of the Administrative Trustees or the Depositor and is
not identical to a previously supplied list or has not otherwise been received
by the Property Trustee in its capacity as Securities Registrar. The rights of
Securityholders to communicate with other Securityholders with respect to their
rights under this Trust Agreement or under the Trust Securities, and the
corresponding rights of the Trustee shall be as provided in the Trust Indenture
Act. Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Property Trustee or the Administrative Trustees accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
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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 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 101 Barclay Street, Floor 21 West, New York, New York
Attn: Corporate Trust Trustee 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 Property Trustee may revoke
such power and remove the Paying Agent if such Trustee determines in its 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 an 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 Trustee and the
Property Trustee. In the event that the Property Trustee shall no longer be the
Paying Agent or a successor Paying Agent shall resign or its authority to act be
revoked, the Property Trustee shall appoint a successor that is reasonably
acceptable to the Administrative Trustees to act as 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. 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
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A SUCCESSOR IN INTEREST TO THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND
SECTION 510 OF THIS TRUST AGREEMENT."
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 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 Security, and the Depositor is
unable to locate a qualified successor, (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 Security 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 Holders of 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 of 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.
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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 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, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Debentures fail to
declare the principal of all of the Debentures to be immediately due and
payable, the Holders of at least 25% in Liquidation Amount of the Preferred
Securities then Outstanding shall have such right to make such declaration by a
notice in writing to the Depositor, the Property Trustee and the Debenture
Trustee; and upon any such declaration such principal amount of and the accrued
interest on all of the Debentures shall become immediately due and payable,
provided that the payment of principal and interest on such Debentures shall
remain subordinated to the extent provided in the Indenture.
At any time after such declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, the Holders of a majority in Liquidation Amount of the Preferred
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest on all of the
Debentures,
(B) any accrued Additional Interest on all of the
Debentures,
(C) the principal of (and premium, if any, on) any
Debentures which have become due otherwise than by such
declaration of acceleration and interest and Additional
Interest thereon at the rate borne by the Debentures, and
(D) all sums paid or advanced by the Debenture Trustee
under the Indenture and the reasonable compensation,
expenses, disbursements and
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advances of the Debenture Trustee and the Property Trustee,
their agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other
than the non-payment of the principal of the Debentures which has
become due solely by such acceleration, have been cured or waived
as provided in the Indenture.
If the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a majority in Liquidation Amount of the
Preferred Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor, the
Property Trustee and the Debenture Trustee, subject to the satisfaction of the
conditions set forth in clause (i) and (ii) of this Section 512.
The Holders of at least a majority in Liquidation Amount of the
Preferred Securities may, on behalf of the Holders of all the Preferred
Securities, waive any past default under the Indenture, except a default in the
payment of principal and interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Debenture. No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such
an acceleration, or rescission and annulment thereof, by Holders of the
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission or annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after the record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be
cancelled and of no further effect. Nothing in this paragraph shall prevent a
Holder, or a proxy of a Holder, from giving, after expiration of such 90-day
period, a new written notice of declaration of acceleration, or rescission and
annulment thereof, as the case may be, that is identical to a written notice
which has been cancelled pursuant to the proviso to the preceding sentence, in
which event a new record date shall be established pursuant to the provisions of
this Section 512.
(c) 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
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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 Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the 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 all
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 to the effect that the
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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 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 proposal 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.
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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.
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 if Securityholders holding a majority of all Outstanding
Trust Securities (based upon their aggregate Liquidation Amount) entitled to
vote in respect of such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall consent to the
action in writing (based upon their aggregate Liquidation Amount).
Section 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
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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.
(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.
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.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 701. Representations And Warranties of The Property Trustee And The
Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on
behalf of and as to itself, 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 New York banking corporation, duly
organized, validly existing and in good standing under the laws of the State of
New York;
(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 Delaware Trustee is a Delaware banking corporation, duly
organized, validly existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and the Delaware Trustee and constitutes the
valid and legally binding agreement of the Property Trustee and the Delaware
Trustee enforceable against each of them in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general equity principles;
(f) the execution, delivery and performance by the Property Trustee
and the Delaware Trustee of this Trust Agreement has been duly authorized by all
necessary corporate or other action on the part of the Property Trustee and
Delaware Trustee and does not require any approval of stockholders of the
Property Trustee or the Delaware Trustee and such execution delivery and
performance shall not (i) violate the charter or by-laws of the Property
Trustee or the Delaware Trustee; (ii) violate any provision of, or constitute,
with or without notice or lapse of time, a default under, or result in the
creation or imposition of, any Lien on any properties included in the Trust
Property pursuant to the provisions of any indenture, mortgage, credit
agreement, license or other agreement or instrument to which the Property
Trustee or the Delaware Trustee is a party or by which it is bound; or (iii)
violate any law, governmental rule or regulation of the State of New York or the
State of Delaware, as the case may be, governing the banking or trust powers of
the Property Trustee or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Property Trustee or the Delaware
Trustee;
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(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee
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 New York or
Delaware law governing the banking or trust powers of the Property Trustee or
the Delaware Trustee, as the case may be; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which,
individually or in the aggregate, would materially and adversely affect the
Trust or would question the right, power and authority of the Property Trustee
or the Delaware Trustee , as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
Section 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 Depositor 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 to
it. 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
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Trustee's liability shall be determined under 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 Trustee, 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 written direction of the Holders of not less
than a majority in Liquidation Amount of the 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;
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(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.
