As filed with the Securities and Exchange Commission on September 24, 1997
Registration Nos. 333-35061 and 333-35061-01
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
YARDVILLE NATIONAL BANCORP
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 6021 22-2670267
---------- ---- ----------
(State or Other jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization Code Number) Number)
Yardville National Bancorp Patrick M. Ryan, President
3111 Quakerbridge Road Yardville National Bancorp
Trenton, New Jersey 08619 3111 Quakerbridge Road
Telephone (609) 585-5100 Trenton, New Jersey 08619
(Address and telephone number of registrant's Telephone (609) 584-2110
principal executive offices and (Name, address and telephone
principal place of business) number of agent for service)
YARDVILLE CAPITAL TRUST
(Exact Name of Registrant as Specified in Its Trust Agreement)
Delaware 6719 22-3534943
-------- ---- -----------
(State or Other jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization Code Number) Number)
Yardville Capital Trust Patrick M. Ryan
3111 Quakerbridge Road Yardville Capital Trust
Trenton, New Jersey 08619 3111 Quakerbridge Road
Telephone (609) 585-5100 Trenton, New Jersey 08619
(Address and telephone number of registrant's Telephone (609) 584-2110
principal executive offices and (Name, address and telephone
principal place of business) number of agent for service)
Please send copies of all communications to:
Brian S. Vargo, Esq. Lloyd Spencer, Esq.
Stradley, Ronon, Stevens & Young, LLP Malizia, Spidi, Sloane & Fisch, P.C.
2600 One Commerce Square 1301 K Street, N.W., Suite 700 East
Philadelphia, Pennsylvania 19103-7098 Washington, D.C. 20005
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the date this Registration Statement is declared
effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If 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. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be to be offering price aggregate offering registration
registered registered per unit price fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Securities of Yardville 1,150,000(1) $10.00 $11,500,000 $3,484.85
Capital Trust
- -----------------------------------------------------------------------------------------------------------------
Subordinated Debentures of Yardville -- -- -- --
National Bancorp (2)
- -----------------------------------------------------------------------------------------------------------------
Guarantee of Yardville National -- -- -- --
Bancorp with respect to the Preferred
Securities (3)
=================================================================================================================
</TABLE>
(1) Includes 150,000 Preferred Securities that may be sold by Yardville Capital
Trust to cover over-allotments.
(2) The Subordinated Debentures of Yardville National Bancorp will be purchased
by Yardville Capital Trust with the proceeds of the sale of the Preferred
Securities. Such Subordinated Debentures may later be distributed for no
additional consideration to the holders of the Preferred Securities of
Yardville Capital Trust upon its dissolution and the distribution of its
assets.
(3) This Registration Statement is deemed to cover the Subordinated Debentures,
the rights of holders of Subordinated Debentures of Yardville National
Bancorp under the Indenture, and the rights of holders of the Preferred
Securities under the Trust Agreement and under the Guarantee and the
Expense Agreement entered into by Yardville National Bancorp.
No separate consideration will be received for the Guarantee.
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Subject to Completion, dated September 24, 1997
PROSPECTUS
[LOGO] 1,000,000 TRUST PREFERRED SECURITIES
YARDVILLE CAPITAL TRUST
% Cumulative Trust Preferred Securities
(Liquidation Amount $10 Per Trust Preferred Security)
guaranteed, as described herein, by
YARDVILLE NATIONAL BANCORP
The % Cumulative Trust Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of Yardville Capital Trust, a statutory business trust created under the laws of
the State of Delaware (the "Trust"). Yardville National Bancorp, a New Jersey
corporation (the "Company"), will own all the common securities (the "Common
Securities" and, together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust.
(continued on next page)
Application has been made to have the Preferred Securities approved for
quotation on The Nasdaq Stock Market, subject to meeting the initial listing
requirements. If the Preferred Securities fail to meet the initial listing
requirements of the Nasdaq Stock Market, trading in the Preferred Securities, if
any, would be conducted in the over-the-counter market or through the National
Association of Securities Dealer's "Electronic Bulletin Board." There is no
assurance that upon consummation of the Offering the Preferred Securities will
qualify for initial listing on the Nasdaq Stock Market. See "Risk Factors --
Trading Price; Absence of Prior Public Market."
See "Risk Factors" beginning on page 13 for a discussion of
certain factors that should be considered by prospective investors.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
Price to Public Underwriting Proceeds to
Discount(1) Trust(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security................. $ 10.00 (2) $ 10.00
- --------------------------------------------------------------------------------------------------
Total(3)............................... $ 10,000,000 (2) $ 10,000,000
==================================================================================================
</TABLE>
(1) The Company and the Trust have agreed to indemnify the Underwriter against
certain liabilities, including certain 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 Subordinated Debentures, the Company, as
issuer of the Subordinated Debentures, has agreed to pay the Underwriter,
as compensation, $ per Preferred Security or $ in the aggregate
($ if the over-allotment option is exercised in full). See
"Underwriting." The Company has also agreed to pay the expenses of the
offering estimated to be $ .
(3) The Trust has granted the Underwriter an option exercisable within 30 days
from the date of this Prospectus to purchase up to 150,000 additional
Preferred Securities on the same terms and conditions set forth above to
cover over-allotments, if any. If all such additional Preferred Securities
are purchased, the total Price to Public and Proceeds to Trust will be
$11,500,000. See "Underwriting."
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by them, prior sale and the Underwriter's right to reject any
order in whole or in part. It is expected that delivery of the Preferred
Securities will be made through the facilities of the Depository Trust Company
("DTC") on or about , 1997, against payment therefor in immediately
available funds.
Sandler O'Neill & Partners, L.P.
The date of this Prospectus is , 1997
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 becomes effective.
This Prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sales 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 such State.
1
<PAGE>
(continued from cover page)
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of DTC. Beneficial interests in
the global securities will be shown on, and transfer thereof will be effected
only through, records maintained by DTC and its participants. Except as
described under "Description of Preferred Securities," Preferred Securities in
definitive form will not be issued and owners of beneficial interests in the
global securities will not be considered holders of the Preferred Securities.
Application has been made to include the Preferred Securities in Nasdaq's
National Market. Settlement for the Preferred Securities will be made in
immediately available funds. The Preferred Securities will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity for the
Preferred Securities will therefore settle in immediately available funds.
Wilmington Trust Company is the Property Trustee (as defined herein) of the
Trust. The Trust exists for the purpose of issuing the Preferred Securities and
investing the proceeds thereof in an equivalent amount of % Subordinated
Debentures (the "Subordinated Debentures") of the Company. The Subordinated
Debentures will mature on , 2027, which date may be (i) shortened to a
date not earlier than , 2002, or (ii) extended to a date not later than
, 2036, in each case if certain conditions are met (including, in the
case of shortening the Stated Maturity (as defined herein), the Company having
received prior approval of the Board of Governors of the Federal Reserve System
("Federal Reserve") to do so if then required under applicable capital
guidelines or policies of the Federal Reserve). 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 Preferred Securities -- Subordination of Common
Securities."
Holders of Preferred Securities are entitled to receive preferential
cumulative cash distributions, at the annual rate of % of the liquidation
amount of $10 per Preferred Security (the "Liquidation Amount"), accruing from
, 1997, the date of original issuance, and payable quarterly in arrears
on the last day of March, June, September and December of each year, commencing
, 1997 (the "Distributions"). The Company has the right, so long as no
Debenture Event of Default (as defined herein) has occurred and is continuing,
to defer payment of interest on the Subordinated Debentures at any time or from
time to time for a period not to exceed 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 Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all amounts
then due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred, and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to its capital stock or debt securities that rank pari passu with or
junior to the Subordinated Debentures. During an extension period, interest on
the Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Preferred Securities are entitled will
accumulate) at the rate of % per annum, compounded quarterly, and holders of
the Preferred Securities will 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. Upon
the occurrence of an Extension Period, a holder of Preferred Securities that
disposes of its Preferred Securities between record dates for payments of
Distributions (and consequently does not receive a Distribution from the Trust
for the period prior to such disposition) will nevertheless be required to
include accrued but unpaid interest on the Subordinated Debentures through the
date of disposition in income as ordinary income and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Subordinated
2
<PAGE>
Debentures deemed disposed of. See "Description of the Subordinated Debentures
- -- Option to Extend Interest Payment Period," "Certain Federal Income Tax
Consequences -- Potential Extension of Interest Payment Period and Original
Issue Discount" and "-- Disposition of Preferred Securities."
The Company and the Trust believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein)
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of the obligations of the Trust under the Preferred
Securities. See "Relationship Among the Preferred Securities, Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Trust, as described herein. See "Description of
the Guarantee -- General." If the Company does not make interest payments on the
Subordinated Debentures held by the Trust, the Trust will have insufficient
funds to pay Distributions on the Preferred Securities. The Guarantee does not
cover payments of Distributions when the Trust does not have sufficient funds to
pay such Distributions. In such event, a holder of Preferred Securities may
institute a legal proceeding directly against the Company pursuant to the terms
of the Indenture to enforce payments of amounts equal to such Distributions to
such holder. See "Description of the Subordinated Debentures -- Enforcement of
Certain Rights by Holders of the Preferred Securities." The obligations of the
Company under the Guarantee and the Preferred Securities are subordinate and
junior in right of payment to all Senior Debt, Subordinated Debt and Additional
Senior Obligations (each as defined herein) of the Company. The Subordinated
Debentures are unsecured obligations of the Company and are subordinated to all
Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company.
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Subordinated Debentures at maturity or their
earlier redemption. Subject to Federal Reserve approval, if then required under
applicable capital guidelines or policies of the Federal Reserve, the
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after , 2002, in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event (each as defined herein), in each case at a redemption
price equal to the accrued and unpaid interest on the Subordinated Debentures so
redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. See "Description of Preferred Securities -- Redemption or Exchange."
The Company, as holder of the Common Securities, has the right at any time
to dissolve the Trust, subject to the Company having received prior approval of
the Federal Reserve to do so if then required under applicable capital
guidelines or policies of the Federal Reserve. In the event of the voluntary or
involuntary dissolution of the Trust, after satisfaction of liabilities to
creditors of the Trust as required by applicable law, the holders of 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 Subordinated Debenture having an
aggregate principal amount equal to the Liquidation Amount of such Preferred
Securities (and carrying with it accumulated interest in an amount equal to the
accumulated and unpaid Distributions then due on such Preferred Securities),
subject to certain exceptions. See "Description of Preferred Securities --
Redemption or Exchange" and "-- Liquidation Distribution Upon Dissolution."
3
<PAGE>
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
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 addressed to the Secretary of the Company.
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-ALLOTTING THE PREFERRED SECURITIES AND
BIDDING FOR AND PURCHASING SUCH PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
4
<PAGE>
[MAP]
5
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. As used herein, (i) the
"Indenture " means the Indenture, to be dated as of , 1997, as amended
and supplemented from time to time, between the Company and Wilmington Trust
Company, as trustee (the "Debenture Trustee"), relating to the Subordinated
Debentures, (ii) the "Trust Agreement" means the Amended and Restated Trust
Agreement relating to the Trust among the Company, as Depositor, and Wilmington
Trust Company, as Property Trustee (the "Property Trustee") and as Delaware
Trustee (the "Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees") and (iii) the "Guarantee" means the Guarantee Agreement relating to
the Preferred Securities between the Company and Wilmington Trust Company, as
Guarantee Trustee (the "Guarantee Trustee").
YARDVILLE NATIONAL BANCORP
The Company is a bank holding company headquartered in Hamilton Township,
New Jersey, that provides retail and commercial banking services through its
wholly-owned subsidiary, The Yardville National Bank (the "Bank"). Founded in
1924, the Bank currently operates nine community banking offices in Mercer
County, New Jersey. At June 30, 1997, the Company had total consolidated assets
of $525.7 million, deposits of $414.8 million and stockholders' equity of $37.6
million.
The Bank provides financial products and services designed to meet the
borrowing and depository needs of small and medium sized businesses and
consumers in the local communities that it serves. As a community bank, the
Bank's business strategy emphasizes customer service and relationship banking
and targets those customers who desire personalized attention and prompt, local
decision making and with whom the Bank can develop both loan and deposit
relationships.
Financial Summary
<TABLE>
<CAPTION>
At or for the At or for the
Six Months Ended Year Ended
June 30, December 31,
------------------------ -----------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income............ $ 2,467 $ 1,983 $ 4,026 $ 3,403 $ 2,523 $ 1,925 $ 568
Earnings per share
(fully diluted)..... 0.99 0.81 1.64 1.60 1.56 1.86 0.61
Assets................ 525,720 459,169 490,545 403,115 280,550 223,438 205,494
Loans................. 352,941 285,755 331,237 245,054 196,910 134,983 106,993
Deposits.............. 414,830 317,058 364,445 302,972 259,296 206,688 192,223
Stockholders' equity.. 37,629 33,083 35,230 31,717 18,451 14,208 10,829
Return on average
stockholders' equity 13.64% 12.34% 12.25% 13.84% 15.89% 15.81% 5.44%
</TABLE>
The principal executive office of the Company is located at 3111
Quakerbridge Road, Trenton, New Jersey 08619 and its telephone number is (609)
585-5100.
6
<PAGE>
YARDVILLE CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law upon the
filing of a certificate of trust with the Delaware Secretary of State. The
Trust's business and affairs are conducted by the Issuer Trustees: the Property
Trustee, the Delaware Trustee, and the three individual Administrative Trustees,
who are officers of the Company. The Trust exists for the exclusive purposes of
(i) issuing and selling the Trust Securities, (ii) using the proceeds from the
sale of the Trust Securities to acquire the Subordinated Debentures issued by
the Company and (iii) engaging in only those other activities necessary,
advisable or incidental thereto. The Subordinated Debentures will be the sole
assets of the Trust and, accordingly, payments under the Subordinated Debentures
will be the sole revenue of the Trust. All of the Common Securities will be
owned by the Company.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.............................. 1,000,000 Preferred Securities having a Liquidation
Amount of $10 per Preferred Security. The Preferred
Securities represent preferred undivided beneficial
interests in the assets of the Trust, which will consist
solely of the Subordinated Debentures and payments
thereunder. The Trust has granted the Underwriter an
option, exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 150,000
Preferred Securities at the initial offering price, solely
to cover over-allotments, if any.
Offering Price.................................. $10 per Preferred Security (Liquidation amount $10).
Distributions................................... The Distributions payable on each Preferred Security
will be fixed at a rate per annum of % of the
Liquidation Amount of $10 per Preferred Security,
will be cumulative, will accrue from ,
1997, the date of original issuance of the Preferred
Securities, and will be payable quarterly in arrears, on
March 31, June 30, September 30 and December 31 of
each year, commencing , 1997. See
"Description of Preferred Securities -- Distributions --
Payment of Distributions."
Option to Extend
Interest Payment Period......................... The Company has the right, at any time, so long as no
Debenture Event of Default has occurred and is
continuing, to defer payments of interest on the
Subordinated Debentures for a period not exceeding 20
consecutive quarters; provided, that no Extension
Period may extend beyond the Stated Maturity of
the Subordinated Debentures. As a consequence of
the extension by the Company of the interest payment
period, quarterly Distributions on the Preferred
Securities will be deferred (though such Distributions
7
<PAGE>
will continue to accrue with interest thereon
compounded quarterly, since interest will
continue to accrue and compound quarterly on
the Subordinated Debentures) during any such
Extension Period. During an Extension Period,
the Company will be prohibited, subject to
certain exceptions described herein, from
declaring or paying any cash distributions with
respect to its capital stock or debt securities
that rank pari passu with or junior to the
Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all
amounts then due, the Company may commence a
new Extension Period, subject to the foregoing
requirements. See "Description of Preferred
Securities -- Distributions -- Extension
Period" and "Description of the Subordinated
Debentures -- Option to Extend Interest Payment
Period." Should an Extension Period occur,
holders of Preferred Securities will be
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. See "Certain
Federal Income Tax Consequences -- Potential
Extension of Interest Payment Period and
Original Issue Discount."
Optional Redemption............................. The Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment of
the Subordinated Debentures at maturity or their
earlier redemption. Subject to Federal Reserve
approval, if then required under applicable capital
guidelines or policies of the Federal Reserve, the
Subordinated Debentures are redeemable prior to
maturity at the option of the Company (i) on or after
, 2002, in whole at any time or in part
from time to time, or (ii) at any time, in whole (but
not in part), within 180 days following the occurrence
of a Tax Event, a Capital Treatment Event or an
Investment Company Event, in each case at a
redemption price equal to 100% of the principal
amount of the Subordinated Debentures, together with
any accrued but unpaid interest on the Subordinated
Debentures to the date fixed for redemption. See
"Description of the Subordinated Debentures --
Redemption or Exchange."
Ranking......................................... The Preferred Securities will rank pari passu,
and payments thereon will be made pro rata,
with the Common Securities except as described
under "Description of Preferred Securities --
Subordination of Common Securities." The
Subordinated Debentures
8
<PAGE>
will (i) rank pari passu with all other
indebtedness of the Company in respect of debt
securities issued to any trust, or any trustee
of such trust, partnership, or other entity
that is affiliated with the Company and is a
financing entity of the Company in connection
with the issuance by such entity of securities
that are similar to the Preferred Securities
(the "Other Preferred Securities"), and (ii)
and will constitute unsecured obligations of
the Company and will rank subordinate and
junior in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior
Obligations of the Company to the extent and in
the manner set forth in the Indenture. See
"Description of the Subordinated Debentures."
The Guarantee will rank pari passu with all
other guarantees (if any) issued by the Company
with respect to Other Preferred Securities and
will constitute an unsecured obligation of the
Company and will rank subordinate and junior in
right of payment to all Senior Debt,
Subordinated Debt and Additional Senior
Obligations of the Company to the extent and in
the manner set forth in the Guarantee
Agreement. See "Description of the Guarantee."
In addition, because the Company is a holding
company, the Subordinated Debentures and the
Guarantee will be effectively subordinated to
all existing and future liabilities of the
Company's subsidiaries, including the Bank's
deposit liabilities. See "Description of the
Subordinated Debentures -- Subordination."
Distribution of
Subordinated Debentures......................... The Company, as holder of the Common Securities,
has the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust
as required by applicable law, cause the Subordinated
Debentures to be distributed to holders of Preferred
Securities in liquidation of the Trust, subject to the
Company having received prior approval of the
Federal Reserve to do so if then required under
applicable capital guidelines or policies of the Federal
Reserve. See "Description of Preferred Securities --
Redemption or Exchange" and "Description of
Preferred Securities -- Liquidation Distribution Upon
Dissolution."
Guarantee....................................... The Company has guaranteed the payment of
Distributions and payments on liquidation or
redemption of the Preferred Securities, but only in
each case to the extent of funds held by the Trust, as
described herein. The Company and the Trust believe
9
<PAGE>
that, taken together, the obligations of the
Company under the Guarantee, the Trust
Agreement, the Subordinated Debentures, the
Indenture and the Expense Agreement provide, in
the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated
basis, of all of the obligations of the Trust
under the Preferred Securities. The obligations
of the Company under the Guarantee and the
Preferred Securities are subordinate and junior
in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior
Obligations of the Company. If the Company does
not make principal or interest payments on the
Subordinated Debentures, the Trust will not
have sufficient funds to make distributions on
the Preferred Securities. In such event, the
Guarantee will not apply to such Distributions
until the Trust has sufficient funds available
therefor. See "Description of the Guarantee."
Voting Rights................................... The holders of the Preferred Securities will
have no voting rights except in limited
circumstances. See "Description of Preferred
Securities -- Voting Rights; Amendment of Trust
Agreement."
Use of Proceeds................................. All of the proceeds from the sale of the Trust
Securities will be invested by the Trust in the
Subordinated Debentures. The Company intends to use
the net proceeds from the sale of the Subordinated
Debentures for general corporate purposes, including
the repurchase of outstanding equity securities of the
Company and investments to leverage the Company's
capital, as well as for contributions to the Bank to
fund its operations, acquiring or establishing branch
offices and the financing of potential future
acquisitions by the Company. Initially, the net
proceeds may be used to make investments in short-
term investment grade obligations. See "Use of
Proceeds."
ERISA Considerations............................ For a discussion of certain restrictions on purchases,
see "Certain ERISA Considerations."
Nasdaq Stock Market Symbol...................... Application has been made to have the Preferred Securities
approved for quotation on The Nasdaq Stock Market, subject to
meeting the initial listing requirements. If the Preferred
Securities fail to meet the initial listing requirements of
the Nasdaq Stock Market, trading in the Preferred Securities,
if any, would be conducted in the over-the-counter market or
through the National Association of Securities Dealer's
"Electronic Bulletin Board." There is no assurance that
upon consummation of the Offering the Preferred Securities will
qualify for initial listing on the Nasdaq Stock Market.
See "Risk Factors -- Trading Price; Absence of Prior
Public Market".
Risk Factors.................................... For a discussion of considerations relevant to an
investment in the Preferred Securities, see "Risk
Factors."
</TABLE>
10
<PAGE>
Summary Consolidated Financial Data
The following summary information regarding the Company should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto. Consolidated historical financial and other data regarding the Company
at or for the six months ended June 30, 1997 and 1996, have been prepared by the
Company without audit. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) that are necessary for a fair presentation
for such periods or dates have been made. The consolidated selected financial
data presented below has been retroactively adjusted to reflect the two-for-one
stock split effected in the form of a stock dividend in November 1994. Data
regarding the Company at and for the six months ended June 30, 1997, may not be
indicative of results as of and for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
At or for the
Six Months Ended
June 30, At or for the Year Ended December 31,
------------------------- ---------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ---------- ----------- ----------- ----------- ----------- -----------
(dollars and shares in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Total assets $ 525,720 $ 459,169 $ 490,545 $ 403,115 $ 280,550 $ 223,438 $ 205,494
Securities available for sale 106,002 108,789 93,671 98,469 24,152 25,453 --
Investment securities 29,105 33,740 31,296 35,384 39,083 43,217 77,811
Loans 352,941 285,755 331,237 245,054 196,910 134,983 106,993
Allowance for loan losses 5,284 4,262 4,957 3,677 2,912 2,703 2,940
Deposits 414,830 317,058 364,445 302,972 259,296 206,688 192,223
Borrowed funds 68,139 105,577 86,339 65,221 1,215 1,298 1,215
Stockholders' equity 37,629 33,083 35,230 31,717 18,451 14,208 10,829
Consolidated Statement of Income Data:
Interest income 19,566 16,239 34,251 27,336 18,004 14,055 13,990
Interest expense 10,020 7,859 17,041 12,841 6,360 5,355 6,660
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net interest income 9,546 8,380 17,210 14,495 11,644 8,700 7,330
Provision for loan losses 575 715 1,640 865 305 -- 50
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net interest income, after
provision for loan losses 8,971 7,665 15,570 13,630 11,339 8,700 7,280
Non-interest income 1,240 1,035 2,113 1,855 1,554 2,190 2,003
Non-interest expense 6,409 5,615 11,479 10,260 9,285 8,423 8,325
----------- ---------- ----------- ----------- ----------- ----------- -----------
Income before income tax
expense and cumulative
effect of the change in
accounting principle 3,802 3,085 6,204 5,225 3,608 2,467 958
Income tax expense 1,335 1,102 2,178 1,822 1,085 733 390
----------- ---------- ----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of the change
in accounting principle 2,467 1,983 4,026 3,403 2,523 1,734 568
Cumulative effect of the
change in accounting
principle -- -- -- -- -- 191 --
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net income $ 2,467 $ 1,983 $ 4,026 $ 3,403 $ 2,523 $ 1,925 $ 568
=========== ========== =========== =========== =========== =========== ===========
Weighted average common
shares outstanding 2,492 2,389 2,462 2,192 1,757 1,036 926
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
At or for the
Six Months Ended
June 30, At or for the Year Ended December 31,
------------------------- ---------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ---------- ----------- ----------- ----------- ----------- -----------
(dollars and shares in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data(1):
Net income--fully diluted $ 0.99 $ 0.81 $ 1.64 $ 1.60 $ 1.56 $ 1.86 $ 0.61
Cash dividends 0.24 0.22 0.45 0.38 0.28 -- --
Book value 15.22 13.60 14.50 13.50 11.92 12.42 11.69
Selected Financial Data:
Return on average assets (2) 0.96% 0.94% 0.90% 0.99% 1.04% 0.92% 0.29%
Return on average equity (2) 13.64 12.34 12.25 13.84 15.89 15.81 5.44
Net interest margin (FTE)(3) 3.99 4.22 4.10 4.49 5.16 4.51 3.99
Dividend payout ratio 23.88 26.48 26.90 21.69 15.06 -- --
Allowance for loan losses to
total loans 1.50 1.49 1.50 1.50 1.48 2.00 2.75
Nonperforming loans to
total loans 2.16 0.97 2.46 1.15 1.05 1.83 4.32
Allowance for loan losses to
nonperforming loans (4) 69.26 153.31 60.90 130.44 140.95 109.30 63.65
Nonperforming assets to
total loans and other real
estate owned (5) 2.40 1.23 2.57 1.40 1.21 2.83 5.30
Efficiency ratio (6) 59.42 59.64 59.41 62.75 70.35 77.35 89.20
Capital Ratios:
Average stockholders' equity
to average assets 7.05 7.59 7.33 7.14 6.57 5.79 5.24
Total capital as a percent of
risk-weighted assets 11.40 12.24 11.43 13.20 10.84 10.64 10.07
Tier 1 capital as a percentage
of risk-weighted assets 10.15 10.99 10.17 11.95 9.59 9.38 8.81
Leverage ratio (7) 7.29 7.90 7.80 9.07 7.80 6.71 6.22
Ratio of Earnings to Combined
Fixed Charges (8):
Including interest on deposits 1.38 1.39 1.36 1.41 1.57 1.46 1.14
Excluding interest on deposits 2.72 2.37 2.25 3.54 38.98 146.12 37.85
</TABLE>
- -------------
(1) 1995 and 1994 earnings per share amounts were calculated utilizing the
modified treasury stock method, while remaining periods were calculated
utilizing the treasury stock method. The modified treasury stock method
includes the potential dilutive effect of options and warrants not included
in the treasury stock method. The expiration of warrants in June 1996
resulted in a change in the computation method of earnings per share from
the modified treasury stock method in 1994 and 1995 to the treasury stock
method in 1996. 1992 and 1993 earnings per share amounts were calculated
utilizing the treasury stock method.