Section 802. Certain Notices.
(a) Within 90 days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 1008, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived.
(b) The Administrative Trustees shall transmit, to the Securityholders
and the Property Trustee in the manner and to the extent provided in Section
1008, 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, provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within 10
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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 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 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;
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(j) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request written instructions from the Holders of the Trust
Securities which written instructions may only be given by the Holders of the
same proportion in Liquidation Amount of the Trust Securities as would be
entitled to direct the Property Trustee under the terms of the Trust Securities
in respect of such remedy, right or action; (ii) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received; and (iii) shall be protected in acting in accordance with such written
instructions; and
(k) except as otherwise expressly provided by this Trust Agreement,
the Property Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Trust Agreement. No provision of
this Trust Agreement shall be deemed to impose any duty or obligation on the
Property Trustee to perform any act or acts or exercise any right, power, duty
or obligation conferred or imposed on it, in any jurisdiction in which it shall
be illegal, or in which the Property Trustee shall be unqualified or incompetent
in accordance with applicable law, to perform any such act or acts, or to
exercise any such right, power, duty or obligation. No permissive power or
authority available to the Property Trustee shall be construed to be a duty.
Section 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
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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 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.
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) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of
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the State of Delaware; or (ii) a legal entity with its principal place of
business in the State of Delaware and that otherwise meets the requirements of
applicable Delaware law that shall act through one or more persons authorized to
bind such entity.
Section 808. Conflicting Interests.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trust shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
Section 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.
(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.
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(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 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 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 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.
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(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 or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the 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 voting rights are vested exclusively
in the Common Securityholder. If an instrument of acceptance by a Successor
Trustee required by Section 8.11 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 or the Delaware Trustee, as the case may be, 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 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 a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
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(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).
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 or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any 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.
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Section 813. Preferential Collection of Claims Against Depositor or Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Trust (or any other obligor upon the Debentures or the Trust
Securities), the Property Trustee shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any such
other obligor).
Section 814. Reports by Property Trustee.
(a) The Property Trustee shall transmit to Securityholders such
reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto. If required by Section 313(a) of
the Trust Indenture Act, the Property Trustee shall, within sixty days after
each May 15 following the date of the Trust Agreement, deliver to
Securityholders a brief report, dated as of such May 15, which complies with the
provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with The Nasdaq Stock Market's
National Market, and each national securities exchange or other organization
upon which the Trust Securities are listed, and also with the Commission so long
as the Preferred Securities are registered under the Securities Exchange Act and
the Depositor.
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).
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 such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
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Section 817. Number of Trustees.
(a) The number of Trustees shall be four, provided that the Holder of
all of the Common Securities by written instrument may increase or decrease the
number of Administrative Trustees. The Property Trustee and the Delaware Trustee
may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number
of Administrative Trustees is not reduced pursuant to Section 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.
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
__________, 2027 (the "Expiration Date") subject to distribution of the Trust
Property in accordance with Section 904.
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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) 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 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;
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(ii) state the Liquidation Amount;
(iii) 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;
(iv) 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;
(v) state the CUSIP number; and
(vi) 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 Stock Market's National Market or SmallCap 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 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 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 or terminated, 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
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and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If, upon any such winding-up or termination, the
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts payable
by the Trust on the Trust Securities shall be paid on a pro rata basis (based
upon Liquidation Amounts). The Holder of the Common Securities shall be entitled
to receive Liquidation Distributions upon any such winding-up or termination 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, the Property Trustee or the Delaware 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 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 Stock Market's
National 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) 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
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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
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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 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) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
Section 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.
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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. Except as contemplated by Article
XII of the Indenture and pursuant to which the assignee agrees in writing to
perform the Depositor's obligations hereunder, the Depositor shall not assign
its obligations hereunder.