(2) Annualized for the six months ended June 30, 1997 and 1996.
(3) Tax equivalent based on a 34% Federal tax rate for all periods presented
(FTE = Federal tax equivalent basis).
(4) Nonperforming loans include nonaccrual loans, restructured loans and loans
90 days or more past due and still accruing.
(5) Nonperforming assets include nonperforming loans and other real estate
owned.
(6) Efficiency ratio is equal to non-interest expense divided by the sum of net
interest income and non-interest income.
(7) Leverage ratio is Tier 1 capital to average assets for the period.
(8) For purposes of calculating the ratio of earnings to combined fixed
charges, earnings consist of income before income tax expense and
cumulative effect of the change in accounting principle, plus interest and
rent expense. Fixed charges consist of interest and rent expense.
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors in evaluating the Company and its business and the Trust
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"), and that actual results could differ
materially from those contemplated by such statements. 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.
It should be recognized that other risks may be significant, presently or in the
future, and the risks set forth below may affect the Company and the Trust to a
greater extent than indicated.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
Ranking of Subordinated Obligations Under the Guarantee and the
Subordinated Debentures
The obligations of the Company under the Guarantee issued for the benefit
of the holders of Preferred Securities and under the Subordinated Debentures are
unsecured and rank subordinate and junior in right of payment to all Senior
Debt, Subordinated Debt and Additional Senior Obligations of the Company,
whether now existing or hereafter incurred. As of June 30, 1997, there existed
no debt at the Company level, although the Bank had deposits, borrowings and
other liabilities of approximately $488.1 million. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of the Bank upon the Bank'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 the Bank, except to the extent that the Company may itself be recognized as a
creditor of the Bank. The Subordinated Debentures, therefore, will be
effectively subordinated to all existing and future liabilities of the Bank and
holders of Subordinated Debentures and Preferred Securities should look only to
the assets of the Company for payments on the Subordinated Debentures. Neither
the Indenture, the Guarantee nor the Trust Agreement places any limitation on
the amount of secured or unsecured debt, including Senior Debt, Subordinated
Debt and Additional Senior Obligations, that may be incurred by the Company or
any of its subsidiaries. See "Description of the Guarantee -- Status of the
Guarantee" and "Description of the Subordinated Debentures -- Subordination."
The ability of the Trust to pay amounts due on the Preferred Securities is
solely dependent upon the Company making payments on the Subordinated Debentures
as and when required.
Option to Extend Interest Payment Period; Tax Consequences; Market Price
Consequences
The Company has the right under the Indenture, so long as no Debenture
Event of Default has occurred and is continuing, to defer the payment of
interest on the 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 Subordinated Debentures. As a consequence of any such deferral, quarterly
Distributions on the Preferred Securities by the Trust will be deferred (and the
amount of Distributions to which holders of the Preferred Securities are
entitled will accumulate additional Distributions thereon at the rate of %
per annum, compounded quarterly from the relevant payment date for such
Distributions) during any such Extension Period. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's
13
<PAGE>
capital stock, (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 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 Subordinated Debentures (other than payments
under the Guarantee), or (iii) redeem, purchase or acquire less than all of the
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 Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
interest then accrued and unpaid (together with interest thereon at the annual
rate of % compounded quarterly, to the extent permitted by applicable law),
the Company may elect to begin a new Extension Period, subject to the above
requirements. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of Preferred Securities -- Distributions -- Extension Period" and "Description
of the Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, each holder of Preferred Securities will
be required to accrue and recognize income (in the form of original issue
discount ("OID")) in respect of its pro rata share of the interest accruing on
the Subordinated Debentures held by the Trust for United States federal income
tax purposes. A holder of Preferred Securities must, as a result, include such
income in gross income for United States federal income tax purposes in advance
of the receipt of cash, and will not receive the cash related to such income
from the Trust if the holder disposes of the Preferred Securities prior to the
record date for the payment of the related Distributions. See "Certain Federal
Income Tax Consequences -- Potential Extension of Interest Payment Period and
Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. Should the Company elect, however, to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. As a
result of the existence of the Company's right to defer interest payments, the
market price of the Preferred Securities may be more volatile than the market
prices of other securities on which OID accrues that are not subject to such
optional deferrals.
Tax Event, Capital Treatment Event or Investment Company Event; Redemption
The Company has the right to redeem the Subordinated Debentures in whole
(but not in part) within 180 days following the occurrence of a Tax Event, a
Capital Treatment Event or an Investment Company Event (whether occurring before
or after , 2002), and, therefore, cause a mandatory redemption of the
Preferred Securities. The exercise of such right is subject to the Company
having received prior approval of the Federal Reserve to do so if then required
under applicable capital guidelines or policies of the Federal Reserve.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
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 will be within
14
<PAGE>
90 days of the date of such opinion, subject to United States federal income tax
with respect to income received or accrued on the Subordinated Debentures, (ii)
interest payable by the Company on the Subordinated Debentures is not, or,
within 90 days 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
is, or will be within 90 days of the date of the opinion, subject to more than a
de minimis amount of other taxes, duties or other governmental charges. The
Company 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. See "-- Risk
Factors Relating to the Preferred Securities -- Tax Legislation" for a
discussion of certain legislative proposals that, if adopted, could give rise to
a Tax Event, which may permit the Company to cause a redemption of the Preferred
Securities prior to , 2002.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to or any change (including any announced prospective change) in the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
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 of impairment of the Company's ability to treat the aggregate
Liquidation Amount of the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then applicable to
the Company; provided, however, that the inability of the Company to treat all
or any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the date of original issuance of the Preferred
Securities.
Shortening or Extension of Stated Maturity of Subordinated Debentures
The Company has the right, at any time, to shorten the maturity of the
Subordinated Debentures to a date not earlier than , 2002. The exercise
of such right is subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve. The Company also has the right to extend the maturity of
the Subordinated Debentures (whether or not the Trust is dissolved and the
Subordinated Debentures are distributed to holders of the Preferred Securities)
to a date no later than , 2036, the 39th anniversary of the initial
issuance of the Preferred Securities. Such right may only be exercised, however,
if at the time such election is made and at the time of such extension (i) the
Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the
Company is not in default in the payment of any interest or principal on the
Subordinated Debentures, and (iii) the Trust is not in arrears on payments of
Distributions on the Preferred Securities and no deferred Distributions are
accumulated. See "Description of the Subordinated Debentures -- General."
15
<PAGE>
Rights Under the Guarantee
The Guarantee guarantees to the holders of the Preferred Securities, to the
extent not paid by the Trust, (i) any accrued and unpaid Distributions required
to be paid on the Preferred Securities, to the extent that the Trust has funds
available therefor at such time, (ii) the Redemption Price (as defined herein)
with respect to any Preferred Securities called for redemption, to the extent
that the Trust has funds available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Preferred Securities or a redemption of all of the Preferred
Securities), the lesser of (a) the amount of the Liquidation Distribution (as
defined herein), to the extent the Trust has funds available therefor at such
time, and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Preferred Securities in liquidation of the Trust.
The holders of not less than a majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities
may institute a legal proceeding directly against the Company to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other Person (as defined in the
Guarantee). If the Company were to default on its obligation to pay amounts
payable under the Subordinated Debentures, the Trust 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 Preferred Securities
would not be able to rely upon the Guarantee for such amounts. In the event,
however, that a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest on or
principal of the Subordinated Debentures on the payment date on which such
payment is due and payable, then a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such 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 the
Company of its right, as described herein, to defer the payment of interest on
the Subordinated Debentures does not constitute a Debenture Event of Default.
The Company will have a right of set-off under the Indenture to the extent of
any payment made by the Company to such holder of Preferred Securities in the
Direct Action. Except as described herein, holders of Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Subordinated Debentures or assert directly any other rights in respect of
the Subordinated Debentures. See "Description of the Subordinated Debentures --
Enforcement of Certain Rights by Holders of Preferred Securities," "Description
of the Subordinated Debentures -- Debenture Events of Default" and "Description
of the Guarantee." The Trust Agreement provides that each holder of Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee and
the Indenture.
No Voting Rights Except in Limited Circumstances
Holders of Preferred Securities will have no voting rights except in
limited circumstances relating only to the modification of the Preferred
Securities and the exercise of the rights of the Trust as holder of the
Subordinated Debentures and the Guarantee. Holders of Preferred Securities will
not be entitled to vote to appoint, remove or replace the Property Trustee or
the Delaware Trustee, as such voting rights are vested exclusively in the holder
of the Common Securities (except upon the occurrence of certain events described
herein). The Property Trustee, the Administrative Trustees and the Company may
amend the Trust Agreement without the consent of holders of Preferred Securities
to ensure that the Trust 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 Preferred Securities -- Voting Rights;
16
<PAGE>
Amendment of Trust Agreement" and "Description of Preferred Securities --
Removal of the Trust Trustees."
Tax Legislation
In recent years, President Clinton has proposed in the administration's
fiscal year budget certain tax law changes that would, among other things,
generally deny corporate issuers a deduction for interest or OID in respect of
certain debt obligations similar to the Subordinated Debentures. However,
Congress has not enacted similar legislation. There can be no assurance that
legislation enacted after the date hereof will not otherwise adversely affect
the ability of the Company to deduct the interest payable on the Subordinated
Debentures. Consequently, there can be no assurance that a Tax Event will not
occur. A Tax Event would permit the Company, upon approval of the Federal
Reserve if then required under applicable capital guidelines or policies of the
Federal Reserve, to cause a redemption of the Preferred Securities. See
"Description of the Subordinated Debentures -- Redemption or Exchange" and
"Description of Preferred Securities -- Redemption or Exchange -- Tax Event
Redemption, Capital Treatment Event Redemption or Investment Company Event
Redemption" and "Certain Federal Income Tax Consequences -- Effect of Changes in
Tax Laws."
Redemption; Exchange of Preferred Securities for Subordinated Debentures
The Company, as holder of the Common Securities, has the right at any time
to dissolve the Trust and cause the Subordinated Debentures, after satisfaction
of liabilities to creditors of the Trust, to be distributed to the holders of
the Preferred Securities in exchange therefor in liquidation of the Trust. The
exercise of such right is subject to the Company having received prior approval
of the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. The Company will have the right, in certain
circumstances, to redeem the Subordinated Debentures in whole or in part, in
lieu of a distribution of the Subordinated Debentures by the Trust, in which
event the Trust will redeem the Trust Securities on a pro rata basis to the same
extent as the Subordinated Debentures are redeemed by the Company. Any such
distribution or redemption prior to the Stated Maturity will be subject to prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Description of Preferred
Securities -- Redemption or Exchange -- Tax Event Redemption, Capital Treatment
Event Redemption or Investment Company Event Redemption."
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Preferred Securities. If, however, the Trust is
characterized as an association taxable as a corporation at the time of the
dissolution of the Trust, the distribution of the Subordinated Debentures may
constitute a taxable event to holders of Preferred Securities. Moreover, upon
occurrence of a Tax Event, a dissolution of the Trust in which holders of the
Preferred Securities receive cash may be a taxable event to such holders. See
"Certain Federal Income Tax Consequences -- Receipt of Subordinated Debentures
or Cash Upon Liquidation of the Trust."
Because holders of Preferred Securities may receive Subordinated
Debentures, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein.
17
<PAGE>
Trading Price; Absence of Prior Public Market
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID, if the Subordinated
Debentures are treated as having been issued, or reissued, with OID) with
respect to the underlying Subordinated Debentures. A holder who disposes of his
Preferred Securities will be required to include in ordinary income (i) any
portion of the amount realized that is attributable to such accrued but unpaid
interest to the extent not previously included in income, or (ii) any amount of
OID, in either case, that has accrued on his pro rata share of the underlying
Subordinated Debentures during the taxable year of sale through the date of
disposition. Any such income inclusion will increase the holder's adjusted tax
basis in his Preferred Securities disposed of. To the extent that the amount
realized in the sale is less than the holder's adjusted tax basis, a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences -- Disposition of
Preferred Securities."
There is no current public market for the Preferred Securities. Application
has been made to have the Preferred Securities approved for quotation on The
Nasdaq Stock Market. However, there can be no assurance that upon consummation
of the Offering there will be a sufficient number of shareholders or market
makers to enable the Preferred Securities to qualify for initial listing on the
Nasdaq Stock Market. If the Preferred Securities fail to meet the initial
listing requirements of the Nasdaq Stock Market, trading in the Preferred
Securities, if any, would be conducted in the over-the-counter market or through
the National Association of Securities Dealer's "Electronic Bulletin Board."
There can be no assurance that an active public market will develop for the
Preferred Securities or that, if such market develops, the market price will
equal or exceed the public offering price set forth on the cover page of this
Prospectus. The absence or discontinuance of such a market may have an adverse
impact on both the price and liquidity of the Preferred Securities. The public
offering price for the Preferred Securities has been determined through
negotiations between the Company 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 the Company and general
industry and economic conditions.
If the Subordinated Debentures are distributed to the holders of Preferred
Securities upon the liquidation of the Trust, the Company will use its best
efforts to list the Subordinated Debentures on The Nasdaq Stock 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 for the Subordinated Debentures
that may be distributed upon a dissolution or liquidation of the Trust and, in
that event, the Subordinated Debentures may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
Securities are not Insured
Neither the Preferred Securities nor the Subordinated Debentures are
insured by the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation or by any other governmental agency.
RISK FACTORS RELATING TO THE COMPANY
Economic Conditions and Monetary Policies
Conditions beyond the Company's control may have a significant impact on
changes in net interest income from one period to another. Examples of such
conditions could include: (i) the strength of credit demands by customers; (ii)
fiscal and debt management policies of the federal government, including changes
in tax laws; (iii) the Federal Reserve's monetary policy, including the
percentage of deposits that must be held in the form of non-earning cash
reserves; (iv) the introduction and growth of new investment instruments and
transaction accounts by non-bank financial competitors; and (v) changes in rules
and regulations governing the payment of interest on deposit accounts.
18
<PAGE>
Sensitivity to Fluctuations in Interest Rates
The Company's profitability, like that of most similarly situated financial
institutions, is dependent to a large extent upon the Bank's net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans and investments, and its interest expense on
interest-bearing liabilities, such as deposits and borrowings. Accordingly, the
Company's results of operations and financial condition are largely dependent on
movements in market interest rates and its ability to manage its assets in
response to such movements. The difference between the amount of the total
interest-earning assets and interest-bearing liabilities which reprice within a
given time period could have a negative effect on the Bank's net interest income
depending on whether such difference was positive or negative and the direction
of movement of interest rates.
Increases in interest rates may reduce demand for loans and, thus, the
amount of loan and commitment fees. In addition, fluctuations in interest rates
may also result in disintermediation, which is the flow of funds away from
depository institutions into direct investments which pay a higher rate of
return, and may affect the value of the Company's investment securities and
other interest-earning assets. Given that the Bank's assets consist of a
substantial number of loans with interest rates which change in accordance with
changes in prevailing market rates, if interest rates rise sharply, many of the
Bank's borrowers would be required to make higher interest payments on their
loans. Thus, increases in interest rates may cause the Bank to experience an
increase in delinquent loans and defaults to the extent that borrowers are
unable to meet their increased debt servicing obligations. While the Company has
taken measures intended to manage the risks of operating in a changing interest
rate environment, there can be no assurance that such measures will be effective
in avoiding undue interest rate risk.
Adequacy of Allowance for Loan Losses
The risk of loan losses varies with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the value
of the collateral for the loan. Management maintains an allowance for loan
losses based upon, among other things, historical experience, an evaluation of
economic conditions and regular review of delinquencies and loan portfolio
quality. Based upon such factors, management makes various assumptions and
judgments about the ultimate collectibility of the loan portfolio and provides
an allowance for loan losses based upon a percentage of the outstanding balances
and for specific loans when their ultimate collectibility is considered
questionable. If management's assumption and judgments prove to be incorrect and
the allowance for loan losses is inadequate to absorb future credit losses, or
if the bank regulatory authorities require the Bank to increase the allowance
for loan losses, the Bank's earnings could be significantly and adversely
affected. Because certain lending activities involve greater risks, the
percentage applied to specific loan types may vary.
As of June 30, 1997, the allowance for loan losses was $5.3 million, which
represented 1.5% of total loans, net of unearned income. The allowance for loan
losses as a percentage of nonperforming loans was 69.3% as of June 30, 1997. The
Company actively manages its nonperforming loans in an effort to minimize credit
losses and monitors its asset quality to maintain an adequate allowance for loan
losses. Although management believes that its allowance for loan losses is
adequate, there can be no assurance that the allowance will prove sufficient to
cover future credit losses. Further, although management uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
substantially from the assumptions used or if the adverse developments arise
with respect to the Bank's nonperforming or performing loans. Material additions
to the Bank's allowance for loan losses would result in a decrease
19
<PAGE>
in the Company's net income, possibly its capital, and could result in the
inability to pay dividends, among other adverse consequences.
Legislative and Regulatory Developments
The financial institutions industry is subject to significant regulation
which has materially affected the financial institutions industry in the past
and will do so in the future. Such regulations, which affect the Company on a
daily basis, may be changed at any time, and the interpretation of the relevant
law and regulations are also subject to change by the authorities who examine
the Company and the Bank and interpret those laws and regulations. There can be
no assurance that any present or future changes in the laws or regulations or in
their interpretation will not adversely and materially affect the Company.
Competition
The Bank faces significant competition both in generating loans and in
attracting deposits. The central New Jersey area is a highly competitive market.
The Bank is subject to vigorous competition in all aspects of its business from
other financial institutions such as commercial banks, savings banks, savings
and loan associations, credit unions, insurance companies and finance and
mortgage companies. Within the direct market area of the Bank there are a
significant number of offices of competing financial institutions. The Bank
competes in its market area with a number of larger commercial banks that have
substantially greater resources, higher lending limits, larger branch systems
and provide a wider array of banking services. The effect of liberalized
branching and acquisition laws, especially after the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, has been to lower barriers to
entry into the banking business and increase competition for banking business,
as well as to increase both competition for and opportunities to acquire other
financial institutions. Savings banks, savings and loan associations and credit
unions also actively compete for deposits and for various types of loans. In its
lending business, the Bank is subject to increasing competition from consumer
finance companies and mortgage companies, which are not subject to the same kind
of regulatory restrictions as banks and can often offer lower loan rates than
banks. Financial institutions are intensely competitive in the interest rates
they offer on deposits. In addition, the Bank faces competition for deposits
from non-bank institutions such as brokerage firms and insurance companies in
such instruments as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. Finally, a number of the Bank's
competitors provide a wider array of services (such as trust and international
services, which the Bank does not provide) and, by virtue of their greater
financial resources, have higher lending limits and larger branch systems.
Growth and Concentration of Loan Portfolio
The Bank's loan portfolio increased from $107.0 million to $352.9 million
between December 31, 1992, and June 30, 1997, an increase of approximately 230%.
Commercial loans and commercial mortgage loans increased during this period from
$28.4 million to $190.1 million, accounting for 65.8% of the total growth of the
loan portfolio, and represented 53.9% of the loan portfolio at June 30, 1997. As
a result of this recent growth, the Bank has not had a long period of experience
with some of its borrowers and, therefore, specific payment and loss experience
for this portion of the portfolio has not yet been fully established. However,
the majority of the growth in the Bank's commercial loan portfolio consisted of
loans to established businesses that, while new to the Bank, had been
experienced borrowers with other financial institutions. Further, the Bank's
loans are concentrated in Mercer County, New Jersey. As a result, a decline in
the general economic conditions of Mercer County could have a material adverse
effect on the Company's financial condition and results of operations taken as a
whole. In addition, while the increase in commercial loans has created a more
diversified loan portfolio, it has also increased the overall credit risk
inherent in the loan portfolio as commercial loans involve relatively more
20
<PAGE>
credit risk than other types of loans in the Bank's loan portfolio. Although the
Company intends to continue to focus on expanding the Bank's lending business,
it will do so only as management deems prudent given prevailing economic and
competitive conditions, as reflected in the rate of growth on the loan portfolio
for the six-month period ended June 30, 1997. During that period, the Bank's
loan portfolio increased by 6.6% from $331.2 million to $352.9 million, as
compared to a growth rate of 16.6% during the six-month period ended June 30,
1996. In addition, the Bank has several large loans. As of June 30, 1997, the
largest 25 loans in the Bank's loan portfolio totaled approximately $57.2
million, or 16.2% of the total loan portfolio, of which amount approximately
$8.9 million relate to real estate construction loans. A loss experience with
respect to a small number of such loans could have a material adverse impact on
the Bank's net income.
Lending Risks - Credit Quality
A central focus of the Company's strategy is the continued development and
growth of a diversified loan portfolio, with emphasis on commercial loans,
owner-occupied commercial mortgage loans and tenanted commercial real estate
loans. Certain risks are inherent in the lending function, including a
borrower's inability to pay, insufficient collateral coverage and changes in
interest rates. Repayment risk on commercial loans is significantly affected by
changing economic conditions in a particular geographical area, business or
industry which could impair future operating performance. Risks associated with
real estate loans and commercial loans include changes in general economic
conditions which may affect the borrower's ability to repay as well as
underlying collateral values. Installment and other consumer loans are subject
to repayment risk, which the Company believes is mitigated by the diverse
portfolio of such loans and the relatively low average balances outstanding on
individual extensions of credit.
In making loans, the Bank evaluates the borrower's ability to repay the
loan from cash flow and the collateral security for the loan. In almost all
cases, the Bank seeks collateral security to reduce the credit risk of its
commercial loans, which are made to finance inventory, equipment and working
capital needs. Such loans may be secured by real estate, business assets and
guarantees. The Bank attempts to offset the risks associated with commercial
real estate lending by primarily lending to individuals who have proven
management experience and who will be actively involved in the management of the
property. Economic events and government regulations, which are outside the
control of the borrower or lender, could affect the value of the security for
such loans or the future cash flow of the affected properties.
The Bank also originates real estate construction loans, which represented
8.5% of the loan portfolio at June 30, 1997. These are made primarily to finance
the construction of residential and, to a limited extent, non-residential
properties. Construction loans generally are secured by first liens on real
estate and have floating rates of interest. The Bank monitors these loans
closely and makes advances only after work is completed and inspected and
verified by qualified professionals.
Non-performing loans totaled $7.6 million at June 30, 1997, including two
real estate construction loans of approximately $4.6 million in the aggregate
that became nonaccrual loans in the fourth quarter of 1996. At June 30, 1997,
the Bank had $1.1 million in non-performing commercial real estate loans and
$4.6 million in non-performing real estate construction loans. For the six
months ended June 30, 1997, the Bank experienced no charge-offs on commercial
real estate loans or real estate construction loans. For the fiscal years ended
December 31, 1992 through December 31, 1996, the Bank's ratio of net charge-offs
to average loans outstanding was .45%, .20%, .06%, .05% and .13%, respectively.
At June 30, 1997, non-performing assets totaled $8.5 million. The ratio of
non-performing assets to total loans and other real estate owned was 2.40% at
June 30, 1997, compared to 2.57% and 1.40% at December 31, 1996 and 1995,
respectively.
21
<PAGE>
YARDVILLE NATIONAL BANCORP
The Company is a bank holding company headquartered in Hamilton Township,
New Jersey, that provides commercial and retail banking services through the
Bank. The Company was incorporated under the laws of New Jersey and became the
holding company of the Bank in 1985. The Bank received its charter from the
Office of the Comptroller of the Currency in 1924. The Bank's deposits are
insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation.
At June 30, 1997, the Company had total consolidated assets of $525.7 million,
deposits of $414.8 million and stockholders' equity of $37.6 million.