Section 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 Fidelity
Bankshares, Inc., 218 Datura Drive, West Palm Beach, Florida 33401-5679,
Attention: President, facsimile no.: (561) 659-9985. Such notice, demand or
other communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee, the Delaware Trustee or the Administrative
Trustees shall be given in writing addressed (until another address is published
by the Trust) as follows: (a) with respect to the Property Trustee to The Bank
of New York, 101 Barclay Street, 21W, New York, New York 10286, Attention:
Corporate Trust Trustee Administration; (b) with respect to the Delaware
Trustee, to The Bank of New York (Delaware), c/o The Bank of New York, 101
Barclay Street, Floor 21 West, New York, New York 10286; and (c) with respect to
the Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of Fidelity 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.
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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 stopped 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.
(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.
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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.
FIDELITY BANKSHARES, INC., as Depositor
By:
-------------------------
Name: Vince A. Elhilow
Title: President and Chief Executive Officer
THE BANK OF NEW YORK, as Property Trustee
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
ADMINISTRATIVE TRUSTEES
By:
-------------------------
Name: Vince A. Elhilow
Title: As Administrative Trustee
By:
-------------------------
Name: Richard D. Aldred
Title: As Administrative Trustee
By:
-------------------------
Name: Christopher H. Cook
Title: As Administrative Trustee
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CERTIFICATE OF TRUST Exhibit A
OF
FIDELITY CAPITAL TRUST I
THIS Certificate of Trust of Fidelity Capital Trust I (the "Trust"), dated
as of December 10, 1997, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. (S)3801, et seq.).
- ------- -- ----
1. Name. The name of the business trust formed hereby is Fidelity Capital
----
Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust with a principal place of business in the State of Delaware are The Bank
of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first-above written.
THE BANK OF NEW YORK (DELAWARE),
as Administrative Trustee
By:
-------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Property Trustee
By:
-------------------------------
Name:
Title:
VINCE A. ELHILOW, as Administrative Trustee
-----------------------------------
RICHARD D. ALDRED, as Administrative Trustee
-----------------------------------
CHRISTOPHER H. COOK, as Administrative Trustee
-----------------------------------
<PAGE>
THIS CERTIFICATE IS NOT TRANSFERABLE Exhibit C
EXCEPT IN COMPLIANCE WITH
APPLICABLE LAW AND SECTION 510
OF THIS TRUST AGREEMENT.
Certificate Number Number of Common Securities
C-__________ _____________
Certificate Evidencing Common Securities
of
Fidelity Capital Trust I
Trust Common Securities
(Liquidation amount $10 per Common Security)
Fidelity Capital Trust I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that Fidelity
Bankshares, Inc. (the "Holder") is the registered owner of (______) common
securities of the Trust, representing beneficial interests of the Trust and
designated the Trust Common Securities (liquidation amount $10 per Common
Security) (the "Common Securities"). Except as provided in Section 510 of the
Trust Agreement (as defined below) the Common Securities are not transferable
and any attempted transfer hereof shall be void. The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities are set forth in, and the Common Securities represented hereby
are issued and shall in all respects be subject to the terms and provisions of,
the Trust Agreement of the Trust dated as of __________, 1997, as the same may
be amended from time to time (the "Trust Agreement"), including the designation
of the terms of the Common Securities as set forth therein. The Trust will
furnish a copy of the Trust Agreement to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
By receipt and acceptance of this certificate, the Holder agrees to be
bound by the Trust Agreement and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this __st day of _______, 1997.
FIDELITY CAPITAL TRUST I
By:
------------------------------------
Name:
-----------------------------------
Title: Administrative Trustee
-----------------------------------
<PAGE>
Exhibit D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT, dated as of __________, 1997, between Fidelity Bankshares, Inc.,
a Delaware corporation (the "Corporation") having its principal office at 218
Datura Street, West Palm Beach, Florida 33401, and Fidelity Capital Trust I, a
Delaware business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common Securities, Series A (the
"Common Securities") to and receive debentures from the Corporation and to issue
and sell ____% Trust Preferred Securities, Series A (the "Preferred Securities")
with such powers, preferences and special rights and restrictions are set forth
in the Amended and Restated Trust Agreement of the Trust, dated as of
__________, 1997, as the same may be amended from time to time (the "Trust
Agreement");
WHEREAS, the Corporation will directly or indirectly own all of the Common
Securities of the Trust and will issue the debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Corporation hereby agrees shall benefit
the Corporation and which purchase the Corporation acknowledges will be made in
reliance upon the execution and delivery of this Agreement, the Corporation and
Trust hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by the Corporation.
Subject to the terms and conditions hereof, the Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust, other than obligations of the Trust to pay
to holders of any Preferred Securities or other similar interests in the Trust
the amounts due such holders pursuant to the terms of the Preferred Securities
or such other similar interests, as the case may be. This Agreement is intended
to be for the benefit of, and to be enforceable by, all such Beneficiaries,
whether or not such Beneficiaries have received notice hereof.