The Bank provides a full range of retail and commercial banking services
designed to meet the borrowing and depository needs of small and medium sized
businesses and consumers in the local communities that it serves. Deposit
products include checking, savings and money market accounts for individuals and
businesses, certificates of deposit, individual retirement accounts, and cash
management accounts for businesses. The Bank also provides letters of credit for
commercial transactions and makes a variety of loans, including commercial
loans, commercial mortgage loans, residential mortgage loans, real estate
construction loans, and home equity and other consumer loans. In order to
compete more effectively with larger financial institutions in its market area,
the Bank concentrates on building relationships through superior service and
attention to customers' needs.
The Company's strategy is focused primarily on expanding the Bank's lending
business as management deems prudent given economic and competitive conditions,
while increasing deposits to fund lending activities. By developing new products
and services and branching into contiguous geographic markets, the Company
intends to expand the Bank's existing customer relationships and attract new
customers to the Bank. Among its efforts in 1996, the Bank opened two additional
branch offices and introduced several new products, including an
interest-bearing checking account with a low minimum balance requirement, a
debit card, telephone banking service, and automated clearing house services for
business customers. In the fourth quarter of 1997, the Bank intends to improve
its telephone banking service by adding additional features and open a call
center to provide additional customer services and market various deposit and
loan products by telephone. The Bank seeks to attract customers that will have
both deposit and lending relationships with the Bank. The Company believes that
customers value personal service and attention and that its emphasis on personal
service and local customer relationships, together with its active approach to
lending and careful credit administration, have been and will continue to be
important factors in the Company's success and growth. To supplement net
interest income and to provide a more attractive return on equity, beginning in
June of 1995 the Company implemented an investment strategy of purchasing
securities using repurchase agreements and time deposits.
As a result of the Company's strategy, the Bank increased its loan
portfolio from $107.0 million at December 31, 1992, to $352.9 million at June
30, 1997, and presently maintains a diversified portfolio. At June 30, 1997, the
loan portfolio contained a mix of loans, with commercial mortgage loans
aggregating $112.6 million or 31.9% of the portfolio, residential mortgage loans
aggregating $84.5 million or 23.9% of the portfolio, commercial loans
aggregating $77.5 million or 22.0% of the portfolio, real estate construction
loans aggregating $30.1 million or 8.5% of the portfolio, and home equity,
consumer and other loans aggregating $48.2 million or 13.7% of the portfolio.
From December 31, 1992, to June 30, 1997, commercial and commercial mortgage
loans increased from $28.4 million to $190.1 million, accounting for 65.8% of
the total growth of the loan portfolio during that period, and represented 53.9%
of the loan portfolio at June 30, 1997. While the Bank presently intends to
maintain a comparable mix of loan types in its portfolio, it intends to continue
emphasizing commercial loans, owner-occupied commercial loans and tenanted
commercial real estate loans in its lending business. As a community bank, the
Bank's strategy in commercial lending has been to actively market its personal
22
<PAGE>
service and local presence and target small and medium sized businesses. The
sales volume of the Bank's commercial loan customers ranges from $0.5 to $105.0
million (with the average being approximately $2.0 million) and the average
commercial loan was approximately $372,000 at June 30, 1997. Substantially all
of the Bank's loans are to borrowers, and secured by property, located within
Mercer County or, to a lesser extent, the contiguous counties of Burlington and
Middlesex, New Jersey, and Bucks County, Pennsylvania.
In conducting its lending activities, the Bank emphasizes loan quality,
loan and credit administration and careful documentation. Credit risk represents
the possibility that a customer or counterparty may not perform in accordance
with contractual terms. The Bank incurs credit risk whenever it extends credit
to, or enters into other transactions with, its customers. The risks associated
with extensions of credit include general risk, which is inherent in the lending
business, and risk specific to individual borrowers. Credit administration is
responsible for the overall management of the Bank's credit risk and
development, application and enforcement of uniform credit policies and
procedures the principal purpose of which is to minimize such risk. One
objective of credit administration is to identify and, to the extent feasible,
diversify extensions of credit by industry concentration, geographic
distribution and the type of borrower. Loan review and other loan credit,
underwriting and loan documentation policies, procedures and practices are being
followed by the Bank's loan officers and are being applied uniformly throughout
the Bank. In recent years, the Bank has taken a number of steps to enhance its
credit administration and loan review functions in an effort to better manage
its credit risk, especially in light of the Bank's rapid growth. While the Bank
continues to review these and other related functional areas, there can be no
assurance that the steps the Bank has taken to date will be sufficient to enable
it to identify, measure, monitor and control all credit risk.
The Bank's primary source of funds for its lending activities is deposits.
As a result of the Bank's emphasis on increasing deposits and broad-based
customer relationships, the Bank's deposits have increased from $192.2 million
at December 31, 1992, to $414.8 million at June 30, 1997. The Company's lending
activities are funded primarily with core deposits (approximately 53% of
deposits are demand and savings deposits) with the balance being funded by
certificates of deposit and wholesale funding.
YARDVILLE CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement, dated as of August 28, 1997, executed by the Company,
as depositor, and the trustees of the Trust (together with the Property Trustee,
the "Trustees"), and (ii) a certificate of trust filed with the Secretary of
State of the State of Delaware on August 28, 1997. The initial trust agreement
will be amended and restated in its entirety (as so amended and restated, the
"Trust Agreement") substantially in the form filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. The
Company will acquire all of the Common Securities, which will represent an
aggregate liquidation amount equal to at least 3% of the total capital of the
Trust. The Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities, except that upon the occurrence
and during the continuance of an Event of Default (as defined herein) under the
Trust Agreement resulting from a Debenture Event of Default, the rights of the
Company, as holder of the Common Securities, to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. See
"Description of Preferred Securities -- Subordination of Common Securities." The
Trust exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided
23
<PAGE>
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debentures issued by the
Company, and (iii) engaging in only those other activities necessary, advisable,
or incidental thereto. The Subordinated Debentures and payments thereunder will
be the only assets of the Trust and payments under the Subordinated Debentures
will be the only revenue of the Trust. The Trust has a term of 40 years, but may
dissolve earlier as provided in the Trust Agreement. The principal executive
office of the Trust is 3111 Quakerbridge Road, Trenton, New Jersey 08619.
The number of Trustees will, pursuant to the Trust Agreement, initially be
four. Three of the Trustees (the "Administrative Trustees") will be persons who
are employees or officers of, or who are affiliated with, the Company. The
fourth trustee will be a financial institution that maintains its principal
place of business in the State of Delaware (the "Delaware Trustee") and is
unaffiliated with the Company, which trustee will serve as institutional trustee
under the Trust Agreement and as indenture trustee for the purposes of
compliance with the provisions of the Trust Indenture Act (the "Property
Trustee"). Wilmington Trust Company, a state chartered trust company organized
under the laws of the State of Delaware, will be the Property Trustee until
removed or replaced by the holder of the Common Securities. For purposes of
compliance with the provisions of the Trust Indenture Act, Wilmington Trust
Company will also act as trustee (the "Guarantee Trustee") under the Guarantee
and as Debenture Trustee (as defined herein) under the Indenture.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the holders of the Trust Securities and in such capacity will have
the power to exercise all rights, powers and privileges under the Indenture. The
Property Trustee will also maintain exclusive control of a segregated
non-interest-bearing bank account (the "Property Account") to hold all payments
made in respect of the Subordinated Debentures for the benefit of the holders of
the Trust Securities. The Property Trustee will make payments of Distributions
and payments on liquidation, redemption and otherwise to the holders of the
Trust Securities out of funds from the Property Account. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the holder of all the Common Securities, will have
the right to appoint, remove or replace any Trustee and to increase or decrease
the number of Trustees. The Company will pay all fees and expenses related to
the Trust and the offering of the Trust Securities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of Preferred Securities."
USE OF PROCEEDS
The Trust will use the gross proceeds from the sale of the Preferred
Securities to purchase Subordinated Debentures of the Company. The Company
intends to use the net proceeds of the sale of the Subordinated Debentures for
general corporate purposes, including the repurchase of outstanding equity
securities of the Company and investments to leverage the Company's capital, as
well as for contributions to the Bank to fund its operations, acquiring or
establishing branch offices and the financing of potential future acquisitions
by the Company. Initially, the net proceeds may be used to make investments in
short-term investment grade obligations pending its use for the purposes
described above.
On October 21, 1996, the Federal Reserve approved, subject to certain
limitations as to amount, the use of certain cumulative preferred instruments
such as the Preferred Securities as Tier 1 capital for bank holding companies
such as the Company. The Company has elected to issue the Preferred Securities
because the Company expects that the Preferred Securities will qualify as Tier 1
capital and
24
<PAGE>
the interest payable on the Subordinated Debentures to be a tax deductible
expense of the Company. The Company expects that, upon completion of the sale of
the Preferred Securities offered hereby, Preferred Securities having an
aggregate Liquidation Amount of approximately $10 million will be eligible to
qualify as Tier 1 capital under the capital guidelines of the Federal Reserve
(or approximately $11.5 million if the Underwriter's over-allotment option is
exercised in full). To the extent any portion of the Preferred Securities is not
eligible to qualify as Tier 1 capital, such amount is expected to be treated as
Tier 2 capital until all or some of that amount is eligible to qualify as Tier 1
capital under the capital guidelines of the Federal Reserve.
MARKET FOR THE PREFERRED SECURITIES
Application has been made to have the Preferred Securities approved for
quotation on The Nasdaq Stock Market, subject to meeting the initial listing
requirements. However, there is no assurance that upon consummation of the
Offering there will be a sufficient number of shareholders or market makers to
enable the Preferred Securities to qualify for initial listing on the Nasdaq
Stock Market. If the Preferred Securities fail to meet the initial listing
requirements of the Nasdaq Stock Market, trading in the Preferred Securities, if
any, would be conducted in the over-the-counter market or through the National
Association of Securities Dealer's "Electronic Bulletin Board." Although the
Underwriter has informed the Company that it presently intends to make a market
in the Preferred Securities, there can be no assurance that an active and liquid
trading market will develop, or, if developed, that such a market will continue.
The absence or discontinuance of such a market may have an adverse impact on
both the price and liquidity of the Preferred Securities. 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" and "Risk Factors -- Trading Price; Absence of Prior Public
Market."
ACCOUNTING TREATMENT
The Trust will be treated, for financial reporting purposes, as a
subsidiary of the Company and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of the Company. The Preferred
Securities will be presented in the consolidated balance sheet of the Company
under the caption "Company-obligated mandatorily redeemable security of
subsidiary holding solely parent-subordinated debentures," and appropriate
disclosures about the Preferred Securities, the Guarantee and the Subordinated
Debentures will be included in the notes to consolidated financial statements.
The Company will record Distributions payable on the Preferred Securities as an
expense in the consolidated statements of income for financial reporting
purposes.
All future reports of the Company filed under the Exchange Act will (a)
present the Trust Securities issued by the Trust on the balance sheet as a
separate category entitled "Company-obligated mandatorily redeemable security of
subsidiary holding solely parent-subordinated debentures," (b) include in a
footnote to the financial statements disclosure that the sole assets of the
Trust are the Subordinated Debentures (including the outstanding principal
amount, interest rate and maturity date of such Subordinated Debentures), and
(c) include in an audited footnote to the financial statements disclosure that
the Company owns all of the Common Securities of the Trust, that the sole assets
of the Trust are the Subordinated Debentures, and that the obligations of the
Company under the Guarantee, the Trust Agreement, the Expense Agreement, the
Subordinated Debentures and the Indenture, in the aggregate, constitute a full
and unconditional guarantee by the Company of the obligations of the Trust under
the Preferred Securities.
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at June 30, 1997 and (ii) the consolidated capitalization of the Company
giving effect to the issuance of the Preferred Securities hereby offered by the
Trust and receipt by the Company of the net proceeds from the corresponding sale
of the Subordinated Debentures to the Trust, as if the sale of the Preferred
Securities
25
<PAGE>
had been consummated on June 30, 1997, and assuming the Underwriter's
over-allotment option was not exercised.
<TABLE>
<CAPTION>
(Unaudited)
As Adjusted
For the Sale of
Actual Preferred Securities
------ --------------------
(Dollars in thousands)
<S> <C> <C>
Company-obligated mandatorily redeeemable security of
subsidiary holding solely parent-subordinated
debentures (1)............................................ $ -- $10,000
STOCKHOLDERS' EQUITY:
Preferred stock no par value, 1,000,000 shares -- --
authorized, none issued....................................
Common stock no par value, 6,000,000 shares
authorized; 2,472,954 outstanding......................... 17,625 17,625
Surplus..................................................... 2,205 2,205
Undivided profits........................................... 17,818 17,818
Net unrealized losses on securities available-for-sale...... (19) (19)
------- -------
Total stockholders' equity.............................. 37,629 37,629
------- -------
Total capitalization........................................ $37,629 $47,629
======= =======
COMPANY CAPITAL RATIOS(2):
Equity to total assets...................................... 7.2% 9.1%
Tier 1 risk-based capital ratio(3).......................... 10.1 12.9
Total risk-based capital ratio.............................. 11.4 14.1
Leverage ratio (4).......................................... 7.3 9.2
</TABLE>
- -------------
(1) Preferred Securities representing beneficial interests in an aggregate
principal amount of $10,000,000 of the % Subordinated Debentures
of the Company (not including the $1,500,000 aggregate principal amount of
Subordinated Debentures to be purchased in the event the Underwriter
exercises its over-allotment option). The Subordinated Debentures will
mature on , 2027.
(2) The capital ratios, as adjusted, are computed including the total estimated
proceeds from the sale of the Preferred Securities, in a manner consistent
with Federal Reserve guidelines.
(3) Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock which can be included in Tier 1
capital to 25% of total Tier 1 capital.
(4) Leverage ratio is Tier 1 capital to average assets for the period.
DESCRIPTION OF PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, Wilmington Trust Company, will act as
indenture trustee for the Preferred Securities under the Trust Agreement for
purposes of complying with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Trust Agreement and
those made part of the Trust Agreement by the Trust Indenture Act. The following
summary of the material terms and provisions of the Preferred Securities and the
Trust Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Agreement and the Trust
Indenture Act. Wherever particular defined terms of the Trust Agreement are
referred to, but not defined herein, such defined terms are incorporated herein
by reference. The form of the Trust Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
26
<PAGE>
General
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of
the Trust, will issue the Trust Securities. All of the Common Securities will be
owned by the Company. The Preferred Securities will represent preferred
undivided beneficial interests in the assets of the Trust and the holders
thereof will be entitled to a preference over the Common Securities in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation, as well as other benefits as described in the Trust Agreement. The
Trust Agreement does not permit the issuance by the Trust of any securities
other than the Trust Securities or the incurrence of any indebtedness by the
Trust.
The Preferred Securities will rank pari passu, and payments will be made
thereon pro rata with the Common Securities, except as described under " --
Subordination of Common Securities." Legal title to the Subordinated Debentures
will be held by the Property Trustee in trust for the benefit of the holders of
the Trust Securities. The Guarantee executed by the Company for the benefit of
the holders of the Preferred Securities will be a guarantee on a subordinated
basis with respect to the Preferred Securities, but will not guarantee payment
of Distributions or amounts payable on redemption or liquidation of such
Preferred Securities when the Trust does not have funds on hand available to
make such payments. Wilmington Trust Company, as Guarantee Trustee, will hold
the Guarantee for the benefit of the holders of the Preferred Securities. See
"Description of the Guarantee."
Distributions
Payment of Distributions. Distributions on each Preferred Security will be
payable at the annual rate of % of the stated Liquidation Amount of $10,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, to the holders of the Preferred Securities on the relevant record
dates (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). The record date will be the 15th day of the
month in which the relevant Distribution Date occurs. Distributions will
accumulate from , 1997, the date of original issuance. The first
Distribution Date for the Preferred Securities will be , 1997. 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,
interest or other payment in respect of any such delay) with the same force and
effect as if made on the date such payment was originally due and payable.
"Business Day" means any day other than a Saturday or a Sunday, 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 corporate trust office
of the Property Trustee or the Debenture Trustee is closed for business.
Extension Period. The Company has the right under the Indenture, so long as
no Debenture Event of Default has occurred and is continuing, to defer the
payment of interest on the Subordinated Debentures at any time, or from time to
time (each, an "Extension Period"), which, if exercised, would defer quarterly
Distributions on the Preferred Securities 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 Distribution Date.
"Distributions," as used herein, includes any such additional Distributions. The
right to defer the payment of interest on the Subordinated Debentures is
limited, however, to a period, in each instance, not exceeding 20 consecutive
quarters and no Extension Period may extend beyond the Stated Maturity of the
Subordinated Debentures. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with
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respect to, any of the Company's capital stock, (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 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
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the 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
such Extension Period may not exceed 20 consecutive quarters or extend beyond
the Stated Maturity of the Subordinated Debentures. Upon the termination of any
such Extension Period and the payment of all amounts then due, the Company may
elect to begin a new Extension Period, subject to the above requirements.
Subject to the foregoing, there is no limitation on the number of times that the
Company may elect to begin an Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
Source of Distributions. The funds of the Trust available for distribution
to holders of its Preferred Securities will be limited to payments under the
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of its Trust Securities. See "Description of the Subordinated
Debentures." Distributions will be paid through the Property Trustee who will
hold amounts received in respect of the Subordinated Debentures in the Property
Account for the benefit of the holders of the Trust Securities. If the Company
does not make interest payments on the 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 has
funds legally available for the payment of such Distributions and cash
sufficient to make such payments) is guaranteed by the Company. See "Description
of the Guarantee."
Redemption or Exchange
General. The Subordinated Debentures will mature on , 2027. The
Company will have the right to redeem the Subordinated Debentures (i) on or
after , 2002, 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, a Capital Treatment Event or an Investment Company
Event, in each case subject to receipt of prior approval by the Federal Reserve
if then required under applicable capital guidelines or policies of the Federal
Reserve. The Company will not have the right to purchase the Subordinated
Debentures, in whole or in part, from the Trust until after , 2002. See
"Description of the Subordinated Debentures -- General."
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Subordinated Debentures, whether at Stated Maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption will be applied by the Property Trustee to redeem a Like Amount (as
defined herein) of the Trust Securities, upon not less than 30 nor more than 60
days notice, at a redemption price (the "Redemption Price") equal to the
aggregate Liquidation Amount of such Trust Securities plus accrued but unpaid
Distributions thereon to the date of redemption (the "Redemption Date"). See
"Description of the Subordinated Debentures -- Redemption or Exchange." If less
than all of the Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption will be
allocated to the redemption of the Trust Securities pro rata.
Distribution of Subordinated Debentures. Subject to the Company having
received prior approval of the Federal Reserve if so required under applicable
capital guidelines or policies of the Federal Reserve,
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the Company, as holder of the Common Securities, will have the right at any time
to dissolve the Trust and, after satisfaction of the liabilities of creditors of
the Trust as provided by applicable law, cause the Subordinated Debentures to be
distributed to the holders of Trust Securities in liquidation of the Trust.
See "-- Liquidation Distribution Upon Dissolution."
Tax Event Redemption, Capital Treatment Event Redemption or Investment
Company Event Redemption. If a Tax Event, a Capital Treatment Event or an
Investment Company Event in respect of the Trust Securities occurs and is
continuing, the Company has the right to redeem the Subordinated Debentures in
whole (but not in part) and thereby cause a mandatory redemption of such Trust
Securities in whole (but not in part) at the Redemption Price within 180 days
following the occurrence of such Tax Event, Capital Treatment Event or
Investment Company Event. In the event a Tax Event, a Capital Treatment Event or
an Investment Company Event in respect of the Trust Securities has occurred and
the Company does not elect to redeem the Subordinated Debentures and thereby
cause a mandatory redemption of such Trust Securities or to liquidate the Trust
and cause the Subordinated Debentures to be distributed to holders of such Trust
Securities in liquidation of the Trust as described below under "-- Liquidation
Distribution Upon Dissolution," such Preferred Securities will remain
outstanding and, if a Tax Event has occurred, Additional Interest (as defined
herein) shall be payable on the Subordinated Debentures. "Additional Interest"
means the additional amounts as may be necessary in order that the amount of
Distributions then due and payable by to the Trust on the outstanding Trust
Securities will not be reduced as a result of any additional taxes, duties and
other governmental charges to which the Trust has become subject as a result of
a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture, which will be used to pay the Redemption Price of
such Trust Securities, and (ii) with respect to a distribution of Subordinated
Debentures to holders of Trust Securities in connection with a dissolution or
liquidation of the Trust, Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Trust Securities of the holder to whom
such Subordinated Debentures are distributed. Each Subordinated Debenture
distributed pursuant to clause (ii) above will carry with it accumulated
interest in an amount equal to the accumulated and unpaid interest then due on
such Subordinated Debenture.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
After the liquidation date fixed for any distribution of Subordinated
Debentures for Preferred Securities (i) such Preferred Securities will no longer
be deemed to be outstanding, and (ii) any certificates representing Preferred
Securities will be deemed to represent the Subordinated Debentures having a
principal amount equal to the Liquidation Amount of such Preferred Securities,
and bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid Distributions on the Preferred Securities until such certificates are
presented to the Administrative Trustees or their agent for transfer or
reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of the Trust were to
occur. The Preferred Securities that an investor may purchase, or the
Subordinated Debentures that an investor may receive on dissolution and
liquidation of the Trust, may, therefore, trade at a discount to the price that
the investor paid to purchase the Preferred Securities offered hereby.
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Redemption Procedures
Preferred Securities redeemed on each Redemption Date will be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that the Trust has funds on hand available
for the payment of such Redemption Price. See "-- Subordination of Common
Securities."
If the Trust gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, New York time, on the Redemption Date, to the
extent funds are available in the case of Preferred Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities. With respect to Preferred Securities not held in
book-entry form, the Property Trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for the Preferred Securities funds
sufficient to pay the aggregate Redemption Price and will give the paying agent
for the Preferred Securities 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 any Preferred
Securities called for redemption will be payable to the holders of such
Preferred Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption will 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
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 additional Distribution, interest or other payment in
respect of any such delay) with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by the Trust, or by the Company pursuant to 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 for such
Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price. See "Description of
the Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and, further provided that the Company does not and is
not continuing to exercise its right to defer interest payments on the
Subordinated Debentures, the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Subordinated Debentures to holders of Preferred Securities will
be made to the applicable record holders thereof as they appear on the register
for the Preferred Securities on the relevant record date, which date will be the
date 15 days prior to the Redemption Date or liquidation date, as applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of such Trust Securities to be
redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of the two classes of Trust Securities. The
particular Preferred Securities to be redeemed will be selected by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by such method as the Property Trustee deems 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, or if the Preferred
Securities are then held in the form of a global preferred security, in
accordance with DTC's customary procedures. The Property Trustee will promptly
notify the registrar for
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the Preferred Securities in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities will relate to the portion of
the aggregate Liquidation Amount of Preferred Securities which has been or is to
be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the redemption price on the Subordinated Debentures, on and after the Redemption
Date interest will cease to accrue on such Subordinated Debentures or portions
thereof (and Distributions will cease to accrue on the related Preferred
Securities or portions thereof) called for redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is 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, will 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,
will have been made or provided for, and all funds available to the Property
Trustee will 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 resulting from a Debenture Event of
Default, 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 have been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities has been so cured, waived or otherwise eliminated, the
Property Trustee will act solely on behalf of the holders of the Preferred
Securities and not on behalf of the 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.
Liquidation Distribution Upon Dissolution
The Company, as holder of the Common Securities, will have the right at any
time to dissolve the Trust and cause the Subordinated Debentures, after
satisfaction of liabilities to creditors of the Trust, to be distributed to the
holders of the Preferred Securities. Such right is subject, however, to the
Company having received prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve.
Pursuant to the Trust Agreement, the Trust will automatically dissolve upon
expiration of its term and will dissolve earlier on the first to occur of (i)
certain events of bankruptcy, dissolution or liquidation of the Company, (ii)
the Company, as depositor, giving written direction to the Property Trustee to
dissolve the Trust (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
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"-- Redemption or Exchange -- Mandatory Redemption," or (iv) the entry
of an order for the dissolution of the Trust 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 will 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 the holders of such Trust Securities a Like Amount of the 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 available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to, in the case of holders of Preferred Securities, the
aggregate of the Liquidation Amount plus accrued but 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 has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Preferred Securities will 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 a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities. See "--
Subordination of Common Securities."
After the liquidation date fixed for any distribution of Subordinated
Debentures (i) the Preferred Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Subordinated Debentures to be delivered upon such distribution
with respect to Preferred Securities held by DTC or its nominee and (iii) any
certificates representing the Preferred Securities not held by DTC or its
nominee will be deemed to represent the Subordinated Debentures having a
principal amount equal to the stated Liquidation Amount of the Preferred
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Preferred Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Trust is treated as a grantor trust, a
distribution of the 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 -- Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust." If the Company elects neither
to redeem the Subordinated Debentures prior to maturity nor to liquidate the
Trust and distribute the Subordinated Debentures to holders of the Preferred
Securities, the Preferred Securities will remain outstanding until the repayment
of the Subordinated Debentures.
If the Company elects to dissolve the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company will continue to have the right to
shorten or extend the maturity of such Subordinated Debentures, subject to
certain conditions. See "Description of the Subordinated Debentures -- General."