Section 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise) and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Preferred Securities
<PAGE>
or any Beneficiary must restore payment of any sums paid under the Preferred
Securities, under any Obligation, under the Guarantee Agreement dated the date
hereof by the Corporation and The Bank of New York, as guarantee trustee or
under the Agreement for any reason whatsoever. This Agreement is continuing,
irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
The Corporation hereby waives notice of acceptance of this Agreement and of
any Obligation to which it applies or may apply, and the Corporation hereby
waives presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of the Corporation under
this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or
any action on the part of the Trust granting indulgence or extension of any
kind; or
(c) 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.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Corporation with respect to the happening of any of, the
foregoing.
Section 1.5 Enforcement.
A Beneficiary may enforce this Agreement directly against the Corporation
and the Corporation waives any right or remedy to require that any action be
brought against the Trust or any other person or entity before proceeding
against the Corporation.
2
<PAGE>
Section 1.6. Subrogation.
The Corporation shall be subrogated to all (if any) rights of the Trust in
respect of any amounts paid to the Beneficiaries by the Corporation under this
Agreement; provided, however, that the Corporation shall not (except to the
extent required by mandatory provisions of law) be entitled to enforce or
exercise any rights which it may acquire by way of subrogation of any indemnity,
reimbursement of other agreement, in all cases as a result of payment under this
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Corporation
and shall inure to the benefit of the Beneficiaries.
Section 2.2 Amendment.
So long as there remains any Beneficiary or any Preferred Securities are
outstanding, this Agreement shall not be modified or amended in any manner
adverse to such Beneficiary or to the holders of the Preferred Securities.
Section 2.3 Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail) or by registered or
certified mail, addressed as follows (and if so given, shall be deemed given
when mailed):
Fidelity Capital Trust I
c/o The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Trustee Administration
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, Florida 33401
Facsimile No.: (561) 659-9900
Attention: Vince A. Elhilow, President
3
<PAGE>
Section 2.4. Choice of Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES THEREOF.
THE AGREEMENT is executed as of the day and year first above written.
FIDELITY BANKSHARES, INC.
By:
--------------------------------------
Name: Vince A. Elhilow
------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
FIDELITY CAPITAL TRUST I
By:
--------------------------------------
Name:
-------------------------------------
Title: Administrative Trustee
-----------------------------------
4
<PAGE>
Exhibit E
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR ITS
AGENT FOR REGISTRATION OF TRANSFER EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
Preferred Security
Certificate Number Number of Preferred Securities
P-
----- ---------------
CUSIP NO.
-----------
Certificate Evidencing Preferred Securities
of
FIDELITY CAPITAL TRUST I
____% Cumulative Trust Preferred Securities
(liquidation amount $10 per Preferred Security)
Fidelity 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 Fidelity Capital Trust I ____% Cumulative 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 Trust Agreement dated as of __________, 1997, 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 entered into by Fidelity
Bankshares, Inc., a Delaware corporation, as guarantor and The Bank of New York,
as guarantee trustee, dated as of __________, 1997, as amended from time to time
(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.
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Preferred Securities as
evidence of indirect beneficial ownership in the Debentures.
FIDELITY CAPITAL TRUST I
By:
-----------------------------------
Name:
-----------------------------------
Title: Administrative Trustee
-----------------------------------
This is one of the Preferred Securities referred to in the Trust Agreement.
Dated: THE BANK OF NEW YORK
as Trustee
By:
------------------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Securities Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:
--------------------
Signature:
-----------------------------------
(Sign exactly as your name appears on the other side of this
Preferred Securities Certificate)
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the [Registrar], which requirements include membership or
participation in the Security Transfer Agent 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 Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT 4.6
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
FIDELITY BANKSHARES, INC.