Liquidation Value
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of the Trust is $10 per Preferred
Security plus accrued but unpaid Distributions thereon to the date of payment,
which may be in the form of a distribution of such amount in Subordinated
Debentures, subject to certain exceptions. See "-- Liquidation Distribution Upon
Dissolution."
Events of Default; Notice
Any one of the following events constitutes an event of default under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
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(i) the occurrence of a Debenture Event of Default (see "Description of the
Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(iii) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of any
covenant or warranty of the 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 clauses (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 Trustee(s) by the holders of at least 25%
in aggregate Liquidation Amount of the outstanding Preferred Securities, a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under the Trust Agreement;
or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has 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 a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
dissolution of the Trust. See "-- Liquidation Distribution Upon Dissolution."
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
Removal of the Trustees
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed at such time by the holders of a
majority in Liquidation Amount of the outstanding Preferred Securities. In no
event, however, 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 a Trustee and no appointment of a
successor trustee will 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 has occurred and is 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 (as defined
in the Trust Agreement) may at the time be located, the Company, as the holder
of the Common Securities, will have power to appoint one or more Persons (as
defined in the
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Trust Agreement) 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 Trust 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 case a Debenture
Event of Default has occurred and is continuing, the Property Trustee alone will
have power to make such appointment.
Merger or Consolidation of Trustees
Any Person 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 Person resulting from any merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
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 as described below. The Trust
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, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such under the laws
of any State; provided, 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 Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee in its capacity as the holder of the Subordinated Debentures,
(iii) the Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
other organization on which the Preferred Securities are then 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 adversely affect the rights, preferences and privileges of the holders
of the Preferred Securities (including any Successor Securities) in any material
respect, (v) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Company has received an opinion from
independent 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 will be required
to register as an "investment company" under the Investment Company Act, and
(vi) the Company 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, the Indenture, the
Subordinated Debentures, the Trust Agreement and the Expense Agreement.
Notwithstanding the foregoing, the Trust will 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,
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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.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "Description of the Guarantee --
Amendments and Assignment" and as otherwise required by the Trust Indenture Act
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 by 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 (provided such amendment is not
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 is necessary to ensure that the Trust will 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 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 action may not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
amendments of such Trust Agreement will become effective when notice thereof is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the Trustees and the Company with (i) the consent of holders representing not
less than a majority in the aggregate Liquidation Amount of the outstanding
Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment will not affect the Trust's status as
a grantor trust for United States federal income tax purposes or the Trust's
exemption from status as an "investment company" under the Investment Company
Act. Notwithstanding anything in this paragraph to the contrary, without the
consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (a) 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 (b)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
The Trustees will not, so long as any Subordinated Debentures are held by
the Property Trustee, (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
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 Subordinated Debentures will be due and payable, or (iv)
consent to any amendment, modification or termination of the Indenture or the
Subordinated Debentures, where such consent is 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 requires the consent of each holder of
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Preferred
Securities. The Trustees may not revoke any action previously authorized or
approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property Trustee
will notify each holder of Preferred Securities of any notice of default with
respect to the 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 Trustees must obtain an opinion of counsel experienced in
such matters
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to the effect that the Trust will not be classified as an association taxable as
a corporation for United States federal income tax purposes on account of such
action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel its Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is exchangeable
in whole or in part for the Preferred Securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective principal
amounts of the Preferred Securities represented by such global security.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of Participants) and on the records
of Participants (with respect to interests of Persons held through
Participants). Beneficial owners will not receive written confirmation from DTC
or 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 Subordinated Indenture. Except as provided below,
owners of beneficial interests in a global security will not be entitled to
receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Subordinated
Indenture. Accordingly, each person owning a beneficial interest in such a
global security must rely on the procedures of DTC and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights of a holder of Preferred Securities under
the Subordinated 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
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Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trustees, any Paying Agent or any other agent of the
Company or the 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
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 Trustees. If DTC notifies the Company that it is unwilling to
continue as such, or if it is unable to continue or cease 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 or 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 as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriter), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
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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
will appear on the register of holders of the Preferred Securities. The paying
agent for the Preferred Securities will initially be the Property Trustee and
any co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The paying agent for the Preferred
Securities may resign as paying agent upon 30 days' written notice to the
Property Trustee and the Company. In the event that the Property Trustee no
longer is the paying agent for the Preferred Securities, the Administrative
Trustees will appoint a successor (which must be a bank or trust company
acceptable to the Administrative Trustees and the Company) 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, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred Securities
have been called for redemption.
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, upon the occurrence and
during the continuance of an 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 is directed by the
Company and if not so directed, will take such action as it deems advisable and
in the best interests of the holders of the Trust Securities and will have no
liability except for its own bad faith, negligence or willful misconduct.
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Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. The Company and the Administrative Trustees are
authorized, in this connection, to take any action, not inconsistent with
applicable law, the certificate of trust of the Trust 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 internal laws of the State of Delaware.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in the Subordinated Debentures issued by the Company.
The Subordinated Debentures will be issued as unsecured debt under the
Indenture, to be dated as of , 1997 (the "Indenture"), between the Company
and Wilmington Trust Company, as trustee (the "Debenture Trustee"). The
Indenture will be qualified as an indenture under the Trust Indenture Act. The
following summary of the material terms and provisions of the 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
The Subordinated Debentures will be limited in aggregate principal amount
to approximately $10,309,000 (or $11,856,000 if the option described under the
heading "Underwriting" is exercised by the Underwriter), such amount being the
sum of the aggregate stated Liquidation Amount of the Trust Securities. The
Subordinated Debentures will bear interest at the annual rate of % of the
principal amount thereof, payable quarterly in arrears on March 31, June 30,
September 30, and December 31 of each year (each, an "Interest Payment Date")
beginning , 1997, to the Person (as defined in the Indenture) in whose
name each Subordinated Debenture is registered, subject to certain exceptions,
at the close of business on the fifteenth day of the last month of the calendar
quarter. It is anticipated that, until the liquidation of the Trust, the
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 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), 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.
The term "interest,"
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as used herein, includes quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Interest, as applicable.
The Subordinated Debentures will mature on , 2027 (such date, as
it may be shortened or extended as hereinafter described, the "Stated
Maturity"). Such date may be shortened at any time by the Company to any date
not earlier than , 2002, subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. Such date may also be extended at
any time at the election of the Company but in no event to a date later than
, 2036, provided that at the time such election is made and at the time
of extension (i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation, (ii) the Company is not in default in the payment of any interest
or principal on the Subordinated Debentures, and (iii) the Trust is not in
arrears on payments of Distributions on the Preferred Securities and no deferred
Distributions are accumulated. In the event that the Company elects to shorten
or extend the Stated Maturity of the Subordinated Debentures, it will give
notice thereof to the Debenture Trustee, the Trust and to the holders of the
Subordinated Debentures no more than 180 days and no less than 90 days prior to
the effectiveness thereof. The Company will not have the right to purchase the
Subordinated Debentures, in whole or in part, from the Trust until after
, 2002, except if a Tax Event, a Capital Treatment Event or an
Investment Company Event has occurred and is continuing.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of the Bank, upon the Bank's liquidation or reorganization or otherwise (and
thus the ability of holders of the Subordinated Debentures to benefit indirectly
from such distribution), is subject to the prior claims of creditors of the
Bank, except to the extent that the Company may itself be recognized as a
creditor of the Bank. The Subordinated Debentures will, therefore, be
effectively subordinated to all existing and future liabilities of the Bank, and
holders of Subordinated Debentures should look only to the assets of the Company
for payments on the Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company or any
of its subsidiaries, including Senior Debt, Subordinated Debt and Additional
Senior Obligations, whether under the Indenture or any existing indenture or
other indenture that the Company may enter into in the future or otherwise.
See "-- Subordination."
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
Option to Extend Interest Payment Period
The Company has the right under the Indenture at any time during the term
of the Subordinated Debentures, so long as no Debenture Event of Default has
occurred and is continuing, to defer the payment of interest at any time, or
from time to time (each, an "Extension Period"). The right to defer the payment
of interest on the Subordinated Debentures is limited, however, to a period, in
each instance, not exceeding 20 consecutive quarters and no Extension Period may
extend beyond the Stated Maturity of the Subordinated Debentures. At the end of
each Extension Period, the Company 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 and holders of Subordinated Debentures
(or the holders of Preferred Securities if such securities are then outstanding)
will be required to accrue and recognize income for United States federal income
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tax purposes. See "Certain Federal Income Tax Consequences -- Potential
Extension of Interest Payment Period and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock, (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 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 or junior in
interest to the Subordinated Debentures (other than payments under the
Guarantee), or (iii) redeem, purchase or acquire less than all of the
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 Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due on any Interest Payment Date, the Company may elect to
begin a new Extension Period subject to the above requirements. No interest will
be due and payable during an Extension Period, except at the end thereof. The
Company has no present intention of exercising its rights to defer payments of
interest on the Subordinated Debentures. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of such Extension Period at least two Business Days prior to the
earlier of (i) the next succeeding date on which Distributions on the Trust
Securities would have been payable except for the election to begin such
Extension Period, 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 (or other applicable self-regulatory organization) or
to holders of the Preferred Securities, but in any event at least one Business
Day before such record date. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extension Period.
Additional Sums
If the Trust or the Property Trustee is required to pay any additional
taxes, duties or other governmental charges as a result of the occurrence of a
Tax Event, the Company will pay as additional amounts (referred to herein as
"Additional Interest") on the Subordinated Debentures such additional amounts as
may be required so that the net amounts received and retained by the Trust after
paying any such additional taxes, duties or other governmental charges will not
be less than the amounts the Trust would have received had such additional
taxes, duties or other governmental charges not been imposed.
Registration, Denomination and Transfer
The Subordinated Debentures will initially be registered in the name of the
Trust. If the Subordinated Debentures are distributed to holders of Preferred
Securities, it is anticipated that the depositary arrangements for the
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 Subordinated Debentures to be issued in definitive form.
Payments on Subordinated Debentures represented by a global security will
be made to Cede & Co., the nominee for DTC, as the registered holder of the
Subordinated Debentures, as described under "Description of Preferred Securities
- - Book Entry, Delivery and Form." If Subordinated Debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
Subordinated Debentures will be registrable, and Subordinated Debentures will be
exchangeable for Subordinated Debentures of other authorized denominations of a
like aggregate principal amount, at the corporate trust office of the Debenture
Trustee in Wilmington, Delaware 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 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.
Subordinated Debentures will be exchangeable for other Subordinated
Debentures of like tenor, of any authorized denominations, and of a like
aggregate principal amount.
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
Subordinated Debenture or at the office of any transfer agent designated by the
Company for such purpose without service charge and upon payment of any taxes
and other governmental charges as described in the Indenture.
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 Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Subordinated Debenture shall thereafter look,
as a general unsecured creditor, only to the Company for payment thereof.
Redemption or Exchange
The Company will have the right to redeem the Subordinated Debentures prior
to maturity (i) on or after , 2002, 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, a Capital Treatment Event or an
Investment Company Event, in each case at a redemption price equal to the
accrued and unpaid interest on the 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 approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing
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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) interest payable by the Company on the 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,
(ii) the Trust is, or will be within 90 days after the date of such opinion of
counsel, subject to United States federal income tax with respect to income
received or accrued on the Subordinated Debentures, or (iii) the Trust is, or
will 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 Company 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.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to or any change (including any announced prospective change) in the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
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 of impairment of the Company's ability to treat the aggregate
Liquidation Amount of the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then applicable to
the Company; provided, however, that the inability of the Company to treat all
or any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
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 Subordinated Debentures to
be redeemed at its registered address. Unless the Company defaults in payment of
the redemption price for the Subordinated Debentures, on and after the
redemption date interest ceases to accrue on such Subordinated Debentures or
portions thereof called for redemption.
The Subordinated Debentures will not be subject to any sinking fund.
Distribution Upon Liquidation
As described under "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution," under certain circumstances involving the
dissolution of the Trust, the Subordinated Debentures may be distributed to the
holders of the Preferred Securities in liquidation of the Trust after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law. Any such distribution will be subject to receipt of prior approval by the
Federal Reserve if then required under applicable policies
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or guidelines of the Federal Reserve. If the Subordinated Debentures are
distributed to the holders of Preferred Securities upon the dissolution of the
Trust, the Company will use its best efforts to list the 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 Subordinated Debentures that may be distributed to the
holders of Preferred Securities.
Restrictions on Certain Payments
If at any time (i) there has occurred a Debenture Event of Default, (ii)
the Company is in default with respect to its obligations under the Guarantee or
(iii) the Company has given notice of its election of an Extension Period as
provided in the Indenture with respect to the Subordinated Debentures and has
not rescinded such notice, or such Extension Period, or any extension thereof,
is continuing, the Company will not (1) 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, (2) 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 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 or junior in interest to the
Subordinated Debentures (other than payments under the Guarantee), or (3)
redeem, purchase or acquire less than all of the Subordinated Debentures or any
of the Preferred Securities.
Subordination
The Indenture provides that the Subordinated Debentures issued thereunder
are subordinated and junior in right of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company. Upon any payment or
distribution of assets to creditors upon any 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 proceedings of the Company, the
holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of
the Company will first be entitled to receive payment in full of principal of
(and premium, if any) and interest, if any, on such Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company before the holders of
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
In the event of the acceleration of the maturity of any Subordinated
Debentures, the holders of all Senior Debt, Subordinated Debt and Additional
Senior Obligations of the Company 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
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
No payments on account of principal or interest in respect of the
Subordinated Debentures may be made if there has occurred and is continuing a
default in any payment with respect to Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company or an event of default with respect
to any Senior Debt, Subordinated Debt or Additional Senior Obligations of the
Company resulting in the acceleration of the maturity thereof, or if any
judicial proceeding is 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
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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,
and (vi) 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.
"Senior Debt" means, with respect to the Company, 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 Subordinated Debentures
or to other Debt which is pari passu with, or subordinated to, the Subordinated
Debentures; provided, however, that Senior Debt will 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, (iii) any Debt to any employee of the Company, (iv) any
Debt which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the holders of such Debt by the holders of the Subordinated
Debentures as a result of the subordination provisions of the Indenture would be
greater than they otherwise would have been as a result of any obligation of
such holders to pay amounts over to the obligees on such trade accounts payable
or accrued liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject, and (v) Debt which
constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, 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 Subordinated
Debentures).
"Additional Senior Obligations" means, with respect to the Company, all
indebtedness, whether incurred on or prior to the date of the Indenture or
thereafter incurred, for claims in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts and similar
arrangements; provided, however, that Additional Senior Obligations do not
include claims in respect of Senior Debt or Subordinated Debt or obligations
which, by their terms, are expressly stated to be not superior in right of
payment to the Subordinated Debentures or to rank pari passu in right of payment
with the Subordinated Debentures. "Claim," as used herein, has the meaning
assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978,
as amended.
The Indenture places no limitation on the future issuance of securities
similar to the Subordinated Debentures, the amount of additional Senior Debt,
Subordinated Debt or Additional Senior Obligations that may be incurred by the
Company or any of its subsidiaries. The Company expects from time to time to
incur additional indebtedness constituting Senior Debt, Subordinated Debt and
Additional Senior Obligations. As of June 30, 1997, the Company had no
outstanding Senior Debt, Subordinated Debt or
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Additional Senior Obligations. Because the Company is a holding company, the
Subordinated Debentures are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, including obligations to depositors
of the Bank.
Registrar and Transfer Agent
The Debenture Trustee will act as the registrar and the transfer agent for
the Subordinated Debentures. 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 in Wilmington, Delaware. 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. The Company may at any time
designate additional transfer agents with respect to the 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 Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of 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 Subordinated
Debentures so selected for redemption, except, in the case of any Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
Modification of Indenture
The Company and the Debenture Trustee may, from time to time without the
consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies and qualifying, or maintaining
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
outstanding Subordinated Debentures, to modify the Indenture; provided, that no
such modification may, without the consent of the holder of each outstanding
Subordinated Debenture affected by such proposed modification, (i) extend the
fixed maturity of the
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Subordinated Debentures, or 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 Subordinated Debentures, the holders of which
are required to consent to any such modification of the Indenture; provided that
so long as any of the Preferred Securities remain outstanding, no such
modification may be made that requires the consent of the holders of the
Subordinated Debentures, and no termination of the Indenture may occur, and no
waiver of any Debenture Event of Default may be effective, without the prior
consent of the holders of at least a majority of the aggregate Liquidation
Amount of the Preferred Securities and that if the consent of the holder of each
Subordinated Debenture is required, such modification will not be effective
until each holder of Trust Securities has consented thereto.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes an event of default (each, a "Debenture Event of
Default") with respect to the Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Subordinated Debentures
when due (subject to the deferral of any due date in the case of an Extension
Period); or
(ii) failure to pay any principal on the Subordinated Debentures when due,
whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect 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 Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
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 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 Subordinated
Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of the 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.
Should the holders of the Subordinated Debentures fail to annul such declaration
and waive such default, the holders of a majority in aggregate Liquidation
Amount of the Preferred Securities will have such right.
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.
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Subordinated Debentures, and any other amounts payable under
the Indenture, to be forthwith due and payable and to enforce its other rights
as a creditor with respect to such Subordinated Debentures.
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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 on or
principal of the Subordinated Debentures on the payment date on which such
payment is due and payable, then a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder (a "Direct Action"). The Company will have a
right of set-off under the Indenture to the extent of any payment made by the
Company to such holder of Preferred Securities in the 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 may
become subject to the reporting obligations under the Exchange Act.
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 Subordinated Debentures unless there has been an
Event of Default under the Trust Agreement. See "Description of Preferred
Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Company may not consolidate with or merge into any other Person or
convey or transfer its properties and assets substantially as an entirety to any
Person, and no Person may consolidate with or merge into the Company or sell,
convey, transfer or otherwise dispose of its properties and assets substantially
as an entirety to the Company, unless (i) in the event the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes by supplemental indenture
the Company's obligations on the 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, has occurred and is continuing, and (iii) certain
other conditions prescribed in the Indenture are met.
Satisfaction and Discharge
The Indenture will cease to be of further effect (except as to the
Company's obligations to pay certain sums due pursuant to the Indenture and to
provide certain officers' certificates and opinions of counsel described
therein) and the Company will be deemed to have satisfied and discharged the
Indenture when, among other things, all 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 or are to be called for redemption within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the 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 or redemption date, as the case may be.
Governing Law
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
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Information Concerning the Debenture Trustee
The Debenture Trustee has and is 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 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.
Miscellaneous
The Company has agreed, pursuant to the Indenture, for so long as Trust
Securities remain outstanding, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of the Trust (provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities), (ii) not to voluntarily dissolve
the Trust, except upon prior approval of the Federal Reserve if then so required
under applicable capital guidelines or policies of the Federal Reserve, and (a)
in connection with a distribution of Subordinated Debentures to the holders of
the Preferred Securities in liquidation of the Trust, or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement, and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Agreement, to cause the Trust to remain classified
as a grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes.
DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
The Guarantee will be qualified as an indenture under the Trust Indenture Act.
The Guarantee Trustee will act as indenture trustee under the Guarantee for
purposes of complying with the provisions of the Trust Indenture Act. The
Guarantee Trustee, Wilmington Trust Company, will hold the Guarantee for the
benefit of the holders of the Preferred Securities. The following summary of the
material terms and 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 and the Trust Indenture Act. Wherever particular
defined terms of the Guarantee are referred to, but not defined herein, 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, pursuant to the Guarantee, irrevocably agree to pay in
full on a subordinated basis, to the extent set forth therein, 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 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 (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 has funds available therefor
at such time, (ii) the Redemption Price with respect to any Preferred Securities
called for redemption to the extent that the Trust has funds available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding up
or
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liquidation of the Trust (other than in connection with the distribution of
Subordinated Debentures to the holders of Preferred Securities or a redemption
of all of the Preferred Securities), the lesser of (a) the amount of the
Liquidation Distribution, to the extent the Trust has funds available therefor
at such time, and (b) the amount of assets of the Trust remaining available for
distribution to holders of Preferred Securities in liquidation of the Trust. The
obligation of the Company 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 to pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to the
extent the Trust has funds available therefor. If the Company does not make
interest payments on the Subordinated Debentures held by the Trust, the Trust
will not pay Distributions on the Preferred Securities and will not have funds
legally available therefor.
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 Debt,
Subordinated Debt and Additional Senior Obligations of the Company in the same
manner as the Subordinated Debentures. The Guarantee does not place a limitation
on the amount of additional Senior Debt, Subordinated Debt or Additional Senior
Obligations that may be incurred by the Company or any of its subsidiaries. The
Company expects from time to time to incur additional indebtedness constituting
Senior Debt, Subordinated Debt and Additional Senior Obligations.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, 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). The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent not
paid by the Trust or upon distribution of the Subordinated Debentures to the
holders of the Preferred Securities. Because the Company is a holding company,
the right of the Company to participate in any distribution of assets of the
Bank upon the Bank's liquidation or reorganization or otherwise is subject to
the prior claims of creditors of the Bank, except to the extent the Company may
itself be recognized as a creditor of the Bank. The Company's obligations under
the Guarantee, therefore, 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.
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. See "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee will bind the successors, assigns, receivers,
trustees and representatives of the Company and will inure to the benefit of the
holders of the Preferred Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment 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
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conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other Person.
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 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 such provisions, 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 any Preferred Securities, unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
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, or (c)
distribution of the Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under such Preferred Securities or the
Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
EXPENSE AGREEMENT
The Company will, pursuant to the Agreement as to Expenses and Liabilities
entered into by it under the Trust Agreement (the "Expense Agreement"),
irrevocably and unconditionally guarantee to each person or entity to whom the
Trust becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust, other than obligations of the Trust to pay to the
holders of the Preferred Securities or other similar interests in the Trust of
the amounts due such holders pursuant to the terms of the Preferred Securities
or such other similar interests, as the case may be. Third party creditors of
the Trust may proceed directly against the Company under the Expense Agreement,
regardless of whether such creditors had notice of the Expense Agreement.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES,
SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." The Company and the Trust
believe that, taken together, the obligations of the Company under the
Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the Trust under the Preferred Securities. If and to the
extent that the Company does not make payments on the Subordinated Debentures,
the Trust will not pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the Trust
does not have sufficient funds to pay such Distributions. In such event, the
remedy of a holder of Preferred Securities is to institute a legal proceeding
directly 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 Debt, Subordinated Debt and
Additional Senior Obligations of the Company.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
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 Subordinated Debentures will be equal to the
sum of the aggregate stated Liquidation Amount of the Trust Securities, (ii) the
interest rate and interest and other payment dates on the Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the Preferred Securities, (iii) the Company will pay for all and any
costs, expenses and liabilities of the Trust (except the obligations of the
Trust to holders of the Preferred Securities), and (iv) the Trust Agreement
further provides that the Trust will not engage in any activity that is not
consistent with the limited purposes of the Trust.
Enforcement Rights of Holders of Preferred Securities
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Trust or
any other Person. A default or event of default under any Senior Debt,
Subordinated Debt or Additional Senior Obligations of the Company would not
constitute a default or Event of Default. In the event, however, of payment
defaults under, or acceleration of, Senior Debt, Subordinated Debt or Additional
Senior Obligations of the Company, the subordination provisions of the Indenture
provide that no payments may be made in respect of the Subordinated Debentures
until such Senior Debt, Subordinated Debt or Additional Senior Obligations has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Subordinated Debentures would
constitute an Event of Default.
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Limited Purpose of the Trust
The Preferred Securities evidence a preferred undivided beneficial interest
in the assets of the Trust. The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Subordinated Debentures issued by the Company, and (iii) engaging in only
those other activities necessary, advisable, or incidental thereto. A principal
difference between the rights of a holder of a Preferred Security and the rights
of a holder of a Subordinated Debenture is that a holder of a Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on Subordinated Debentures held, while a holder of Preferred
Securities is entitled to receive Distributions from the Trust (or from the
Company under the Guarantee) if and to the extent the Trust has funds available
for the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the Trust involving the
liquidation of the Subordinated Debentures, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Trust, the
Liquidation Distribution in cash. See "Description of Preferred Securities --
Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Property Trustee, as holder of the
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company (as set forth in the Indenture),
but entitled to receive payment in full of principal and interest before any
shareholders 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 (other than the obligations of the Trust
to the holders of its Preferred Securities), the positions of a holder of the
Preferred Securities and a holder of the Subordinated Debentures are expected to
be substantially the same relative to other creditors and to shareholders of the
Company in the event of liquidation or bankruptcy of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Stradley, Ronon, Stevens & Young, LLP, in its capacity as
counsel to the Company ("Tax Counsel"), the following discussion summarizes the
material United States federal income tax consequences of the purchase,
ownership and disposition of the Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date of this Prospectus, all of which
are subject to change, possibly on a retroactive basis. The authorities on which
this summary is based are subject to various interpretations, and the opinions
of Tax Counsel are not binding on the Internal Revenue Service (the "IRS") or
the courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed herein or that a court would not sustain such a
challenge.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Preferred
Securities. Moreover, the discussion generally focuses on holders of Preferred
Securities who are individual citizens or residents of the United States and who
acquire Preferred Securities on their original issue at their offering price and
hold Preferred Securities
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as capital assets. The discussion has only limited application to dealers in
securities, corporations, estates, trusts or nonresident aliens and does not
address all the tax consequences that may be relevant to holders who may be
subject to special tax treatment, such as, for example, banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that will
hold the Preferred Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. The following summary
also does not address the tax consequences to persons that have a functional
currency other than the U.S. dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of Preferred Securities. Further, it does
not include any description of any alternative minimum tax consequences or the
tax laws of any state or local government or of any foreign government that may
be applicable to the Preferred Securities. Accordingly, each prospective
investor should consult, and should rely exclusively on, such investor's own tax
advisors in analyzing the federal, state, local and foreign tax consequences of
the purchase, ownership or disposition of Preferred Securities.
Classification of the Subordinated Debentures
The Company and the Trust will agree to treat the Subordinated Debentures
as indebtedness for all United States federal income tax purposes. By acceptance
of a Preferred Security, each holder covenants to treat the Subordinated
Debentures as indebtedness and the Preferred Securities as evidence of an
indirect beneficial ownership interest in the Subordinated Debentures. No
assurance can be given, however, that such position of the Company will not be
challenged by the Internal Revenue Service or, if challenged, that such a
challenge will not be successful. The remainder of this discussion assumes that
the Subordinated Debentures will be classified for United States federal income
tax purposes as indebtedness of the Company.
Classification of the Trust
In connection with the issuance of the Preferred Securities, Tax Counsel
will render its opinion generally to effect that, under the current law and
based on the representations, facts and assumptions set forth in this
Prospectus, and assuming full compliance with the terms of the Trust Agreement
(and other relevant documents), and based on certain assumptions and
qualifications referenced in the opinion, the Trust will be characterized for
United States federal income tax purposes as a grantor trust and will not be
characterized as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each holder of Preferred Securities
generally will be treated as owning an undivided beneficial interest in the
Subordinated Debentures, and each holder will be required to include all income
or gain recognized for United States federal income tax purposes with respect to
its allocable share of the Subordinated Debentures on its own income tax return.
Potential Extension of Interest Payment Period and Original Issue Discount
Under recently issued Treasury regulations (the "Regulations"), a debt
instrument will be deemed to be issued with OID if there is more than a "remote"
contingency that periodic stated interest payments due on the instrument will
not be timely paid. Because the exercise by the Company of its option to defer
the payment of stated interest on the Subordinated Debentures would prevent the
Company from declaring
53
<PAGE>
dividends on any class of equity, the Company believes that the likelihood of
its exercising the option is "remote" within the meaning of the Regulations. As
a result, the Company intends to take the position that the Subordinated
Debentures will not be deemed to be issued with OID. Accordingly, based on this
position, stated interest payments on the Subordinated Debentures will be
includible in the ordinary income of a holder at the time that such payments are
paid or accrued in accordance with the holder's regular method of accounting.
Because the Regulations have not yet been addressed in any published rulings or
other published interpretations issued by the Internal Revenue Service, it is
possible that the Internal Revenue Service could take a position contrary to the
position taken by the Company.
If the Company were to exercise its option to defer the payment of stated
interest on the Subordinated Debentures, the Subordinated Debentures would be
treated, solely for purpose of the OID rules, as being "reissued" at such time
with OID. Under these rules, a holder of the Subordinated Debentures would be
required to include OID in ordinary income, on a current basis, over the period
that the instrument is held even though the Company would not be making any
actual cash payments during the extended interest payment period. The amount of
interest income includible in the taxable income of a holder of the Subordinated
Debentures would be determined on the basis of a constant yield method over the
remaining term of the instrument and the actual receipt of future payments of
stated interest on the Subordinated Debentures would no longer be separately
reported as taxable income. The amount of OID that would accrue, in the
aggregate, during the extended interest payment period would be approximately
equal to the amount of the cash payment due at the end of such period. Any OID
included in income would increase the holder's adjusted tax basis in the
Subordinated Debentures and the holder's actual receipt of interest payments
would reduce such basis.
Because income on the Preferred Securities will constitute interest income
for United States federal income tax purposes, corporate holders of Preferred
Securities will not be entitled to claim a dividends received deduction in
respect of such income.
Market Discount and Acquisition Premium
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debentures with "market discount"
or "acquisition premium" as such phrases are defined for United States federal
income tax purposes. Such holders are advised to consult their tax advisors as
to the income tax consequences of the acquisition, ownership and disposition of
the Preferred Securities.
Receipt of Subordinated Debentures or Cash Upon Liquidation of the Trust
Under certain circumstances, as described under "Description of Preferred
Securities -- Redemption or Exchange" and " -- Liquidation Distribution Upon
Dissolution," the Subordinated Debentures may be distributed to holders of
Preferred Securities upon a liquidation of the Trust. Under current United
States federal income tax law, such a distribution would be treated as a
nontaxable event to each such holder and would result in such holder having an
adjusted tax basis in the Subordinated Debentures received in the liquidation
equal to such holder's adjusted tax basis in the Preferred Securities
immediately before the distribution. A holder's holding period in the
Subordinated Debentures so received in liquidation of the Trust would include
the period for which such holder held the Preferred Securities.
If, however, a Tax Event occurs which results in the Trust being treated as
an association taxable as a corporation, the distribution would likely
constitute a taxable event to holders of the Preferred Securities. Under certain
circumstances described herein, the Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred
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<PAGE>
Securities. Under current law, such a redemption would, for United States
federal income tax purposes, constitute a taxable disposition of the redeemed
Preferred Securities, and a holder would recognize gain or loss as if the holder
sold such Preferred Securities for cash. See "Description of Preferred
Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon
Dissolution."
Disposition of Preferred Securities
Upon the sale of the Preferred Securities, a holder will recognize gain or
loss in an amount equal to the difference between his adjusted tax basis in the
Preferred Securities and the amount realized in the sale (except to the extent
of any amount received in respect of accrued but unpaid interest not previously
included in income). A holder's adjusted tax basis in the Preferred Securities
generally will be his initial purchase price increased by OID (if any)
previously includible in the holder's gross income to the date of disposition
and decreased by payments (if any) received on the Preferred Securities in
respect of OID (if any) to the date of disposition. Such gain or loss generally
will be a capital gain or loss and will be a long-term capital gain or loss if
the Preferred Securities have been held for more than one year at the time of
the sale.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the Subordinated
Debentures are treated as having been issued, or reissued, with OID) with
respect to the underlying Subordinated Debentures. A holder who disposes of his
Preferred Securities will be required to include in ordinary income (i) any
portion of the amount realized that is attributable to such accrued but unpaid
interest to the extent not previously included in income, or (ii) any amount of
OID, in either case, that has accrued on his pro rata share of the underlying
Subordinated Debentures during the taxable year of sale through the date of
disposition. Any such income inclusion will increase the holder's adjusted tax
basis in his Preferred Securities disposed of. To the extent that the amount
realized in the sale is less than the holder's adjusted tax basis, a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
Effect of Changes in Tax Laws
Although the Taxpayer Relief Act of 1997, signed into law by President
Clinton on August 5, 1997, does not deny interest deductions to be made with
respect to the Preferred Securities, there can be no assurance that other
legislation enacted after the date of this Prospectus will not otherwise
adversely affect the ability of the Company to deduct the interest payable on
the Subordinated Debentures. Consequently, there can be no assurance that a Tax
Event will not occur. A Tax Event would permit the Company, upon approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve, to cause a redemption of the Preferred Securities
before, as well as after, , 2002. See "Description of the Subordinated
Debentures -- Redemption or Exchange" and "Description of Preferred Securities
- -- Redemption or Exchange -- Tax Event Redemption, Capital Treatment Event
Redemption or Investment Company Event Redemption."
Backup Withholding and Information Reporting
The amount of OID accrued on the Preferred Securities held of record by
individual citizens or residents of the United States, or certain trusts,
estates, and partnerships, will be reported to the IRS on Forms 1099, which
forms should be mailed to such holders of Preferred Securities by January 31
following each calendar year. Payments made on, and proceeds from the sale of,
the Preferred Securities may be subject to a "backup" withholding tax (currently
at 31%) unless the holder complies with certain identification and other
requirements. Any amounts withheld under the backup withholding rules will be
55
<PAGE>
allowed as a credit against the holder's United States federal income tax
liability, provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
CERTAIN ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), should consider their
obligations under ERISA in determining whether to purchase Preferred Securities.
In general, a person or entity that has discretionary authority or control over
the management of a plan's assets or provides investment advice for a fee is
considered to be a fiduciary of the plan. Section 404(a)(1) of ERISA requires
fiduciaries of plans to discharge their duties with respect to a plan solely in
the interest of the participants and beneficiaries of the plan and (1) for the
exclusive purpose of providing benefits to participants and their beneficiaries;
and deferring reasonable expenses of administering the plan; (2) with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of enterprise of a like character and with like aims; (3) by
diversifying the investments of the plan so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so; and
(4) in accordance with the documents and instruments governing the plan insofar
as such documents and instruments are consistent with the provisions of ERISA.
Fiduciaries of plans subject to ERISA or Section 4975 of the Code should
also consider whether purchasing Preferred Securities may result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code. ERISA
prohibits certain transactions between an employee benefit plan and a "party in
interest," as that term is defined in Section 3(14) of ERISA. Engaging in a
prohibited transaction may subject fiduciaries of a plan subject to ERISA to
potential personal liability and may result in the imposition of an excise tax
on certain "disqualified persons," as that term is defined in Section 4975 of
the Code, with respect to the plan. In general, the terms "party in interest"
and "disqualified person" mean the employer which sponsors the plan, certain
affiliates of the employer, certain officers, directors, shareholders and
employees of the employer and fiduciaries or other parties who provide services
to the plan. Section 4975 of the Code contains similar restrictions and excise
tax penalties that are applicable to prohibited transactions involving Keoghs,
IRAs and other plans subject to Section 4975.
Among other things, Section 406(a) of ERISA prohibits a fiduciary with
respect to a plan from causing the plan to engage in a transaction, if he knows
or should know that such transaction constitutes a direct or indirect (1) sale
or exchange, or leasing, of any property between the plan and a party in
interest; (2) lending of money or other extension of credit between the plan and
a party in interest; or (3) transfer to, or use by or for the benefit of, a
party in interest, of any assets of the plan. Further, Section 406(b) of ERISA
prohibits a fiduciary of a plan from dealing with the assets of the plan in his
own interest or for his own account, or in its individual or any other capacity
acting in any transaction involving the plan on behalf of a party (or represent
a party) whose interests are adverse to the interest of the plan or the interest
of its participants or beneficiaries.
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<PAGE>
If the Underwriter is a party in interest or disqualified person with
respect to a plan subject to ERISA or Section 4975 of the Code which purchases
Preferred Securities, such purchases may constitute or result in a prohibited
transaction under ERISA or the Code, unless such Preferred Securities are
acquired pursuant to and in accordance with an individual or class exemption
issued by the Department of Labor.
Fiduciaries acting on behalf of employee benefit plans subject to ERISA or
Section 4975 of the Code which purchase Preferred Securities should consider
whether the underlying assets of the Trust will be "plan assets" within the
meaning of Title 29 of the Code of Federal Regulations Section 2510.3-101. If
the underlying assets of the Trust are considered to be plan assets of plans
which purchase Preferred Securities, and the Company or any of its affiliates is
a party in interest or disqualified person with respect to such plans, any
purchases and holding of Preferred Securities by a plan may constitute or result
in a prohibited transaction unless such Preferred Securities are acquired and
held pursuant to and in accordance with an individual or class exemption issued
by the Department of Labor. Regulations issued by the U.S. Department of Labor
generally provide that when a plan invests in an equity interest in an entity
which is neither a "publicly offered security" nor a security issued by an
investment company registered under the Investment Company Act of 1940, its
assets include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless the entity is an operating company or
equity participation in the entity by "benefit plan investors" is not
significant.
The Department of Labor regulations provide that a "publicly offered
security" is a security that is (1) freely transferrable, (2) registered under
the applicable provisions of the federal securities laws and (3) owned by 100 or
more investors independent of the issuer and of one another. Although the
Preferred Securities are freely transferable and are registered under federal
securities laws, it is unknown whether they will be owned by 100 or more
investors independent of the issuer and one another. It is also unknown whether
equity participation in the Trust by benefit plan investors will be
"significant" within the meaning of the Department of Labor regulations.
Consequently, plans subject to ERISA or Section 4975 of the Code, with respect
to which the Company or any of its affiliates is a party in interest or
disqualified person, should not purchase Preferred Securities unless such
purchase is made pursuant to and in accordance with an applicable prohibited
transaction exemption.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Accordingly, fiduciaries acting on behalf of plans subject to ERISA
or Section 4975 of the Code are urged to consult their own legal advisors with
respect to the considerations under ERISA and the Code associated with
purchasing and holding Preferred Securities.
UNDERWRITING
Sandler O'Neill & Partners, L.P. (the "Underwriter") has agreed, subject to
the terms and conditions set forth in the Underwriting Agreement, the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, to purchase from the Trust the Preferred Securities.
The Underwriter has agreed in the Underwriting Agreement, subject to the terms
and conditions set forth therein, to purchase all the Preferred Securities
offered hereby if any of the Preferred Securities are purchased.
The Underwriter has advised the Trust that it proposes initially to offer
the Preferred Securities to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per Preferred Security. The Underwriter may
allow, and such dealers may reallow, a discount not in excess of $ per
Preferred Security to certain
57
<PAGE>
other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreement provides that the Company will pay as compensation to
the Underwriter arranging the investment therein of such proceeds, an amount in
immediately available funds of $ per Preferred Security (or $ in the
aggregate) for the account of the Underwriter.
The Trust has granted the Underwriter an option to purchase up to an
additional 150,000 Preferred Securities at the public offering price. Such
option, which expires 30 days from the date of this Prospectus, may be exercised
solely to cover over-allotments.
To the extent that the Underwriter exercises its option to purchase
additional Preferred Securities, the Trust will issue and sell to the Company
additional Common Securities in such aggregate Liquidation Amount as is required
for the Company to continue to hold Common Securities in an aggregate
Liquidation Amount equal to at least 3% of the total capital of the Trust and
the Company will issue and sell to the Trust 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 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. In such 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 that 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.
During a period of 180 days from the date of this Prospectus, neither the
Trust nor the Company will, subject to certain exceptions, without the prior
written consent of the Underwriter, directly or indirectly, sell, offer to sell,
grant any option for sale of, or otherwise dispose of, any Preferred Securities,
any security convertible into or exchangeable into or exercisable for Preferred
Securities or Subordinated Debentures or any debt securities substantially
similar to the Subordinated Debentures or equity securities substantially
similar to the Preferred Securities (except for Subordinated Debentures and the
Preferred Securities offered hereby).
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<PAGE>
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. Application has been made to have Preferred Securities approved
for quotation on The Nasdaq Stock Market, subject to meeting the initial listing
requirements. There is no assurance that upon consummation of the Offering there
will be a sufficient number of shareholders or market makers to enable the
Preferred Securities to qualify for initial listing on the Nasdaq Stock Market.
If the Preferred Securities fail to meet the initial listing requirements of the
Nasdaq Stock Market, trading in the Preferred Securities, if any, would be
conducted in the over-the-counter market or through the National Association of
Securities Dealer's "Electronic Bulletin Board." The Underwriter has advised the
Trust that it presently intends to make a market in the Preferred Securities,
but no assurances can be made as to the liquidity of such Preferred Securities
or that an active and liquid trading market will develop or, if developed, that
it will continue. The absence or discontinuance of such a market may have an
adverse impact on both the price and liquidity of the Preferred Securities. 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. The Underwriter will have no obligation to make a market in the
Preferred Securities, however, and may cease market-making activities, if
commenced, at any time.
The Trust and the Company have agreed to indemnify the Underwriter
against, or contribute to payments that the Underwriter may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act.
Sandler O'Neill & Partners, L.P. engages in transactions with, and, from
time to time, has performed services for, the Company and its subsidiaries in
the ordinary course of business.
LEGAL MATTERS
Certain matters relating to the formation of the Trust, the enforceability
of the Trust Agreement, the validity of the Preferred Securities, the
Subordinated Debentures and the Guarantee, and United States federal income
taxes will be passed upon by Stradley, Ronon, Stevens & Young, LLP, counsel to
the Company and the Trust. Certain legal matters will be passed upon for the
Underwriter by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, appearing in the 1996 Annual Report of the Company to its stockholders
and incorporated by reference in the Annual Report on Form 10-K for the year
ended December 31, 1996, have been incorporated by reference in this Prospectus
and in the Registration Statement of which this Prospectus forms a part, in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, whose report thereon appears
therein, and upon the authority of said firm as experts in accounting and
auditing.
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;
2. the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997; and
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3. the Company's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A,
for the quarter ended June 30, 1997 (included herein as Appendix B).
In addition, the following portions of the Company's 1996 Annual Report to
Stockholders (included herein as Appendix A) are incorporated into this
Prospectus by reference:
1. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations; and
2. Selected Historical Consolidated Financial Data, Financial Statements
and Notes to Consolidated Financial Statements.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of 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 modifies or supersedes 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.
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: YARDVILLE
NATIONAL BANCORP, 4569 SOUTH BROAD STREET, YARDVILLE, NEW JERSEY 08620, ATTN:
CHIEF FINANCIAL OFFICER (TELEPHONE (609) 581-2883.
As used herein, the terms "Prospectus" and "herein" mean 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. If available, such information also may be accessed through the
Commission's electronic data gathering, analysis and retrieval system ("EDGAR")
via electronic means, including the Commission's home page on the Internet
(http://www.sec.gov). The Company's common stock is traded on the Nasdaq
National Market. Such reports, proxy statements and other information concerning
the Company also may be inspected at the
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offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-2 (the "Registration Statement") pursuant to the Securities Act, with respect
to the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules relating thereto as permitted by the rules and regulations of the
Commission. For further information pertaining to the Company and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto. Items of information omitted from this Prospectus, but contained in the
Registration Statement, may be obtained at prescribed rates or inspected without
charge at the offices of the Commission set forth above. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of the Preferred Securities because (i) all of the voting securities
of the Trust will be owned by the Company, a reporting company under the
Exchange Act, (ii) the Trust has no independent operations and exists for the
sole purpose of issuing securities representing undivided beneficial interest in
the assets of the Trust and investing the proceeds thereof in the 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 under the
Indenture and pursuant to the Trust Agreement, the guarantee issued by the
Company with respect to the Preferred Securities, and the Subordinated
Debentures purchased by the Trust and the related Indenture, taken together,
constitute, in the belief of the Company and the Trust, a full and unconditional
guarantee of payments due on the Preferred Securities. See "Description of the
Subordinated Debentures" and "Description of the Guarantee."
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although it
intends to seek and expects to receive an exemption therefrom.
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APPENDIX A
<PAGE>
Yardville National Bancorp and Subsidiary
FINANCIAL HIGHLIGHTS
--------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 Increase
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31
Net income $ 4,026 $ 3,403 18.3%
Cash dividends declared per common share 0.45 0.38 18.4
- -------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AS OF DECEMBER 31
Total assets $490,545 $403,115 21.7%
Total deposits 364,445 302,972 20.3
Total loans 331,237 245,054 35.2
Stockholders' equity 35,230 31,717 11.1
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED RATIOS
Return on average assets 0.90% 0.99%
Return on average stockholders' equity 12.25 13.84
Total equity to total assets 7.18 7.87
Tier I capital to risk-weighted assets 10.17 11.95
Total capital to risk-weighted assets 11.43 13.20
Nonperforming loans to total assets 1.66 0.70
Nonperforming loans to year-end loans 2.46 1.15
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
NET INCOME
(dollars in thousands)
1992.......................... 568
1993.......................... 1,925
1994.......................... 2,523
1995.......................... 3,403
1996.......................... 4,026
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
TOTAL ASSETS
(dollars in thousands)
1992.......................... 205,494
1993.......................... 223,438
1994.......................... 280,550
1995.......................... 403,115
1996.......................... 490,545
<PAGE>
Letter to stockholders
To our
stockholders, employees,
and friends:
From an organization focused solely on Hamilton Township, YNB has broadened
its market to encompass all of Mercer County. Now, as we move energetically into
the future of financial services, YNB plans to bring its special kind of
community banking to contiguous markets, looking to Burlington, Bucks and
Middlesex counties for our future growth.
Yet even as we grow and expand, one aspect remains constant: YNB's
commitment to its communities and our knowledge of our market area. In this, we
distinguish ourselves clearly from the large superregional and money center
banks in our state, and the non-bank financial services companies with no roots
in our community. We live among our customers. We understand what they want,
appreciate their business, and make our decisions accordingly.
YNB has positioned itself for success in the future with a winning
combination of personal service, banking experience, technological support, and
innovative, customer-centered product offerings. Our products are up-to-date and
responsive to customer wants and desires. New offerings like Second Check, our
new debit card, and the Chairman's Choice account, among others, give customers
what they need. And we have added the technology to support new products and to
greatly enhance customer convenience. As a result of our long-term vision,
earnings have continued to climb, our horizons have widened considerably, and
our future looks bright.
GROWTH IN ALL DIMENSIONS
In 1996, net income rose 18.3% to $4,026,000, or $1.64 per share on a fully
diluted basis, compared with 1995 net income of $3,403,000, or $1.60 per share
on a fully diluted basis. Our year-end assets reached $490,545,000, compared
with $403,115,000 just a year ago, and we plan on continued growth as we
approach the year 2000.
Our earnings growth has been fueled by an active commitment to increase
quality loan assets of all types. By expanding our presence in the commercial,
residential mortgage, and consumer lending markets, YNB has grown our loan
portfolio over the past year, with total outstandings reaching $331,237,000 at
December 31, 1996. This represents an increase of 35.2% over the total of
$245,054,000 at the same date of the prior year. Our portfolio is diverse and
well-balanced, reflecting the healthy consumer and business sectors in the
market area we serve.
There will, however, be rough spots at times. Nonperforming assets totaled
$8,535,000 at December 31, 1996, compared to $3,444,000 at December 31, 1995.
The increase in nonperforming assets is due to two loans backed by real estate
collateral which management is diligently striving to resolve. The allowance for
loan losses now totals $4,957,000 or 1.50% of total loans, covering 58.1% of
total nonperforming assets.
On the deposit side, YNB continues to experience excellent growth. Total
deposits increased 20.3% in 1996 to $364,445,000 at year end, compared with
$302,972,000 at year-end 1995. This increase can be attributed to the variety of
new and convenient products we offer and the expansion of our retail banking
network to meet the needs of
YNB has positioned
itself for Success
in the Future
today's banking customers. For a discussion of our many new products,
please see "Ongoing Expansion for the Future" beginning on page four.
We are also extremely gratified to report that we were able to maintain our
record of sharing growth with our stockholders in 1996. The Board voted to raise
the quarterly dividend again this past year in October 1996 to $0.12 per share,
for an annualized dividend of $0.45. Our share price continued to show strength
and stability, and our listing on NASDAQ continues to provide additional
liquidity and flexibility for current stockholders as well as opening up the
market for new stockholders who want to participate in our future.
YNB's capital remains strong as well. Our equity to assets ratio for the
period ended December 31, 1996 was 7.18%, comfortably meeting regulatory
requirements. Total risk-based capital at year-end 1996 was 11.43%, also
comparing favorably with the Federally-mandated minimum ratio.
-2-
<PAGE>
YNB EXPANDS ITS HORIZONS TO MOVE INTO THE FUTURE
We completed a major technology upgrade at YNB this past year, enabling us
to offer an enhanced product and service line and improved customer convenience.
State-of-the-art technology is essential for YNB's growth, and we have made this
investment because we are convinced it will both serve customers now and produce
long-term benefits for the future. But it is our commitment to high quality
personal customer service that will continue to differentiate YNB from other,
larger institutions.
[PICTURE]
Leading YNB into the future are (l. to r.) Jay G. Destribats, Chairman of the
Board; Patrick M. Ryan, President and CEO; and Stephen F. Carman, Executive
Vice President and CFO.
Moving YNB Forward
We view our employees and managers as a most precious resource. To
underscore their importance to YNB's future, we have featured them in this
year's report as they go about their daily tasks in moving YNB forward.
Our directors, also, play a significant role as our best link to the
community. In this report, we pay tribute to three of them who have served YNB
long and well: John C. Stewart, the late William J. Steiner, Jr., and the late
Edward M. Hendrickson. Mr. Hendrickson became a Director Emeritus on November
26, 1996, and Messrs. Stewart and Steiner moved to Director Emeritus in March
1997. We thank all of our directors for their tireless work on the bank's
behalf.
Finally, we want you, our stockholders, to know how much we value your
loyalty and confidence in us. As we move into new markets with our long-term
vision of success as an independent community bank, we pledge you our best
efforts to grow profitably, with rewards for customers and stockholders alike.
Leading YNB
into the future are (l. to r.)
Jay G. Destribats,
Chairman of the Board; [PHOTO]
Patrick M. Ryan,
President and CEO; and
Stephen F. Carman,
Executive Vice President and CFO.