AND
THE BANK OF NEW YORK
__________, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation
ARTICLE II TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application
Section 2.2 Lists of Holders of Securities
Section 2.3 Reports by the Preferred Guarantee Trustee
Section 2.4 Periodic Reports to Preferred Guarantee Trustee
Section 2.5 Evidence of Compliance with Conditions Precedent
Section 2.6 Events of Default; Waiver
Section 2.7 Event of Default; Notice
Section 2.8 Conflicting Interests
ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers And Duties of The Preferred Guarantee Trustee
Section 3.2 Certain Rights of Preferred Guarantee Trustee
Section 3.3 Not Responsible For Recitals or Issuance of Guarantee
ARTICLE IV PREFERRED GUARANTEE TRUSTEE
Section 4.1 Preferred Guarantee Trustee; Eligibility
ARTICLE V GUARANTEE
Section 5.1 Guarantee
Section 5.2 Waiver of Notice and Demand
Section 5.3 Obligations Not Affected
Section 5.4 Rights of Holders
Section 5.5 Guarantee of Payment
Section 5.6 Subrogation
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C> <C>
Section 5.7 Independent Obligations
ARTICLE VI LIMITATION OF TRANSACTIONS;
SUBORDINATION
Section 6.1 Limitation of Transactions
Section 6.2 Ranking
ARTICLE VII TERMINATION
Section 7.1 Termination
ARTICLE VIII INDEMNIFICATION
Section 8.1 Exculpation
Section 8.2 Indemnification
ARTICLE IX MISCELLANEOUS
Section 9.1 Successors and Assigns
Section 9.2 Amendments
Section 9.3 Notices
Section 9.4 Benefit
Section 9.5 Governing Law
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE TABLE
SECTION OF TRUST INDENTURE SECTION OF GUARANTEE AGREEMENT
ACT OF 1939, AS AMENDED
<S> <C>
310(a) 4.1 (a)
310(b) 4.1 (a), 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) 3.1
315(d) 3. 1 (d)
316(a) 1.1,2.6, 5.4
316(b) 5 3
317(a) 3.1
317(b) Not Applicable
318(a) 2.1 (a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE TABLE
<S> <C>
318(b) 2.1
318(c) 2.1 (b)
</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
-iv-
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities
Guarantee"), dated as of __________, 1997, is executed and delivered by FIDELITY
BANKSHARES, INC., a Delaware corporation (the "Guarantor"), and THE BANK OF NEW
YORK, a New York 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 Fidelity 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 __________, 1997, 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
on the date hereof preferred securities, having an aggregate liquidation amount
of $10, 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, will be used to purchase the Junior Subordinated Deferrable
Interest Debentures due 2027 (the "Junior Subordinated Debentures") of the
Guarantor which will be deposited with The Bank of New York, 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;
<PAGE>
(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;
(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 day on which federal or state
banking institutions in the Borough of Manhattan, The City of New York, or the
State of Delaware 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 The Bank of New York, 101
Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate
Trust Trustee Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the ____% Junior Subordinated Deferrable Interest
Debentures due 2027, 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
-2-
<PAGE>
borrowed; (ii) every obligation of such Persons 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 Fidelity Bankshares, Inc., a Delaware corporation.
"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), 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.
-3-
<PAGE>
"Indenture" means the Indenture dated as of __________, 1997, among the
Debenture Issuer and The Bank of New York, 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 the holders of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all of the 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 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.
"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 The Bank of New York, 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.
-4-
<PAGE>
"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 Indebtedness" shall have the meaning set forth in Section 16.1 of
the Indenture.
"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 such date, (i) within one Business Day after January 1 and June
30 of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
15 days before such List of Holders is given to the Preferred Guarantee Trustee;
provided, that the Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The
Preferred Guarantee Trustee 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 Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
-5-
<PAGE>
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 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 (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).
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. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c) may be given in
the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver.
The Holders of a Majority in liquidation amount of 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 an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided, that the Preferred Guarantee Trustee shall be protected in withholding
such notice if and so long as
-6-
<PAGE>
a Responsible Officer of the Preferred Guarantee Trustee in good faith
determines 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 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 actually known to a Responsible Officer of
the Preferred Guarantee Trustee 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) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, 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.
-7-
<PAGE>
(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
(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
specifically 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 written 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
-8-
<PAGE>
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, refiring 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 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
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<PAGE>
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, of 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 conclusively relying on or acting in
accordance with such written 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
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<PAGE>
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 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 as
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.
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<PAGE>
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 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, 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.
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<PAGE>
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,
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<PAGE>
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;
(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 Holder; (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
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<PAGE>
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.
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 Company's capital stock into another
class of capital stock, (ii) dividends or distributions payable in any class of
the Company'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 Company's common stock related
to the rights under any of the Company'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 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 other Senior Debt of the Guarantor, (ii) pari passu with the most
senior preferred securities or preference stock now or hereafter issued
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<PAGE>
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, reasonable 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.
(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.
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<PAGE>
Section 8.2 Indemnification.
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any and all loss, liability or
expense, including taxes (other than taxes based on the income of the Guarantee
Trustee) incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee. The provisions
of this Section shall survive the termination of the Guarantee Agreement.
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. Except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
Article XII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Guarantees obligations hereunder, 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>
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Trustee 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):
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, Florida 33401
Facsimile No. (561) 659-9900
Attention: President
(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 NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
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<PAGE>
This Preferred Securities Guarantee is executed as of the day and year
first above written.