Sincerely yours,
/s/ Jay G. Destribats /s/ Patrick M. Ryan
- ---------------------------- ----------------------------
Jay G. Destribats Patrick M. Ryan
Chairman of the Board President and Chief Executive Officer
-3-
<PAGE>
Ongoing Expansion
for the Future
Banking continues to be a fast moving business. We clearly recognize that
in order to serve our customers well, stay competitive, and position ourselves
for ongoing expansion in the future, YNB must use our strengths - particularly
our experienced staff with their high energy level -- to maintain and enhance
our position in the marketplace.
It is by offering our customers the best of both worlds -- the friendly,
attentive service of a community bank accompanied by the technical
sophistication and diverse product line equal to that of a major regional
bank -- that YNB can achieve its goals.
In 1996, this is just what we've done.
RESPONDING TO CUSTOMERS
We accelerated the technology upgrade which began in 1995 with the addition
of a sophisticated computer system that has greatly improved convenience for our
customers. We made our debut on the Internet in 1996, and continue to add
features to our home page that make obtaining information about YNB accounts,
rates, and investment opportunities quick and easy to access.
Even with our advances in technology, however, we work very hard to retain
the personal service and interest in each customer that YNB was built upon. Our
branch managers are key to this effort. They know their customers -- and they
understand and respond to their specific needs.
For example, we opened two new branches in 1996: on Scotch Road in West
Trenton, and at Nottingham Pointe at the eastern boundary of Hamilton Township.
Both areas are dynamic, growing locations for consumer and commercial business.
Demonstrating the flexibility and responsiveness of a community bank, we have
extended our evening hours at these and our seven other branches. All nine YNB
bank offices are now open until 6 PM both Thursday and Friday.
Branch managers
offer Personal attention
and serve Community
Needs
YNB also introduced new products and banking services in the past year to
offer our customers a wide range of options. To serve customers who need a low
minimum balance account, and to reward those who can maintain higher balances,
we introduced Chairman's Choice in 1996. This interest-earning account offers
customers two rates of interest. A higher rate is paid on larger balances, while
interest can still be earned on lower ones.
In the second half of 1996, we issued our new Second Check debit card to
all YNB MAC card holders -- at no annual fee. Combining the convenience of an
ATM card with the flexibility of a purchase card, Second Check deducts the
amount of the customer's purchase immediately from a checking account. Quick,
easy, and safe, it helps consumers avoid high interest credit card debt without
the
-4-
<PAGE>
identification issues of check cashing. Reaction from our customers to this
new offering has been extremely positive.
Rounding out our innovations to increase retail customer convenience, we've
introduced the YNB Money Phone this year. Customers just dial the YNB Money
Phone 800 number,
Consumer education
is an important focus [PHOTO]
at YNB
Educating
Customers on Choices
--------------------
and using the Second Check card, can transfer funds, check balances, and
hear investment rates -- 7 days a week, 24 hours a day.
1996 was a year to introduce new products, and continue to offer some old
favorites as well. Primary among these was YNB's Always Win CD -- the most
popular CD product we have ever offered. Starting out with a highly competitive
rate, Always Win automatically reviews the customer's CD rate at the halfway
point to maturity. If the current rate is higher than when the CD was issued,
the customer's rate increases. If rates have gone down, the initial rate
remains. The Always Win CD is just that -- a win/win situation for all.
-5-
<PAGE>
Ongoing Expansion
for the Future
- -----------------
Innovation is not limited to the consumer banking area by any means. Our new
technology has been put to work for commercial customers, too, as we introduced
YNB's Cash Command, automated clearing house services for the business customer.
Cash Command helps businesses eliminate paperwork through direct deposits of
payroll, consolidate cash from multiple locations to maximize available
balances, and manage internal transfer of funds between various accounts --
right from the customer's own office. In addition, our Gemini product allows
customers to choose the additional services they want, including sweeps of
excess funds, maintenance of minimum deposits, and overdraft protection.
OUR PEOPLE MAKE THE DIFFERENCE
More than anything else, it is the knowledge and experience of our business
bankers, coupled with their quick response to customers, that distinguishes YNB.
Our commercial lenders are intimately familiar with business conditions in our
market area. They know the details of their customers' financial situations. And
they are able to offer creative solutions to their business challenges.
Encompassing both our commercial and consumer banking efforts is our
dedication to community service. YNB is well known in our market area for both
our financial support and the service of our officers on numerous community
boards and organizations. Their participation in the life of our community goes
far beyond that of most banks our size, and we salute and support their efforts.
Another facet of our community service is education. We believe that
well-informed consumers make better banking customers, and
YNB's Quick response
to Commercial customers
sets us Apart
so YNB conducts numerous seminars on credit, mortgage alternatives, and
small business management, among others.
Finally, in order to be able to serve all these constituencies well, YNB
takes great care in the financial management of the corporation. Assets and
liabilities must be carefully matched, expenditures monitored, and branches
properly planned and secured. Our support staff are the less visible, but
essential backbone of YNB's growth, and their skill and diligence continue to
serve us well.
YNB is dedicated to staying at the forefront of banking innovation. As we
look to the future, we plan to keep current with industry improvements by
offering enhanced PC-based products for our customers. We will also offer
expanded financial services such
-6-
<PAGE>
as brokerage and mutual funds so that our customers can continue to receive
all the financial services they need and want from their community bank -- YNB.
Looking forward, we are also aware of the need to enhance our efficiency.
Accordingly, we are examining the benefits of establishing a new corporate
headquarters, still in Hamilton Township, to
Careful
financial management [PHOTO]
is essential
to YNB's growth
Enhancing
Efficiency and Service
bring all of our management team together under one roof. This will
increase productivity, facilitate rapid interchange of ideas, and benefit
stockholders and customers alike.
We believe the niche occupied by community banks will continue to be a
profitable one. Smaller banks like YNB are growing because we offer what our
customers want -- top flight service backed by modern technology, a complete
range of products and services, and people who care about them and value their
business. In the new age of community banking, YNB has been able to move ahead
by adapting to changing market conditions while retaining our unique personality
and business philosophy. With this strategy, we believe we will maintain our
leadership position in the central New Jersey marketplace.
-7-
<PAGE>
Salute
to Directors Emeritus
As we look to the future, it is also important to honor our past. And nowhere is
our tradition of service to the community better represented than in our
directors. While many of them have served YNB with distinction for numerous
years, we would like to salute our three Directors Emeritus in this annual
report: John C. Stewart, the late William J. Steiner, Jr., and the late Edward
M. Hendrickson, together representing 79 years of service on YNB's Board of
Directors.
Photo of John C. Stewart
John C. Stewart, who became Director Emeritus this year, has a unique
history with Yardville -- the bank and the community. He made his mark in
Yardville when he developed the land behind Yardville School for almost 100
single family homes. He converted the old school house in the center of
Yardville to apartments, and built the structure that now serves as YNB's
operations center. If anyone can hold the title of "Mr. Yardville," it is John
Stewart.
After helping to develop the town, Mr. Stewart joined the Board of
Yardville National Bank in 1966, and has served actively and faithfully ever
since. He became the Board's second vice chairman in July 1990, and vice
chairman in April 1993, a post he has held until this year. A well-known figure
in all the bank offices, Mr. Stewart can be seen during the day and at many
times on the weekends at the Yardville office, making the rounds to "be sure the
bank is running well."
Photo of William J. Steiner, Jr.
William J. Steiner, Jr., who passed away March 9, 1997, may have had less
years of seniority on our Board than Mr. Stewart, but served YNB just as
enthusiastically. A longtime resident of Mercerville, Bill joined the Board in
1985, just as banking was evolving into the complex financial services business
it is today. He helped guide the bank as a member of the audit, stock option,
and asset/liability committees, and as chair of the bank's investment committee.
A former fire commissioner of the Mercerville Fire Company as well as a
retired educator and local business owner, Bill was active in many facets of our
community's life. We will miss his valuable advice.
Photo of Edward M. Hendrickson
Edward M. Hendrickson was almost as much of an institution as the bank
itself, and we will miss his fellowship and counsel. One of the original
depositors of the bank at its founding in 1925, Mr. Hendrickson saw -- and
participated in -- the world of change that the bank has experienced. From
watching his deposits handwritten in a journal 72 years ago to using a
YNB ATM recently, Ed was there.
Ed Hendrickson was an active member of the YNB Board of Directors from 1961
until his death on March 5, 1997. During his tenure on the Board, Ed
participated in most of the decisions that have brought YNB to its present
leadership role in the community banking world. But he was also instrumental in
bringing services of another kind to the community. As a founding member of the
Mercer Street Friends, Ed worked tirelessly for 40 years to assist the urban
poor from the Greater Trenton area by providing a center for neighborhood
children and senior citizens. His life was truly a demonstration of what one
person can do to serve his fellow individuals, and we are fortunate to have his
example to follow.
If a financial institution can only be as strong as the hands and minds
guiding it, we are extremely grateful to have had the resources of these three
individuals to draw upon. We look forward to John Stewart's continued service as
Director Emeritus as YNB moves briskly into the future.
-8-
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial data with respect to
Yardville National Bancorp and subsidiary on a consolidated basis. This table
should be read in conjunction with Yardville National Bancorp's historical
consolidated financial statements and related notes thereto. All per share data
has been restated to reflect the two-for-one stock split effected in the form of
a stock dividend in November 1994.
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
(in thousands)
Interest income $ 34,251 $ 27,336 $18,004 $ 14,055 $ 13,990
Interest expense 17,041 12,841 6,360 5,355 6,660
- -------------------------------------------------------------------------------------------------------------
Net interest income 17,210 14,495 11,644 8,700 7,330
Provision for loan losses 1,640 865 305 -- 50
Securities (losses) gains, net (136) (91) (124) 294 153
Gains on sales of mortgages, net 21 19 92 354 351
Other non-interest income 2,228 1,927 1,586 1,542 1,499
Non-interest expense 11,479 10,260 9,285 8,423 8,325
- -------------------------------------------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of the
change in accounting principle 6,204 5,225 3,608 2,467 958
Income tax expense 2,178 1,822 1,085 733 390
- -------------------------------------------------------------------------------------------------------------
Income before cumulative
effect of the change in
accounting principle 4,026 3,403 2,523 1,734 568
Cumulative effect of the change
in accounting principle -- -- -- 191 --
- -------------------------------------------------------------------------------------------------------------
Net income $ 4,026 $ 3,403 $ 2,523 $ 1,925 $ 568
- -------------------------------------------------------------------------------------------------------------
BALANCE SHEET
(in thousands)
Assets $490,545 $403,115 $280,550 $223,438 $205,494
Deposits $364,445 $302,972 $259,296 $206,688 $192,223
Loans, net of unearned income $331,237 $245,054 $196,910 $134,983 $106,993
Stockholders' equity $ 35,230 $ 31,717 $ 18,451 $ 14,208 $ 10,829
Allowance for loan losses $ 4,957 $ 3,677 $ 2,912 $ 2,703 $ 2,940
PER SHARE DATA
Net income -- fully diluted $ 1.64 $ 1.60* $ 1.56* $ 1.86 $ 0.61
Cash dividends $ 0.45 $ 0.38 $ 0.28 $ -- $ --
Stock dividends -- -- -- -- 5.00%
Stockholders' equity (book value) $ 14.50 $ 13.50 $ 11.92 $ 12.42 $ 11.69
OTHER DATA
Average shares outstanding 2,462,000 2,192,000 1,757,000 1,036,000 926,000
</TABLE>
* 1995 and 1994 earnings per share amounts were calculated utilizing the
modified treasury stock method, while remaining years were calculated
utilizing the treasury stock method. The modified treasury stock method
includes the potential dilutive effect of options and warrants not included
in the treasury stock method. The expiration of warrants in June 1996
resulted in a change in the computation method of earnings per share from
the modified treasury stock method in 1994 and 1995 to the treasury stock
method in 1996.
-9-
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS
Return on average assets 0.90% 0.99% 1.04% 0.92% 0.29%
Return on average stockholders'
equity 12.25 13.84 15.89 15.81 5.44
Net interest margin (FTE) (1) 4.10 4.49 5.16 4.51 3.99
Expense ratio (2) 2.17 2.55 3.36 3.53 3.68
Average stockholders' equity to
average assets 7.33 7.14 6.57 5.79 5.24
Dividend payout ratio 26.90 21.69 15.06 -- --
Leverage ratio (3) 7.21 7.84 6.97 6.36 5.27
Tier 1 capital as a percent of
risk-weighted assets 10.17 11.95 9.59 9.38 8.81
Total capital as a percent of
risk-weighted assets 11.43 13.20 10.84 10.64 10.07
Allowance for loan losses
to total loans (year end) 1.50 1.50 1.48 2.00 2.75
Net loan charge offs to average
total loans 0.13 0.05 0.06 0.20 0.45
Nonperforming loans to total loans 2.46 1.15 1.05 1.83 4.32
Nonperforming assets (4) to
total loans and other real estate
owned (year end) 2.57 1.40 1.21 2.83 5.30
Allowance for loan losses
to nonperforming assets (year end) 58.08 106.77 122.35 69.92 51.34
Allowance for loan losses
to nonperforming loans (5) (year end) 60.90% 130.44% 140.95% 109.30% 63.65%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tax equivalent based on a 34% Federal tax rate for all periods presented
(FTE = Federal tax equivalent basis).
(2) Non-interest expense minus non-interest income before asset sales to
average earning assets.
(3) Leverage ratio is Tier 1 capital to year-end total assets.
(4) Nonperforming assets include nonperforming loans and other real estate
owned. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition."
(5) Nonperforming loans include nonaccrual loans, restructured loans, and loans
90 days past due or greater and still accruing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition."
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Planned strategic growth continued for Yardville National Bancorp and
subsidiary (YNB) in 1996. In 1996, YNB achieved continued growth in earnings.
YNB increased its branch network to nine, opening branches in Hamilton Square
and West Trenton. YNB's emphasis on establishing and building relationships both
in the commercial and consumer banking areas has resulted in a substantial
increase in loans and deposits. Also, in 1996, YNB completed a significant
upgrade in computer systems, both in the branch and back office. This system
upgrade is designed to increase product diversity and to continue quality
customer service.
Net income amounted to $4,026,000, an 18.3% increase, compared to the
record results of $3,403,000 reported in 1995. Earnings were primarily enhanced
by the substantial loan growth experienced throughout the year. The loan
portfolio, primarily commercial, grew 35.2% in 1996 compared to 1995. At
December 31, 1996 total loans outstanding were $331,237,000 compared to
$245,054,000 recorded at the end of 1995. The allowance for loan losses now
totals $4,957,000 or 1.50% of total loans, covering 58.1% of total nonperforming
assets.
YNB's deposit base increased 20.3%, to total $364,445,000 at December 31,
1996. Certificates of deposit were competitively priced in the marketplace in
1996 to fund loan growth.
Return on average assets decreased to 0.90% in 1996 from 0.99% in 1995. The
1996 return on average stockholders' equity decreased to 12.25% compared to
13.84% in 1995. The decline in these performance measures is discussed in
management's results of operations and financial condition analysis that
follows.
RESULTS OF OPERATIONS
YNB earned $4,026,000 or $1.64 per share for the year ended December 31,
1996 compared to $3,403,000 or $1.60 per share for the year ended December 31,
1995. YNB reported net income of $2,523,000 or $1.56 per share in 1994. The
increase in earnings per share in 1996 is attributable to increased earnings and
the expiration of warrants in June 1996 which resulted in a change in the
computation method of earnings per share from the modified treasury stock method
in 1995 to the treasury stock method in 1996. The increase in earnings per share
from 1994 to 1995 is attributable to increased earnings. Both years are computed
under the modified treasury stock method.
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
RETURN ON AVERAGE ASSETS
1992............................. .29%
1993............................. .92%
1994............................. 1.04%
1995............................. .99%
1996............................. .90%
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
RETURN ON AVERAGE STOCKHOLDERS' EQUITY
1992............................ 5.44%
1993............................ 15.81%
1994............................ 15.89%
1995............................ 13.84%
1996............................ 12.25%
NET INTEREST INCOME
Net interest income, YNB's largest and most significant component of
operating income, is the difference between interest and fees earned on loans
and other earning assets, and interest paid on deposits and borrowed funds. Net
interest income is impacted by the volume of interest earning assets and
liabilities, level of rates earned on those assets, and the cost of interest
bearing liabilities. Changes in nonperforming assets, together with interest
lost and recovered on those assets, also impact comparisons of net interest
income.
The following tables set forth YNB's consolidated average balances of
assets, liabilities, and stockholders' equity as well as the amount of interest
income and expense on related items, and YNB's average yield/rate for the years
ended December 31, 1996, 1995, 1994, 1993, and 1992.
-11-
<PAGE>
FINANCIAL SUMMARY
Average Balances, Rates Paid and Yields
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Time deposits with other banks $ 1,992 $ 98 4.92% $ 685 $ 36 5.26%
Federal funds sold 4,265 228 5.35 7,838 464 5.92
Securities 132,036 8,194 6.21 97,456 5,756 5.91
Loans, net of unearned income (1) 287,289 25,731 8.96 221,232 21,080 9.53
- -------------------------------------------------------------------------------------------------------------
Total interest earning assets $425,582 $34,251 8.05% $327,211 $27,336 8.35%
- -------------------------------------------------------------------------------------------------------------
NON-INTEREST EARNING ASSETS:
Cash and due from banks $ 11,905 $ 8,778
Allowance for loan losses (4,190) (3,265)
Premises and equipment, net 5,037 4,175
Other assets 10,156 7,490
- -------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 22,908 17,178
- -------------------------------------------------------------------------------------------------------------
Total assets $448,490 $344,389
- -------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking $133,450 $ 4,014 3.01% $123,029 $ 4,107 3.34%
Certificates of deposit of
$100,000 or more 18,188 922 5.07 15,521 883 5.69
Other time deposits 125,332 7,138 5.70 103,637 5,792 5.59
- -------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 276,970 12,074 4.36 242,187 10,782 4.45
Borrowed funds 87,065 4,967 5.70 33,339 2,059 6.18
- -------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 364,035 17,041 4.68 275,526 12,841 4.66
- -------------------------------------------------------------------------------------------------------------
NON-INTEREST BEARING LIABILITIES:
Demand deposits $ 49,078 $ 42,321
Other liabilities 2,507 1,950
Stockholders' equity 32,870 24,592
- -------------------------------------------------------------------------------------------------------------
Total non-interest bearing
liabilities and
stockholders' equity $ 84,455 $ 68,863
- -------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $448,490 $344,389
- -------------------------------------------------------------------------------------------------------------
Interest rate spread (2) 3.37% 3.69%
- -------------------------------------------------------------------------------------------------------------
Net interest income and margin (3) $17,210 4.04% $14,495 4.43%
- -------------------------------------------------------------------------------------------------------------
Net interest income and margin
(tax equivalent basis) (4) $17,432 4.10% $14,697 4.49%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan origination fees are considered an adjustment to interest income. For
the purpose of calculating loan yields, average loan balances include
nonaccrual loans with no related interest income.
(2) The interest rate spread is the difference between the average yield on
interest earning assets and the average rate paid on interest bearing
liabilities.
(3) The net interest margin is equal to net interest income divided by average
interest earning assets.
(4) In order to make pre-tax income and resultant yields on tax exempt
investments and loans comparable to those on taxable investments and loans,
a tax equivalent adjustment is made equally to interest income and income
tax expense with no effect on after tax income. The tax equivalent
adjustment has been computed using a Federal income tax rate of 34% and has
increased interest income by $222,000, $202,000, $194,000, $105,000, and
$64,000 for the years ended December 31, 1996, 1995, 1994, 1993, and 1992,
respectively.
-12-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993 December 31, 1992
- -------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 643 $ 23 3.58% $ 1,266 $ 34 2.69% $ 1,776 $ 48 2.70%
1,200 52 4.33 3,211 97 3.02 5,058 181 3.58
70,045 3,761 5.37 72,928 3,939 5.40 85,383 5,300 6.21
157,411 14,168 9.00 117,671 9,985 8.49 93,245 8,461 9.07
- -------------------------------------------------------------------------------------------------------------
$229,299 $18,004 7.85% $195,076 $14,055 7.20% $185,462 $13,990 7.54%
- -------------------------------------------------------------------------------------------------------------
$ 8,079 $ 9,449 $ 8,089
(2,736) (2,860) (3,217)
3,857 3,812 3,746
3,207 4,699 5,050
- -------------------------------------------------------------------------------------------------------------
12,407 15,100 13,668
- -------------------------------------------------------------------------------------------------------------
$241,706 $210,176 $199,130
- -------------------------------------------------------------------------------------------------------------
$113,239 $ 3,156 2.79% $105,178 $ 2,832 2.69% $97,018 $ 3,350 3.45%
7,083 299 4.22 4,202 168 4.00 3,495 183 5.24
66,020 2,810 4.26 55,827 2,338 4.19 59,573 3,101 5.21
- -------------------------------------------------------------------------------------------------------------
186,342 6,265 3.36 165,207 5,338 3.23 160,086 6,634 4.14
2,248 95 4.23 747 17 2.28 915 26 2.84
- -------------------------------------------------------------------------------------------------------------
188,590 6,360 3.37 165,954 5,355 3.23 161,001 6,660 4.14
- -------------------------------------------------------------------------------------------------------------
$ 36,634 $ 31,082 $ 26,546
605 967 1,148
15,877 12,173 10,435
- -------------------------------------------------------------------------------------------------------------
$ 53,116 $ 44,222 $ 38,129
- -------------------------------------------------------------------------------------------------------------
$241,706 $210,176 $199,130
- -------------------------------------------------------------------------------------------------------------
4.48% 3.97% 3.40%
- -------------------------------------------------------------------------------------------------------------
$11,644 5.08% $ 8,700 4.46% $ 7,330 3.95%
- -------------------------------------------------------------------------------------------------------------
$11,838 5.16% $ 8,805 4.51% $ 7,394 3.99%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
Net interest income also may be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table
demonstrates the impact on net interest income of changes in the volume of
interest earning assets and interest bearing liabilities and changes in interest
rates earned and paid.
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Due to changes in: Due to changes in:
- -------------------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Time deposits with other banks $ 64 $ (2) $ 62 $ 2 $ 11 $ 13
Federal funds sold (195) (41) (236) 386 26 412
Securities 2,133 305 2,438 1,589 406 1,995
Loans, net of unearned income (1) 5,980 (1,329) 4,651 6,039 873 6,912
- -------------------------------------------------------------------------------------------------------------
Total interest income 7,982 (1,067) 6,915 8,016 1,316 9,332
- -------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking 332 (425) (93) 289 662 951
Certificates of deposit of
$100,000 or more 142 (103) 39 452 132 584
Other time deposits 1,234 112 1,346 1,925 1,057 2,982
- -------------------------------------------------------------------------------------------------------------
Total deposits 1,708 (416) 1,292 2,666 1,851 4,517
Borrowed funds 3,076 (168) 2,908 1,901 63 1,964
- -------------------------------------------------------------------------------------------------------------
Total interest expense 4,784 (584) 4,200 4,567 1,914 6,481
- -------------------------------------------------------------------------------------------------------------
Net interest income $3,198 $ (483) $2,715 $3,449 $(598) $2,851
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan origination fees are considered adjustments to interest income.
YNB's net interest income totaled $17,210,000 in 1996, an increase of 18.7%
from the $14,495,000 reported in 1995. The prior year's increase was 24.5% from
1994's net interest income of $11,644,000. The primary factor contributing to
the increase in net interest income in 1996 was an increase in interest income
of $6,915,000 due to a substantial increase in loan volume, specifically
commercial, offset by decreases in loan yields and increases in deposits and
borrowed funds and the related interest expense. From 1995 to 1996, YNB's
average loan portfolio increased by 29.9%. Loan yields averaged 8.96%, or 57
basis points lower, reflecting declining market interest rates in a very
competitive market. Conversely, the yield on YNB's investment portfolio
increased 30 basis points when comparing 1996 to 1995. The average investment
portfolio increased from $97,456,000 in 1995 to $132,036,000 in 1996, an
increase of 35.5%. Overall, the yield on earning assets decreased 30 basis
points to 8.05% in 1996 from 8.35% in 1995.
Interest expense was $17,041,000 for 1996, an increase of $4,200,000, or
32.7%, from $12,841,000 a year ago. The increase in interest expense for the
comparable time periods was the result of a larger deposit base and greater
levels of borrowed funds. Average interest bearing liabilities increased 32.1%
in 1996 compared to 1995. The cost of total interest bearing liabilities rose
just 2 basis points to 4.68% in 1996 from 4.66% in 1995. Deposit products,
particularly time deposits, were competitively priced throughout 1996 to fund
commercial loan growth.
Net interest income was $14,495,000 in 1995, an increase of 24.5% from
$11,644,000 in 1994. The principal factor contributing to the improvement was an
increase in interest income due to a substantial increase in commercial loan
volume offset by increases in deposits, borrowed funds, and the related interest
expense. Average loans increased by 40.5% from 1994 to 1995.
The net interest margin (tax equivalent basis) between yields on average
interest earning assets and costs of average funding sources was 4.10% in 1996
versus 4.49% in 1995 and 5.16% in 1994. The decrease in the net interest margin
in 1996 was principally due to two factors. In the second half of 1995 and
continuing through 1996, management instituted a strategy to increase net
interest income by purchasing investments using repurchase agreements. Increased
competition and the subsequent decrease in loan yields also accounted, in part,
for the reduction in the net interest margin.
The strategy to increase net interest income by purchasing investments has
specific goals. The targeted spread on this strategy is 75 basis points after
tax. The primary goals of the strategy are to improve return on equity and
earnings per share. Incrementally, any increase to net interest income by this
strategy will improve return on equity and earnings per share. Conversely,
because of the targeted spread on this strategy there will be a negative impact
to the net interest margin and return on assets. For the year ended December 31,
1996 investments purchased with repurchase agreements averaged approximately
$57,300,000. The positive impact to return on equity and earnings per share was
-14-
<PAGE>
approximately 1.0% and $0.15, respectively. The negative impact to the net
interest margin and return on assets was approximately .45% and .03%,
respectively. This strategy is proactively managed through the asset and
liability simulation model analyzing risk and reward relationships in different
interest rate environments based on the composition of investments in the
strategy.
Average interest earning assets exceeded interest bearing liabilities by
$61,547,000 in 1996, $51,685,000 in 1995, and $40,709,000 in 1994. The ratio of
average interest bearing liabilities to average interest earning assets
increased from 84.2% in 1995 to 85.5% in 1996. Average non-interest bearing
demand deposits increased 16.0% to $49,078,000 in 1996 from $42,321,000 in 1995.
Throughout the comparative periods, increases in average non-interest bearing
deposits contributed to the increase in net interest income.
Nonaccrual loans totaled $7,083,000 at December 31, 1996, an increase of
$5,516,000 from the $1,567,000 reported at December 31, 1995. In the last
quarter of 1996 two loans totaling approximately $4,600,000, backed by real
estate collateral, were put into nonaccrual status. Had total nonaccrual loans
been paid in the manner and at the rate and time contracted at the time the
loans were made, YNB would have recognized additional interest income of
approximately $351,000 in 1996, $143,000 in 1995, and $183,000 in 1994.
Moreover, YNB's net interest margin would have been .08% higher in 1996, .05%
higher in 1995, and .08% higher in 1994.
NON-INTEREST INCOME
Non-interest income continues to be an important source of revenue for YNB.
Through its Product Development and Management Committee, YNB is studying other
non-interest income opportunities. The prudent growth in non-interest income is
one of YNB's long-term strategies. The major components of non-interest income
are presented in the accompanying table.
Non-interest income consists of service charges on deposit accounts, gains
on sales of mortgages, and securities gains or losses. YNB also generates
non-interest income from a variety of fee-based services. These include mortgage
servicing fees, safe deposit box rentals, check fee income, and Automated Teller
Machine (ATM) fees. Responding to recent legislation, on October 2, 1996,
management instituted ATM fees on non-customers. These fees account primarily
for the increase in other service fee income when comparing 1996 to 1995.
For 1996, non-interest income totaled $2,113,000, an increase of $258,000,
or 13.9%, from non-interest income of $1,855,000 for 1995. Non-interest income
in 1995 increased by $301,000, or 19.4%, from 1994's reported total of
$1,554,000.
Year ended December 31,
-----------------------------------------------
(in thousands) 1996 1995 1994
-----------------------------------------------
Service charges on
deposit accounts $1,153 $1,069 $ 932
Other service fees 438 381 370
Gains on sales of
mortgages, net 21 19 92
Securities losses, net (136) (91) (124)
Other non-interest
income 637 477 284
-----------------------------------------------
Total $2,113 $1,855 $1,554
------------------------------------------------
Service charges on deposit accounts have historically represented the
largest single source of non-interest income. This continued to be the case in
1996, as such revenues totaled $1,153,000, an increase of 7.9%, compared to
$1,069,000 in 1995. Service charge income totaled $932,000 in 1994. Service
charge income increased in 1996 as the result of a larger account base and the
fee income associated with it. This component of non-interest income represented
54.6%, 57.6%, and 60.0% of the total non-interest income in 1996, 1995, and
1994, respectively. YNB's Product Development and Management Committee reviews
established and develops new deposit products and the service charges associated
with them. Deposit services are repriced annually to reflect current costs and
competitive factors.
Gains on sales of mortgages, net, increased in 1996 to $21,000 from $19,000
in 1995. Gains on sales of mortgages, net, totaled $92,000 in 1994. Over the
last two years YNB has been less active in this area. This, in part, is due to a
more stable interest rate environment which translates to reduced refinancing
activity.
YNB recorded net securities losses of $136,000, $91,000, and $124,000 in
1996, 1995, and 1994, respectively. In 1996, proceeds from securities sold were
utilized to fund higher yielding commercial loan assets. Management also sold
longer term fixed rate securities purchased using repurchase agreements to
reduce future interest rate risk exposure. Net securities losses realized during
1995 and 1994 were the result of management's decision to reposition funds in
the portfolio to improve yield and provide funds for loan growth. CMOs were sold
in 1995 to reduce outstandings in this illiquid portion of the portfolio
providing funds for higher yielding loan assets.
Other non-interest income is primarily composed of income derived from life
insurance assets, and to a lesser extent, mortgage servicing income. Other
non-interest income totaled $637,000 in 1996, an increase of $160,000, or 33.5%
when compared to 1995. Other non-interest income totaled $284,000 in 1994. YNB
has purchased life insurance assets in 1996 and 1995 to fund executive
compensation plans and a deferred compensation plan for directors. Other
non-interest income from the life insurance assets totaled $419,000, increasing
$144,000, or 52.2%, when comparing 1996 to 1995.
NON-INTEREST EXPENSE
Non-interest expense totaled $11,479,000 in 1996, an increase of
$1,219,000, or 11.9%, compared to $10,260,000 in 1995. Non-interest expense in
1995 increased 10.5% from $9,285,000 in 1994. The increase in non-interest
expense, for the comparative periods, is primarily the result of increases in
salaries and employee benefits and to a lesser extent, occupancy and equipment
expense.
-15-
<PAGE>
Salaries and employee benefits, which represent the largest portion of
non-interest expense, increased $936,000 in 1996 or 16.4% over 1995. Salaries
and employee benefits in 1995 increased $665,000, or 13.2%, over 1994. The
increase in 1996 expense over 1995 is the effect of additional staffing required
as the result of YNB's growth and normal annual salary increases. Full time
equivalent employees increased to 163 at December 31, 1996 from 147 at December
31, 1995. Staffing enhancements were made in loan and credit administration as
well as in the commercial loan production area to take advantage of
opportunities in new market areas. A management trainee program was also
instituted in key strategic areas, such as financial services. Employee benefits
also increased 23.7% for the comparable time periods. 1995's increase over 1994
was primarily the result of increased staffing associated with YNB's retail
growth, hiring of experienced lending professionals, expansion of the financial
services division, and normal annual salary increases. Salaries and employee
benefits as a percent of average assets was 1.5% in 1996, 1.7% in 1995, and 2.1%
in 1994, respectively.
Net occupancy expense increased $194,000 to $920,000 in 1996 from $726,000
reported in 1995. The increase in occupancy expenses in 1996 compared to 1995
was due to increased maintenance costs, specifically snow removal, and the
additional occupancy costs associated with new branch offices. The total number
of bank facilities, including the operations building, is now 10. This component
of non-interest expense has remained constant as a percentage of average assets
at 0.2% in 1996 and 1995 and 0.3% in 1994. Equipment expenses increased
$182,000, or 35.5%, to $695,000 in 1996 from $513,000 in 1995. In 1995 equipment
expenses increased 10.1% from 1994. The increase in equipment expenses in 1996
was primarily attributable to the depreciation expense related to the investment
in hardware and software totaling approximately $1,200,000 for YNB's in-house
computer system. Conversely, computer service expenses were eliminated in the
first quarter of 1996. To a lesser extent, equipment expense rose in 1996 due to
equipment, furniture and fixture needs in YNB's expanding retail network and its
related depreciation expense. The increase in equipment expenses in 1995
compared to 1994 was attributable to increased depreciation costs associated
with new furniture and fixtures and computer equipment in YNB's branches. Other
computer equipment was also purchased in 1995, throughout the bank, in
preparation for the new computer system in 1996.
OTHER NON-INTEREST EXPENSE
Other non-interest expense was $3,235,000, $3,328,000, and $3,180,000 in
1996, 1995, and 1994, respectively.
The following table sets forth the components of other non-interest expense
for the years indicated:
FDIC premiums were basically eliminated in 1996, except for a minimum
assessment payment which totaled only $1,000. FDIC insurance premiums decreased
by $289,000 in 1996 to $1,000 from $290,000 in 1995. FDIC insurance premiums
totaled $464,000 in 1994. On January 31, 1995, the FDIC proposed to reduce the
deposit insurance assessment rates of Bank Insurance Fund ("BIF") insured
institutions, effective at the date the BIF fund reaches the required level of
1.25% of BIF-insured deposits. During 1995 the fund reached the 1.25% level.
Premiums totaling approximately $168,000 were rebated to YNB on September 15,
1995. YNB's deposit insurance premium assessment was lowered from 23 basis
points to 4 basis points effective for the fourth quarter of 1995. As defined by
the FDIC, YNB is a well capitalized institution and under new FDIC guidelines
1996 premiums were eliminated.
Year ended December 31,
-----------------------------------------------
(in thousands) 1996 1995 1994
-----------------------------------------------
FDIC insurance
premium $ 1 $ 290 $ 464
O.R.E. expenses 163 166 306
Stationery and
supplies 388 300 229
Computer services 83 285 270
Insurance (other) 102 93 119
Marketing 522 479 415
Other 1,976 1,715 1,377
-----------------------------------------------
Total $3,235 $3,328 $3,180
------------------------------------------------
Other real estate (O.R.E.) expense decreased by $3,000, or 1.8%, in 1996 to
$163,000 from $166,000 in 1995. O.R.E. expenses declined by 45.8% in 1995
compared to 1994. Throughout the comparative periods, management has effectively
managed the level of other real estate owned and the expenses associated with
loan workout and foreclosed properties.
Computer services expense decreased $202,000, or 70.9%, in 1996 to $83,000.
These expenses were $285,000 in 1995, an increase of $15,000, or 5.6%, from
$270,000 in 1994. Effective late February 1996 management terminated its
agreement with its outside computer servicer as the result of implementing a new
in-house computer system. The decrease in computer expenses in 1996 compared to
1995 is a result of service expenses for only two months, including conversion
costs, compared to a full year's expense in 1995. The increase in computer
expenses in 1995 compared to 1994 resulted from increased volume processing due
to growth.
Marketing expenses increased by $43,000, or 9.0%, in 1996 to $522,000,
compared to $479,000 in 1995. Marketing expenses totaled $415,000 in 1994. The
primary increase in marketing expenses in 1996 over 1995 relates to increased
advertising to attract deposits to fund loan growth in a very competitive
marketplace. The increase in marketing expenses for the comparative periods
reflects YNB's emphasis on participation in community activities and additional
promotional costs in connection with branch openings.
Other expenses, which include various professional fees, communication
expense, postage expense, and various loan related expenses, were $1,976,000 in
1996, an increase of $261,000, or 15.2%, from $1,715,000 in 1995. Other expenses
totaled $1,377,000 in 1994. The increase in other expenses in 1996 compared to
1995, in part, is attributable to loan related expenses due to the substantial
growth in the loan portfolio, attorney fees, and a full year's processing
-16-
<PAGE>
costs by an outside vendor of YNB's mortgages to improve service quality
and management flexibility.
YNB's ratio of non-interest expense to average assets decreased to 2.6% for
1996 compared to 3.0% for 1995 and 3.8% for 1994.
INCOME TAXES
The provision for income taxes, which is comprised of Federal and state
income taxes, was $2,178,000 in 1996 compared to $1,822,000 in 1995 and
$1,085,000 in 1994. The increase was primarily the result of higher pre-tax
income. The provision for income taxes for 1996, 1995, and 1994 was at effective
tax rates of 35.1%, 34.9%, and 30.1%, respectively. The slight increase in the
effective tax rate for 1996 was the result of increased pre-tax earnings with a
relatively constant level of tax-free income.
-17-
<PAGE>
FINANCIAL CONDITION
As of December 31, 1996 and 1995
TOTAL ASSETS
YNB's assets were $490,545,000 at year-end 1996 versus $403,115,000 the
previous year, an increase of $87,430,000, or 21.7%. The growth in YNB's asset
base throughout 1996 was due primarily to an increase in loans. The increase in
loans was the product of a strategy to improve the profitability of the
organization through relationship banking and the continued consolidation in
YNB's marketplace, which has solidified YNB's competitive position in the small
and middle markets.
YNB's ratio of average interest earning assets to average assets decreased
slightly to 94.9% for the year ended December 31, 1996 compared to 95.0% for
1995. YNB's ratio of average interest bearing liabilities to average assets
increased from 80.0% for the year ended December 31, 1995 to 81.2% for 1996.
SECURITIES
YNB's securities portfolio represented $124,967,000 or 25.5% of assets at
December 31, 1996 versus $133,853,000 or 33.2% of assets at December 31, 1995.
On an average basis, the securities portfolio represented 31.0% of average
interest earning assets for the year ended December 31, 1996 compared to 29.8%
of average interest earning assets for the year ended December 31, 1995.
The investment growth strategy, purchasing investments using repurchase
agreements, peaked at approximately $68,000,000 at the end of June 1996 and
stands at approximately $51,000,000 at December 31, 1996. All securities in this
strategy are held in the available for sale portfolio. The purpose of this
strategy is designed to improve return on equity and earnings per share. This
strategy is considered by management to be temporary until loan growth can
generate sufficient net interest income to improve performance measurements.
Throughout the year loan demand has continued to be strong in YNB's marketplace.
In July 1996, management decided to begin to gradually reduce assets purchased
with repurchase agreements to reduce interest rate risk exposure.
The securities available for sale portfolio decreased to $93,671,000 at
December 31, 1996 from $98,469,000 at December 31, 1995. The decrease is a
result of YNB's downsizing of the investment growth strategy coupled with
principal paydowns from mortgage backed securities, called U.S. agency
securities, and maturities and sales of U.S. Treasury securities, offset by
short term security purchases to strengthen liquidity. During 1996, the only
securities purchased not held in the available for sale portfolio were municipal
bonds. Securities available for sale are held for indefinite periods of time and
may be sold due to changing market and interest rate conditions as part of YNB's
asset/liability management strategy. As of December 31, 1996 available for sale
securities represented 75.0% of the entire portfolio. This portfolio is
principally comprised of mortgage-backed securities issued by Federal agencies,
U.S. Treasury, and other agency securities. The available for sale portfolio,
except securities purchased using repurchase agreements, provides a secondary
source of liquidity for YNB. There are no securities designated for trading.
Investment securities classified as held to maturity totaled $31,296,000 at
December 31, 1996 compared to $35,384,000 at December 31, 1995. This portfolio
is comprised of mortgage-backed securities and state and municipal securities.
The following table shows the maturities, at amortized cost, and average
weighted yields for the securities available for sale at December 31, 1996.
SECURITY MATURITIES AND AVERAGE WEIGHTED YIELDS
<TABLE>
<CAPTION>
December 31, 1996
- -------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other
government agencies $6,005 $15,946 $ -- $10,000 $31,951
Mortgage-backed securities 365 2,690 6,863 49,523 59,441
Federal Reserve Bank Stock -- -- -- 572 572
Federal Home Loan Bank Stock -- -- -- 1,975 1,975
- -------------------------------------------------------------------------------------------------------------
Total $6,370 $18,636 $6,863 $62,070 $93,939
- -------------------------------------------------------------------------------------------------------------
Weighted average yield 5.61% 6.09% 6.98% 7.38% 6.98%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
Investments in mortgage-backed securities involve prepayment and interest
rate risk. At December 31, 1996 and 1995 YNB had mortgage-backed securities
totaling $81,667,000 and $105,479,000, respectively. At December 31, 1996 and
1995 there were $59,078,000 and $56,682,000 in fixed-rate mortgage-backed
securities outstanding, respectively. The risk associated with fixed-rate
mortgage-backed securities is similar to fixed-rate loans. In rising interest
rate environments, the rate of prepayment on fixed-rate, pass-through
mortgage-backed securities tends to decrease because of lower repayments on the
underlying mortgages and, conversely, as interest rates fall, repayments on such
securities tend to rise.
YNB attempts to minimize these risks by diversifying the coupons of the
mortgage-backed securities, buying seasoned securities with consistent and
predictable prepayment histories, and adhering to strict pricing policies when
purchasing mortgage-backed securities.
Collateralized mortgage obligations (CMOs) totaled approximately $5,300,000
at December 31, 1996. A CMO is a mortgage-backed security that is comprised of
classes of bonds created by prioritizing the cash flows from the underlying
mortgage pool in order to meet different objectives of investors. The CMOs in
the investment portfolio are agency named and were generally originally
purchased with short average lives of two to four years. At December 31, 1996
YNB held no private labeled or corporate CMOs. Stress tests are performed at
least semi-annually to assess prepayment speeds and their impact to the average
lives and yields on those securities. All CMOs at December 31, 1996 were held in
the available for sale category.
The maturities and average weighted yields for investment securities were
as follows:
<TABLE>
<CAPTION>
December 31, 1996
- -------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Obligations of state and political
subdivisions $760 $ 3,091 $5,004 $ 215 $ 9,070
Mortgage-backed securities -- 14,691 -- 7,535 22,226
- -------------------------------------------------------------------------------------------------------------
Total $760 $17,782 $5,004 $7,750 $31,296
- -------------------------------------------------------------------------------------------------------------
Weighted average yield 3.49% 5.25% 4.78% 6.58% 5.46%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
LOAN PORTFOLIO
The continued consolidation in YNB's marketplace and management's emphasis
on establishing relationships has solidified YNB's competitive position in the
small and middle markets.
During 1996, total loans increased $86,183,000, or 35.2%, to $331,237,000
at December 31, 1996 from $245,054,000 at December 31, 1995. YNB's loan
portfolio represented 67.5% of assets at December 31, 1996 versus 60.8% at the
prior year end.
The following table sets forth the components of YNB's loan portfolio at
the dates indicated.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - mortgage:
Residential $ 83,183 25.1% $73,076 29.8% $ 60,156 30.5% $ 35,283 26.1% $ 37,632 35.2%
Commercial 112,914 34.1 73,164 29.8 49,186 25.0 32,517 24.1 13,559 12.7
Home equity 23,457 7.1 26,951 11.0 29,388 14.9 30,107 22.3 28,648 26.8
Commercial and
agricultural 63,426 19.2 33,218 13.6 26,626 13.5 17,642 13.1 14,822 13.8
Real estate -
construction 25,958 7.8 19,353 7.9 15,560 7.9 9,742 7.2 5,250 4.9
Consumer 15,034 4.5 12,386 5.1 10,934 5.6 7,440 5.5 6,287 5.9
Other loans 7,265 2.2 6,906 2.8 5,060 2.6 2,252 1.7 795 0.7
- ------------------------------------------------------------------------------------------------------------------------------
Total loans $331,237 100.0% $245,054 100.0% $196,910 100.0% $134,983 100.0% $106,993 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YNB's lending focus continues to be centered on commercial loans,
owner-occupied commercial mortgage loans, and tenanted commercial real estate
loans. In underwriting such loans, YNB first evaluates the cash flow capability
of the borrower to repay the loan. In addition, a majority of commercial loans
are secured by real estate, business assets, and guarantees. YNB makes
commercial loans primarily to small to medium-sized businesses and
professionals.
-19-
<PAGE>
Real estate - residential loans are primarily comprised of residential
mortgage loans and business loans secured by residential real estate. This
portion of the portfolio totaled $83,183,000 at December 31, 1996, up
$10,107,000, or 13.8%, from the prior year. Residential mortgage loans
represented $52,817,000, or 63.5% of the total. YNB's residential mortgage loans
are secured by first liens on the underlying real property. At December 31, 1996
approximately 34% of the residential mortgage loan portfolio had fixed interest
rates and 66% had adjustable interest rates.
The home equity portfolio totaled $23,457,000 or 7.1% of YNB's loan
portfolio at December 31, 1996. This compares to $26,951,000, or 11.0% of the
total loan portfolio at December 31, 1995. Aggressive competition for home
equity loans in YNB's market accounted for the decline in outstanding balances.
The home equity portfolio has provided consistent operating income to YNB with
controllable delinquencies and minimal losses.
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
TOTAL LOAN PORTFOLIO
(dollars in thousands)
1992....................... 106,993
1993....................... 134,983
1994....................... 196,910
1995....................... 245,054
1996....................... 331,237
Real estate -- commercial loans increased by $39,750,000, or 54.3% in 1996
to $112,914,000 from $73,164,000 at December 31, 1995. YNB's lending policies
require an 80% or lower loan-to-value ratio for commercial real estate
mortgages. Collateral values are established based upon independently prepared
appraisals. Generally, these loans are secured by owner-occupied properties and
are part of a broader commercial lending relationship.
Commercial and agricultural loans increased $30,208,000, or 90.9%, at
December 31, 1996 to $63,426,000 from $33,218,000 at December 31, 1995.
Commercial and agricultural loans are made to small to middle market businesses
for inventory, working capital, and equipment needs. These loans are generally
secured by business assets of the borrower. Agricultural loans represent less
than 1% of the total.
Real estate -- construction loans increased $6,605,000 to $25,958,000 at
December 31, 1996 compared to $19,353,000 at December 31, 1995. These loans
represented 7.8% of the total loan portfolio at December 31, 1996. YNB makes
loans to finance primarily the construction of residential and, to a limited
extent, non-residential properties. Construction loans generally are secured by
first liens on real estate and have floating rates of interest. These loans are
closely monitored with advances made only after work is completed and
independently inspected and verified by qualified professionals.
YNB makes automobile, motorcycle, personal, and other loans to consumers.
Consumer loans increased to $15,034,000 at December 31, 1996 compared to
$12,386,000 at December 31, 1995.
The majority of YNB's business is with customers located within Mercer
County, New Jersey, and contiguous counties. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount of
real estate are subject to changes in the region's real estate market and
economy.
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real estate
owned. In accordance with SFAS No. 114, insubstance foreclosures have been
reclassified as nonperforming loans for all periods presented.
Nonperforming loans are composed of (1) loans on a nonaccrual basis, (2)
loans which are contractually past due 90 days or more as to interest and
principal payments but have not been classified as nonaccrual, and (3) loans
whose terms have been restructured to provide a reduction or deferral of
interest or principal because of a deterioration in the financial position of
the borrower.
YNB's policy with regard to nonaccrual loans varies by the type of loan
involved. Generally, commercial loans are placed on a nonaccrual status when
they are 90 days past due unless they are well secured and in the process of
collection or, regardless of the past due status of the loan, when management
determines that the complete recovery of principal and interest is in doubt.
Consumer loans are generally charged off after they become 90 days past due.
Mortgage loans are not generally placed on a nonaccrual basis unless the value
of the real estate has deteriorated to the point that a potential loss of
principal or interest exists. Subsequent payments are credited to income only if
collection of principal is not in doubt.
Nonperforming loans totaled $8,140,000 at December 31, 1996, an increase of
$5,321,000 from the $2,819,000 amount reported at December 31, 1995. The
increase in nonperforming loans is principally the result of two real estate
construction loans, totaling approximately $4,600,000, going into nonaccrual
status in the last quarter of 1996. Management is diligently striving to resolve
both loans.
-20-
<PAGE>
The following table sets forth nonperforming assets and risk elements in
YNB's loan portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial and agricultural $ 961 $ -- $ -- $ -- $ 34
Real estate -- mortgage 1,451 1,395 1,203 1,764 2,651
Real estate -- construction 4,659 142 521 480 1,514
Consumer 12 30 -- 17 17
- -------------------------------------------------------------------------------------------------------------
Total 7,083 1,567 1,724 2,261 4,216
- -------------------------------------------------------------------------------------------------------------
Restructured loan -- 612 -- -- --
- -------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Commercial and agricultural -- -- -- -- 1
Real estate -- mortgage 1,014 588 326 209 388
Consumer 43 52 16 3 14
- -------------------------------------------------------------------------------------------------------------
Total 1,057 640 342 212 403
- -------------------------------------------------------------------------------------------------------------
Total nonperforming loans 8,140 2,819 2,066 2,473 4,619
- -------------------------------------------------------------------------------------------------------------
Other real estate 395 625 314 1,393 1,107
- -------------------------------------------------------------------------------------------------------------
Total nonperforming assets $8,535 $3,444 $2,380 $3,866 $5,726
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets increased $5,091,000 to $8,535,000, at December 31,
1996 compared to $3,444,000 at December 31, 1995. The increase in nonperforming
assets is primarily attributable to the two loans going into nonaccrual status
in the fourth quarter of 1996, as previously discussed. Nonperforming assets
represented 1.74% of total assets at December 31, 1996 and 0.85% at December 31,
1995.