FIDELITY BANKSHARES, INC. as
Guarantor
By: _______________________________
Name: Vince A. Elhilow
Title: President and Chief Executive Officer
THE BANK OF NEW YORK, as
Preferred Guarantee Trustee
By: _______________________________
Name: _______________________________
Title:_______________________________
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<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK]
December 12, 1997
Board of Directors
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, Florida 33401-5079
Re: Registration Statement on Form S-2
----------------------------------
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of up to $28,375,000 aggregate principal amount of Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") of Fidelity Bankshares, Inc., a Delaware corporation (the
"Corporation"), up to $28,375,000 aggregate liquidation amount of Cumulative
Trust Preferred Securities (the "Trust Preferred Securities") of Fidelity
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 form time to time of the Trust Preferred Securities,
we, as your counsel, have examined such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, when:
(i) the Registration Statement relating to the Junior Subordinated
Debentures, the Trust Preferred Securities and the Guarantee has become
effective under the Act;
(ii) the Guarantee Agreement relating to the Guarantee with respect
to the Trust Preferred Securities of the Issuer has been duly executed and
delivered;
(iii) 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
(iv) 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>
Board of Directors
Fidelity Bankshares, Inc.
December 12, 1997
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 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 Morris, Nichols, Arsht & Tunnell, 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 "Validity
of Securities" 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 of the Act.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
By: /s/ Alan Schick
-------------------------------
Alan Schick, Esq.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK]
(202) 274-2005
December 12, 1997
Fidelity Bankshares, Inc.
218 Datura Street
West Palm Beach, Florida 33401-5679
Re: Registration Statement on Form S-2
----------------------------------
Ladies and Gentlemen:
As special federal tax counsel to Fidelity Capital Trust I (the"Issuer")
and in connection with the issuance by the Issuer of up to $28,375,000 of its
Cumulative Trust Preferred Securities pursuant to the prospectus (the
"Prospectus") contained in the Registration Statement, and assuming the
operative documents described in the Prospectus will be performed in accordance
with the terms described therein, we hereby adopt and incorporate by reference
our opinion as set forth under the heading "Certain Federal Income Tax
Consequences" in the Prospectus, subject to the limitations set forth therein.
Our opinion is limited to the federal income tax matters described above
and in the Prospectus and does not address any other federal income tax
considerations or any state, local, foreign, or other tax considerations. If
any of the information on which we have relied is incorrect, or if changes in
the relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the Internal Revenue Code of 1986,
as amended, applicable Treasury regulations promulgated thereunder, and Internal
Revenue Service rulings, procedures, and other pronouncements published by the
Internal Revenue Service. These authorities are subject to change, and such
change may be made with retroactive effect. We can give no assurance that,
after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion. This opinion is not binding
on the Internal Revenue Service, and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
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 "Certain
Federal Income Tax Consequences" in the Prospectus.
Very truly yours,
/s/ Luse Lehman Gorman Pomerenk & Schick, P.C.
----------------------------------------------
Luse Lehman Gorman Pomerenk & Schick, P.C.
<PAGE>
EXHIBIT 12
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Including Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (including interest on
deposits) for the periods indicated were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30,
------------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............................. $ 4,709 $ 1,947 $ 3,550 $ 4,815 $ 5,262 $ 6,497 $ 8,554
Extraordinary items, net of tax.......... - - - - - - -
Income tax expense...................... 3,458 1,407 2,562 3,133 3,392 4,319 4,974
------- ------- ------- ------- ------- ------- -------
Pretax earnings...................... 8,167 3,354 6,112 7,948 8,654 10,816 13,528
======= ======= ======= ======= ======= ======= =======
Fixed charges:
Portion of rental expense which
approximate the interest factor....... - - - - - - -
Interest expense........................ 29,716 23,417 32,131 28,095 17,776 18,415 23,171
------- ------- ------- ------- ------- ------- -------
Total fixed charges.................. 29,716 23,417 32,131 28,095 17,776 18,415 23,171
======= ======= ======= ======= ======= ======= =======
Earnings (for ratio calculation)........ 37,883 26,771 38,243 36,043 26,430 29,231 36,699
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges...... 1.27 1.14 1.19 1.28 1.49 1.59 1.58
======= ======= ======= ======= ======= ======= =======
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges,
"earnings" represent net income (loss) before extraordinary items and cumulative
effect of changes in accounting principles plus applicable income taxes and
fixed charges. Fixed charges, excluding interest on deposits, include gross
interest expense (other than on deposits) and the portion deemed representative
of the interest factor of rent expense, net of income from subleases. Fixed
charges, including gross interest on deposits, include all interest expense and
the portion deemed representative of the interest factor of rent expense.
1 of 2
<PAGE>
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (excluding interest on
deposits) for the periods indicated were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30,
-------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income............................ $ 4,709 $ 1,947 $ 3,550 $ 4,815 $ 5,262 $ 6,497 $ 8,554
Extraordinary items, net of tax....... - - - - - - -
Income tax expense.................... 3,458 1,407 2,562 3,133 3,392 4,319 4,974
------- ------- ------- ------- ------- ------- -------
Pretax earnings................... 8,167 3,354 6,112 7,948 8,654 10,816 13,528
======= ======= ======= ======= ======= ======= =======
Fixed charges:
Portion of rental expense which
approximate the interest factor... - - - - - - -
------- ------- ------- ------- ------- ------- -------
Interest on borrowed funds............ 5,009 4,454 5,892 5,580 1,717 974 546
======= ======= ======= ======= ======= ======= =======
Total fixed charges.............. 5,009 4,454 5,892 5,580 1,717 974 546
======= ======= ======= ======= ======= ======= =======
Earnings (for ratio calculation)...... 13,176 7,808 12,004 13,528 10,371 11,790 14,704
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges.... 2.63 1.75 2.04 2.42 6.04 12.10 26.93
======= ======= ======= ======= ======= ======= =======
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges,
"earnings" represent net income (loss) before extraordinary items and cumulative
effect of changes in accounting principles plus applicable income taxes and
fixed charges. Fixed charges, excluding interest on deposits, include gross
interest expense (other than on deposits) and the portion deemed representative
of the interest factor of rent expense, net of income from subleases. Fixed
charges, including gross interest on deposits, include all interest expense and
the portion deemed representative of the interest factor of rent expense.
2 of 2
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Registration
Statement of Fidelity Bankshares, Inc. on Form S-2 of our reports dated February
21, 1997 (which express an unqualified opinion and include an explanatory
paragraph referring to the adoption of Statement of Financial Accounting
Standard No. 122, "Accounting for Mortgage Servicing Rights"), appearing in and
incorporated by references in the Annual Report on Form 10-K for the year ended
December 31, 1996 of Fidelity Bankshares, Inc. and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
December 12, 1997
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
FIDELITY BANKSHARES, INC.
(Exact name of obligor as specified in its charter)
Delaware 65-0717085
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
218 Datura Street
West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip code)
----------------------
Junior Subordinated Deferrable
Interest Debentures
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 10th day of December, 1997.
THE BANK OF NEW YORK
By: /s/ THOMAS E. TABOR
---------------------------
Name: THOMAS E. TABOR
Title: ASSISTANT TREASURER
-4-
<PAGE>
Exhibit 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin..................... $ 7,769,502
Interest-bearing balances............. 1,472,524
Securities:
Held-to-maturity securities........... 1,080,234
Available-for-sale securities......... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell....... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,352,045
LESS: Allowance for loan and
lease losses ..............625,042
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 34,726,574
Assets held in trading accounts......... 1,611,096
Premises and fixed assets (including
capitalized leases)................... 676,729
Other real estate owned................. 22,460
Investments in unconsolidated
subsidiaries and associated
companies............................. 209,959
Customers' liability to this bank on
acceptances outstanding............... 1,357,731
Intangible assets....................... 720,883
Other assets............................ 1,627,267
-----------
Total assets............................ $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices................... $26,875,596
Noninterest-bearing ........11,213,657
Interest-bearing ...........15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 16,334,270
Noninterest-bearing ...........596,369
Interest-bearing ...........15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury.............................. 303,000
Trading liabilities..................... 1,308,173
Other borrowed money:
With remaining maturity of one year
or less............................. 2,383,570
With remaining maturity of more than
one year through three years............ 0
With remaining maturity of more than
three years......................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding................. 1,377,244
Subordinated notes and debentures....... 1,018,940
Other liabilities....................... 1,732,792
-----------
Total liabilities....................... 52,937,421
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 1,948
Cumulative foreign currency transla-
tion adjustments...................... ( 12,272)
-----------
Total equity capital.................... 4,577,537
-----------
Total liabilities and equity
capital ........................... $57,514,958
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi )
J. Carter Bacot )
Alan R. Griffith ) Directors
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 25.2
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
FIDELITY CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
218 Datura Street
West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip code)
______________________
Trust Preferred Securities
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 10th day of December, 1997.
THE BANK OF NEW YORK
By: /s/THOMAS E. TABOR
---------------------------
Name: THOMAS E. TABOR
Title: ASSISTANT TREASURER
-4-
<PAGE>
Exhibit 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business June 30, 1997, published in accordance with a
call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ....................................... $ 7,769,502
Interest-bearing balances ............................... 1,472,524
Securities:
Held-to-maturity securities ............................. 1,080,234
Available-for-sale securities ........................... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell ......................... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ......................................35,352,045
LESS: Allowance for loan and
lease losses ...................................625,042
LESS: Allocated transfer risk
reserve ............................................429
Loans and leases, net of unearned
income, allowance, and reserve ........................ 34,726,574
Assets held in trading accounts ........................... 1,611,096
Premises and fixed assets (including
capitalized leases) ..................................... 676,729
Other real estate owned ................................... 22,460
Investments in unconsolidated
subsidiaries and associated
companies ............................................... 209,959
Customers' liability to this bank on
acceptances outstanding ................................. 1,357,731
Intangible assets ......................................... 720,883
Other assets .............................................. 1,627,267
-----------
Total assets .............................................. $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices ..................................... $26,875,596
Noninterest-bearing ...........................11,213,657
Interest-bearing ..............................15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ........................ 16,334,270
Noninterest-bearing ..............................596,369
Interest-bearing ..............................15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase .................... 1,583,157
Demand notes issued to the U.S. ..........................
Treasury ............................................... 303,000
Trading liabilities ...................................... 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .............................................. 2,383,570
With remaining maturity of more than
one year through three years ............................. 0
With remaining maturity of more than
three years .......................................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding .................................. 1,377,244
Subordinated notes and debentures ........................ 1,018,940
Other liabilities ........................................ 1,732,792
------------
Total liabilities ........................................ 52,937,421
------------
EQUITY CAPITAL
Common stock ............................................. 1,135,284
Surplus .................................................. 731,319
Undivided profits and capital
reserves ............................................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ............................................. 1,948
Cumulative foreign currency transla-
tion adjustments ....................................... ( 12,272)
------------
Total equity capital ..................................... 4,577,537
------------
Total liabilities and equity
capital ................................................ $ 57,514,958
============
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi )
J. Carter Bacot ) Directors
Alan R. Griffith)
--------------------------------------------------------
<PAGE>
EXHIBIT 25.3
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
FIDELITY BANKSHARES, INC.
(Exact name of obligor as specified in its charter)
Delaware 65-0717085
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
218 Datura Street
West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip code)
----------------------
Guarantee of Trust Preferred Securities
of Fidelity Capital Trust I
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 10th day of December, 1997.
THE BANK OF NEW YORK
By: /s/ THOMAS E. TABOR
---------------------------
Name: THOMAS E. TABOR
Title: ASSISTANT TREASURER
-4-
<PAGE>
Exhibit 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ...... $ 7,769,502
Interest-bearing balances ............................... 1,472,524
Securities:
Held-to-maturity securities ............................. 1,080,234
Available-for-sale securities ........................... 3,046,199
Federal funds sold and Securities purchased under
agreements to resell .................................... 3,193,800
Loans and lease financing receivables:
Loans and leases, net of unearned income ......35,352,045
LESS: Allowance for loan and lease losses ........625,042
LESS: Allocated transfer risk reserve.................429
Loans and leases, net of unearned income, allowance,
and reserve ........................................... 34,726,574
Assets held in trading accounts ........................... 1,611,096
Premises and fixed assets (including capitalized leases) .. 676,729
Other real estate owned ................................... 22,460
Investments in unconsolidated subsidiaries and associated
companies ............................................... 209,959
Customers' liability to this bank on acceptances
outstanding ............................................. 1,357,731
Intangible assets ......................................... 720,883
Other assets .............................................. 1,627,267
-----------
Total assets .............................................. $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices ..................................... $26,875,596
Noninterest-bearing ...........................11,213,657
Interest-bearing ..............................15,661,939
In foreign offices, Edge and Agreement subsidiaries,
and IBFs ............................................... 16,334,270
Noninterest-bearing ..............................596,369
Interest-bearing ..............................15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase ..................... 1,583,157
Demand notes issued to the U.S.
Treasury ................................................ 303,000
Trading liabilities ....................................... 1,308,173
Other borrowed money:
With remaining maturity of one year or less ............. 2,383,570
With remaining maturity of more than one year through
three years ........................................... 0
With remaining maturity of more than three years ........ 20,679
Bank's liability on acceptances executed and outstanding .. 1,377,244
Subordinated notes and debentures ......................... 1,018,940
Other liabilities ......................................... 1,732,792
-----------
Total liabilities ......................................... 52,937,421
-----------
EQUITY CAPITAL
Common stock .............................................. 1,135,284
Surplus ................................................... 731,319
Undivided profits and capital reserves .................... 2,721,258
Net unrealized holding gains (losses) on available-for-sale
securities .............................................. 1,948
Cumulative foreign currency translation adjustments ....... (12,272)
-----------
Total equity capital ...................................... 4,577,537
-----------
Total liabilities and equity
capital ................................................. $57,514,958
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
-
Thomas A. Renyi |
J. Carter Bacot |
Alan R. Griffith | Directors
-