Nonaccrual loans were $7,083,000, or 2.1% of total loans, at December 31,
1996, and $1,567,000, or 0.6% of total loans, at December 31, 1995.
The one restructured loan totaled $612,000 at December 31, 1995. This loan
is in full compliance with the restructured terms and conditions and,
accordingly, has been returned to performing status at December 31, 1996.
At December 31, 1996, loans that were 90 days or more past due but still
accruing interest income totaled $1,057,000, or 0.3% of total loans, compared to
$640,000, or 0.3% of total loans, at December 31, 1995. Management's decision to
accrue income on these loans was based on the level of collateral and the status
of collection efforts.
Other real estate (O.R.E.) totaled $395,000 at December 31, 1996 and
$625,000 at December 31, 1995. O.R.E.represented 0.1% of total loans at December
31, 1996 and is reflective of an active strategy to liquidate these assets and
re-employ the proceeds in YNB's loan portfolio.
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
TOTAL NONPERFORMING ASSETS
(dollars in thousands)
1992........................ 5,726
1993........................ 3,866
1994........................ 2,380
1995........................ 3,444
1996........................ 8,535
-21-
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Management utilizes a systematic and documented allowance adequacy
methodology for loan losses that requires specific allowance assessment for all
loans, including residential real estate mortgages and consumer loans. This
methodology assigns reserves based upon credit risk ratings for specific loans
and general reserves for all other loans. The general reserves are based on
various factors, including historical performance and the current economic
environment. On a quarterly basis, management reviews all criticized credits as
reported by the loan review officer and monitors weekly all commercial loan and
mortgage, residential, and consumer delinquencies. Management continually
reviews the process utilized to determine the adequacy of the allowance for loan
losses. The following table presents, for the years indicated, an analysis of
the allowance for loan losses and other related data.
<TABLE>
<CAPTION>
Year ended December 31,
- -------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance, beginning of year $ 3,677 $ 2,912 $ 2,703 $ 2,940 $ 3,310
Charge offs:
Commercial, financial, and
agricultural -- -- (47) -- (291)
Real estate -- mortgage (72) (26) (51) (222) (42)
Real estate -- construction (75) (30) (25) (45) (270)
Consumer (252) (153) (83) (84) (101)
- -------------------------------------------------------------------------------------------------------------
Total charge offs (399) (209) (206) (351) (704)
- -------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural -- -- 20 21 135
Real estate -- mortgage -- 64 43 37 20
Consumer 39 45 47 56 129
- -------------------------------------------------------------------------------------------------------------
Total recoveries 39 109 110 114 284
- -------------------------------------------------------------------------------------------------------------
Net charge offs (360) (100) (96) (237) (420)
Provision charged to operations 1,640 865 305 -- 50
- -------------------------------------------------------------------------------------------------------------
Allowance balance, end of year $ 4,957 $ 3,677 $ 2,912 $ 2,703 $ 2,940
- -------------------------------------------------------------------------------------------------------------
Loans, end of year $331,237 $245,054 $196,910 $134,983 $106,993
Average loans outstanding $287,289 $221,232 $157,411 $117,671 $ 93,245
Ratio of allowance for loan
losses to total loans, end of year 1.50% 1.50% 1.48% 2.00% 2.75%
Ratio of net charge offs to average
loans outstanding 0.13% 0.05% 0.06% 0.20% 0.45%
Nonperforming loans to total loans 2.46% 1.15% 1.05% 1.83% 4.32%
Nonperforming assets to total loans
and other real estate owned, end
of year 2.57% 1.40% 1.21% 2.83% 5.30%
Ratio of allowance for loan losses
to nonperforming assets, end of year 58.08% 106.77% 122.35% 69.92% 51.34%
Ratio of allowance for loan losses
to nonperforming loans, end of year 60.90% 130.44% 140.95% 109.30% 63.65%
</TABLE>
YNB provides for possible loan losses by a charge to current operations to
maintain the allowance for loan losses at an adequate level determined according
to management's documented allowance adequacy methodology. The provision for
loan losses for 1996 was $1,640,000, reflective of the continued substantial
growth in the loan portfolio and increased nonperforming asset levels
experienced in the last quarter. This compares to a provision for loan losses of
$865,000 in 1995 and $305,000 in 1994. It is management's assessment that the
allowance for loan losses is adequate in relation to credit risk exposure
levels.
At December 31, 1996, the allowance for loan losses totaled $4,957,000, an
increase of $1,280,000 or 34.8%, from $3,677,000 at December 31, 1995, which
compares to $2,912,000 at December 31, 1994. The ratio of allowance for loan
losses to total loans was 1.50%, 1.50%,and 1.48% at December 31, 1996, 1995, and
1994, respectively. Another measure of the allowance for loan losses is the
ratio of the allowance to total nonperforming loans. At December 31, 1996 this
ratio was 60.9% versus 130.4% at December 31, 1995.
YNB's gross charge offs in 1996 totaled $399,000, compared with $209,000 in
1995, and $206,000 in 1994. Losses on loans and loans which are determined to be
uncollectible are charged against the allowance and subsequent recoveries, if
any, are credited to it. YNB's gross recoveries totaled $39,000 in 1996 compared
to $109,000 in 1995 and $110,000 in 1994 as a result of collection efforts. The
balance of the allowance for loan losses is determined by an overall analysis of
the loan portfolio and reflects an amount which, in management's judgment, is
adequate to provide for potential loan losses.
-22-
<PAGE>
Management has established the necessary steps to identify potential credit
problems in its loan portfolio by strengthening lending policies and improving
loan and credit administration. Management reviews all criticized loans on a
quarterly basis. Allocations to the allowance for loan losses, both specific and
general, are determined after this review. Loans are classified as
"satisfactory, special mention, substandard, doubtful, and loss." Loan
classifications are based on internal reviews and evaluations performed by the
lending staff. These evaluations are, in turn, examined by YNB's internal loan
review officer.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following tables describe the allocation for loan losses among various
categories of loans and certain other information as of the dates indicated. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future loan losses may occur. The total allowance is
available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------
Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $1,704 34.4% 19.2% $ 983 26.7% 13.6%
Real estate -- mortgage 2,064 41.7 66.3 1,816 49.4 70.6
Real estate -- construction 938 18.9 7.8 664 18.1 7.9
Consumer 175 3.5 4.5 132 3.6 5.1
Other loans 76 1.5 2.2 82 2.2 2.8
- -------------------------------------------------------------------------------------------------------------
Total $4,957 100.0% 100.0% $3,677 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
YNB's deposit base is the principal source of funds supporting interest
earning assets. YNB offers a full range of deposit products, including demand
deposits, savings deposits, insured money market accounts, and certificates of
deposit (CDs). YNB's overall philosophy of building and maintaining long-term
customer relationships is the key to further expanding the deposit base, which,
in turn, presents opportunities for YNB to cross-sell its services.
Total deposits amounted to $364,445,000 at year-end 1996 compared to
$302,972,000 at the end of 1995, an increase of 20.3%. Average total deposits
during 1996 totaled $326,048,000 compared to $284,508,000 during 1995, an
increase of 14.6%.
In 1996, YNB's deposit base grew due to several factors. YNB opened two new
branches bringing YNB's total branch network to nine. The Always Win CD,
introduced in 1995, was complemented by the introduction of the nine and fifteen
month CD in the second half of 1996. These featured CD products were
competitively priced to help fund loan growth. In 1996, depositors continued to
place their funds in higher yielding CDs which is reflected in the growing
percentage of average time deposits to average total deposits. With the
investment in computer systems and technology in 1996, YNB's objective is to
develop and deliver products and services that anticipate and meet the needs of
YNB's diverse customer base while maintaining quality customer service.
-23-
<PAGE>
The following table provides information concerning average rates and
average balances of deposits for the years indicated:
AVERAGE DEPOSIT BALANCES AND RATES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
% of % of % of
(in thousands) Balance Rate Total Balance Rate Total Balance Rate Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $49,078 -- % 15.05% $ 42,321 -- % 14.88% $ 36,634 -- % 16.43%
Interest bearing
demand deposits 23,554 2.50 7.22 21,236 2.77 7.46 16,346 2.01 7.33
Savings deposits 109,896 3.12 33.71 101,793 3.46 35.78 96,893 2.92 43.45
Time deposits 143,520 5.62 44.02 119,158 5.60 41.88 73,103 4.25 32.79
- --------------------------------------------------------------------------------------------------------------
Total $326,048 3.70% 100.00% $284,508 3.79% 100.00% $222,976 2.81% 100.00%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The average balance of non-interest bearing demand deposits was $49,078,000
during 1996, an increase of $6,757,000, or 16.0%, from $42,321,000 during 1995.
Non-interest bearing demand deposits represent a stable, interest free source of
funds. The increase in demand deposits is a contributing factor in the growth of
net interest income.
Average interest bearing demand, savings, and time deposits increased
10.9%, 8.0%, and 20.4%, respectively, from 1995 to 1996. Total average time
deposits, which consist of certificates of deposit and individual retirement
accounts, increased $24,362,000 to $143,520,000 during 1996 from $119,158,000 in
1995.
The average rate paid on YNB's deposit balances in 1996 was 3.70%, a 2.4%
decrease from the 3.79% average rate for 1995.
The table below details amounts and maturities for certificates of
deposit of $100,000 or more at the date indicated.
Certificates of deposit of $100,000 or more totaled $22,162,000, or 6.1% of
deposits, at December 31, 1996 compared to $15,021,000, or 5.0% of deposits, at
December 31, 1995. YNB does not depend on historically less stable funding
sources.
YNB has not purchased deposits through wholesale deposit brokers,
preferring to rely on more stable core deposits and borrowings to support
growth.
December 31,
- -----------------------------------------------
(in thousands) 1996 1995
- -----------------------------------------------
Maturity Range:
Within three months $ 3,273 $ 3,095
After three but within
six months 3,955 3,323
After six but within
twelve months 9,291 5,890
After twelve months 5,643 2,713
- -----------------------------------------------
Total $22,162 $15,021
- -----------------------------------------------
[GRAPHIC]
In the printed version of the document, a line graph appears which
depicts the following plot points:
TOTAL DEPOSITS AT YEAR END
(dollars in thousands)
1992......................... 192,223
1993......................... 206,688
1994......................... 259,296
1995......................... 302,972
1996......................... 364,445
-24-
<PAGE>
BORROWED FUNDS
Borrowed funds consist of securities sold under agreements to repurchase,
Federal Home Loan Bank of New York (FHLB) advances, Federal funds purchased,
treasury tax and loan deposits, and other forms of short-term borrowings.
Management utilizes, from time to time, two unsecured Federal funds lines of
credit with two of its correspondent banks for daily funding needs.
Borrowed funds totaled $86,339,000 at December 31, 1996 compared to
$65,221,000 at December 31, 1995. YNB used FHLB advances in 1996 in order to
meet particularly strong commercial loan demand. Repurchase agreements totaling
approximately $51,000,000 at year-end 1996 were used as part of a strategy to
increase net interest income by purchasing investments.
Borrowed funds averaged $87,065,000 in 1996, an increase of $53,726,000
from the average reported in 1995 of $33,339,000. At year-end 1996 there was
$20,813,000 in outstanding borrowings with the FHLB and no outstanding
borrowings from YNB's correspondents. Management will continue to strategically
utilize borrowed funds to meet short-term liquidity needs and as an additional
source of funding for the loan and investment portfolios.
LIQUIDITY
Liquidity measures the ability to satisfy current and future cash flow
needs as they become due. YNB has an Asset/Liability Committee (ALCO) whose
function is to monitor and coordinate all activities relating to maintaining
adequate liquidity and protection of net interest income from fluctuations in
market interest rates.
Liquidity management refers to YNB's ability to support asset growth while
satisfying the borrowing needs and deposit withdrawal requirements of customers.
In addition to maintaining liquid assets, factors such as capital position,
profitability, asset quality, and availability of funding affect a bank's
ability to meet its liquidity needs. On the asset side, liquid funds are
maintained in the form of cash and cash equivalents, Federal funds sold,
investment securities held to maturity maturing within one year, securities
available for sale and loans held for sale. Additional asset based liquidity is
derived from scheduled loan and investment repayments of principal and interest
from mortgage-backed securities. On the liability side, the primary source of
liquidity is the ability to generate core deposits, which generally excludes CDs
over $100,000. Short term borrowings are used as supplemental funding sources
when growth in the core deposit base does not keep pace with that of earning
assets.
At December 31, 1996, liquid assets (excluding securities purchased
utilizing repurchase agreements) amounted to $62,574,000, as compared to
$60,162,000 at December 31, 1995. This represents 15.2% and 18.3% of earning
assets, and 14.2% and 17.2% of total assets at December 31, 1996 and 1995,
respectively.
YNB has the availability to borrow up to $20,000,000 from the FHLB through
its line of credit program. In addition, the bank is eligible to borrow up to
30% of assets under the FHLB advance program subject to FHLB stock level
requirements, collateral requirements, and individual advance proposals based on
FHLB credit standards. YNB also has the ability to borrow at the Federal Reserve
discount window along with agreements to borrow from two of its correspondent
banks.
-25-
<PAGE>
INTEREST RATE SENSITIVITY
The objectives of interest rate risk management are to reduce, minimize,
and to the degree possible, control the effect of interest rate fluctuations on
net interest income. ALCO manages the interest rate sensitivity or repricing
characteristics of YNB's assets and liabilities.
ALCO has established strategies and procedures to protect net interest
income against significant changes in interest rates. Generally, these
strategies are designed to achieve an acceptable level of net interest income
based upon management's projections of future changes in interest rates.
A traditional form of asset/liability management is the static gap report.
The static gap report categorizes interest bearing assets and liabilities by
repricing maturity characteristics. These static measurements do not reflect the
results of any projected activity. On a cumulative basis, as of December 31,
1996, more of YNB's liabilities than assets repriced in the three month, six
month and one year periods.
As shown below, interest rate sensitivity to interest rate fluctuations is
measured in a number of time frames. The following table sets forth rate
sensitive assets and liabilities.
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
RATE SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1996
- -------------------------------------------------------------------------------------------------------------
After three After six After
Within months but months one year After
three within six but within but within five Non-interest
(in thousands) months months one year five years years sensitive (1) Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold and interest
bearing deposits $ 5,397 $ -- $ -- $ -- $ -- $ -- $ 5,397
Available for sale securities (2) 21,437 4,117 3,404 18,637 43,797 2,547 93,939
Investment securities -- 325 435 17,782 12,754 -- 31,296
Loans, net of unearned income 126,852 4,271 14,631 137,103 41,023 7,357 331,237
- -----------------------------------------------------------------------------------------------------------------
Total interest earning assets $153,686 $ 8,713 $18,470 $173,522 $97,574 $ 9,904 $461,869
- -----------------------------------------------------------------------------------------------------------------
FUNDING SOURCES:
Portion of non-interest bearing
funding sources used to fund
earning assets -- -- -- -- -- 66,604 66,604
Savings and interest checking 134,357 -- -- -- -- -- 134,357
Certificates of deposit of
$100,000 or more 3,273 3,955 9,291 5,643 -- -- 22,162
Other time deposits 21,481 23,010 23,990 83,926 -- -- 152,407
Borrowed funds 52,696 19,500 8,330 5,813 -- -- 86,339
- ----------------------------------------------------------------------------------------------------------------
Total funding sources $211,807 $46,465 $41,611 $ 95,382 $ -- $66,604 $461,869
- ----------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap (58,121) (37,752) (23,141) 78,140 97,574 (56,700)
Ratio of rate sensitive assets to
rate sensitive liabilities 0.73 0.19 0.44 1.82 -- 0.15
Cumulative interest rate
sensitivity gap (58,121) (95,873) (119,014) (40,874) 56,700 --
Ratio of cumulative rate
sensitive assets
to rate sensitive liabilities 0.73 0.63 0.60 0.90 1.14 1.00
</TABLE>
(1) Non-interest sensitive includes assets and liabilities that do not earn or
pay interest, such as nonaccrual loans, overdrafts and demand deposits.
(2) Available for sale securities are included in the above table at
amortized cost.
Note: No effect is given to prepayments of loans or mortgage-backed securities
in the amounts included above. Mortgage-backed securities are shown by
their maturity date as opposed to contractual principal amortization.
-26-
<PAGE>
At December 31, 1996, YNB's twelve month cumulative gap position was
negative $119,014,000. Over the next twelve months, $119,014,000 more
liabilities are eligible to reprice than assets, indicating a liability
sensitive position. A liability sensitive gap may indicate an exposure to
earnings if interest rates increase. However, YNB's deposits that reprice within
one year are predominantly core savings, NOW, and money market deposits that are
bank administered. Historically, these accounts have been much less volatile
than the prime and Federal funds rates, which to a large degree affect earning
asset yields. Therefore, management believes the static gap position may
overstate the actual risk to earnings over the next twelve month period.
To analyze the potential future effect on earnings of its market sensitive
assets and less rate sensitive core deposit accounts, management utilizes a
simulation model to project levels of net interest income under various interest
rate environments and balance sheet structures. The "base case" scenario uses
the current balance sheet strategy and tests the income effects of flat interest
rates, rising rates of 3% and falling rates of 3% over a 12 and 24 month period.
Management has established guidelines to limit the amount that net interest
income can vary within these rate ranges.
The use of simulation models assists management in its continuing effort to
develop strategies to produce consistent earnings growth in changing interest
rate environments. YNB is in the process of developing longer-term measures of
interest rate sensitivity including duration of equity and equity at risk. Such
models are designed to estimate the impact on the value of equity resulting from
changes in interest rates and supplement the simulation model and gap analysis.
-27-
<PAGE>
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Stockholders' equity at December 31, 1996 totaled $35,230,000 compared to
$31,717,000 at December 31, 1995. This represents an increase of $3,513,000 or
11.1%. This increase resulted from (i) earnings of $4,026,000 (less dividend
payments of $1,083,000) and offset by a negative equity adjustment of $267,000
for the unrealized loss on securities available for sale, (ii) proceeds of
$562,000 from exercised options, and (iii) proceeds of $275,000 from warrants
exercised that were issued in connection with YNB's 1993 Private Placement
Capital Offering and 1994 Stockholders' Rights Offering.
In 1996, 16,940 warrants were exercised yielding additional capital of
$275,000. On June 13, 1996, all outstanding warrants from prior capital
offerings expired.
YNB trades on the NASDAQ National Market System under the symbol "YANB."
The listing on the NASDAQ National Market System has provided increased
liquidity for YNB stockholders. During 1996, 1,775,965 shares were traded. There
were 2,430,414 shares of common stock outstanding at December 31, 1996.
Dividends paid per share in 1996 totaled $0.45. As a result of YNB's
performance during 1996, the common stock dividend was increased from $0.11 per
share to $0.12 per share in the last quarter of 1996.
Yardville National Bancorp and subsidiary is subject to minimum risk-based
and leverage capital guidelines issued by the Federal Reserve Board and
Comptroller of the Currency. The measurement of risk-based capital takes into
account the credit risk of both balance sheet assets and off-balance sheet
exposures. These guidelines require minimum risk-based capital ratios of 4% for
Tier I capital and 8% for total capital (Tier I plus Tier II). In addition, the
current minimum regulatory guideline for the Tier 1 leverage ratio is 4%.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five capital level designations ranging from "well capitalized" to
"critically undercapitalized." A bank is considered "well capitalized" if it has
minimum Tier I and total risk-based capital ratios of 6% and 10%, respectively,
and a minimum Tier I leverage ratio of 5%.
At December 31, 1996, the capital ratios for YNB exceeded the above ratios
required to be well capitalized. The table below summarizes YNB's capital
ratios at the dates indicated:
December 31,
- -----------------------------------------------
1996 1995 1994
- -----------------------------------------------
Tier 1 leverage ratio 7.8% 9.1% 7.8%
Tier 1 risk-based 10.2% 12.0% 9.6%
Total risk-based 11.4% 13.2% 10.8%
-28-
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 125 (SFAS 125), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued by the Financial Accounting Standards Board (FASB) in
June 1996. SFAS 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. SFAS 125
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. Management believes the implementation of SFAS 125 will not have
a material impact on the consolidated financial statements of the Corporation.
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," was issued by the FASB in March 1995. SFAS 121 requires that a review for
impairment be performed whenever events or changes in circumstances indicate
that the carrying amount of long-lived assets may not be recoverable. In
performing the review for recoverability, the Corporation should estimate the
future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition. The Corporation adopted this standard during 1996. The
adoption of this standard did not have a material impact on the consolidated
financial statements of the Corporation.
Statement of Financial Accounting Standards No. 122 (SFAS 122), "Accounting
for Mortgage Servicing Rights," was issued by the FASB in May 1995. This
statement amends SFAS 65, "Accounting for Certain Mortgage Banking Activities."
This statement eliminates the accounting distinction between originated and
purchased mortgage servicing rights. In addition, guidance is provided for a
consistent structure in measuring impairment of mortgage servicing rights. The
adoption of SFAS 122 did not have a material effect on the 1996 financial
statements.
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation," was issued by the FASB in October 1995. SFAS 123
defines a fair value based method of accounting for an employee stock option or
similar equity instruments 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 those plans using
the intrinsic value based method of accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees. The Corporation elected to remain with
the accounting of Opinion 25 for the employee and director stock option plans
and has provided the pro forma disclosures required by SFAS 123.
-29-
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------
(in thousands, except share data) 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks (Note 2) $ 13,110 $ 10,040
Federal funds sold 4,040 2,795
- ---------------------------------------------------------------------------------------------
Cash and Cash Equivalents 17,150 12,835
- ---------------------------------------------------------------------------------------------
Interest bearing deposits 1,357 1,033
Securities available for sale (Note 3) 93,671 98,469
Investment securities (market value of $30,878 in 1996
and $35,037 in 1995) (Note 3) 31,296 35,384
Loans 331,237 245,054
Less: Allowance for loan losses (4,957) (3,677)
- ---------------------------------------------------------------------------------------------
Loans, net (Note 4) 326,280 241,377
Bank premises and equipment, net (Note 5) 5,418 4,026
Other real estate 395 625
Other assets (Note 8) 14,978 9,366
- ---------------------------------------------------------------------------------------------
Total Assets $490,545 $403,115
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits
Non-interest bearing $ 55,519 $ 46,682
Interest bearing 308,926 256,290
- ---------------------------------------------------------------------------------------------
Total Deposits (Note 6) 364,445 302,972
Borrowed funds
Securities sold under agreements to repurchase 64,185 54,830
Other 22,154 10,391
- ---------------------------------------------------------------------------------------------
Total Borrowed Funds (Note 7) 86,339 65,221
Other liabilities 4,531 3,205
- ---------------------------------------------------------------------------------------------
Total Liabilities $455,315 $371,398
- ---------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 9 and 12)
Stockholders' equity (Notes 9 and 10)
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common stock: no par value
Authorized 6,000,000 shares
Issued and outstanding 2,430,414 shares in 1996
and 2,349,592 shares in 1995 17,246 16,409
Surplus 2,205 2,205
Undivided profits (Note 13) 15,940 12,997
Unrealized (loss) gain -- securities available for sale (161) 106
- ---------------------------------------------------------------------------------------------
Total Stockholders' Equity 35,230 31,717
- ---------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $490,545 $403,115
- ---------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-30-
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (Note 4) $25,731 $21,080 $14,168
Interest on deposits with banks 98 36 23
Interest on securities available for sale 6,262 3,592 1,347
Interest on investment securities:
Taxable 1,536 1,792 2,079
Exempt from Federal income tax 396 372 335
Interest on Federal funds sold 228 464 52
- -------------------------------------------------------------------------------------------------------------
Total Interest Income 34,251 27,336 18,004
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings account deposits 4,014 4,107 3,156
Interest on certificates of deposit of $100,000 or more 922 883 299
Interest on other time deposits 7,138 5,792 2,810
Interest on borrowed funds (Note 7) 4,967 2,059 95
- -------------------------------------------------------------------------------------------------------------
Total Interest Expense 17,041 12,841 6,360
- -------------------------------------------------------------------------------------------------------------
Net Interest Income 17,210 14,495 11,644
Less provision for loan losses (Note 4) 1,640 865 305
- -------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 15,570 13,630 11,339
- -------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 1,153 1,069 932
Gains on sales of mortgages, net 21 19 92
Security losses, net (136) (91) (124)
Other non-interest income 1,075 858 654
- -------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 2,113 1,855 1,554
- -------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits (Note 9) 6,629 5,693 5,028
Occupancy expense, net (Note 5) 920 726 611
Equipment (Note 5) 695 513 466
Other non-interest expense (Note 11) 3,235 3,328 3,180
- -------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 11,479 10,260 9,285
- -------------------------------------------------------------------------------------------------------------
Income before income tax expense 6,204 5,225 3,608
Income tax expense (Note 8) 2,178 1,822 1,085
- -------------------------------------------------------------------------------------------------------------
Net Income $ 4,026 $ 3,403 $ 2,523
- -------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Primary $ 1.64 $ 1.61 $ 1.58
Fully Diluted $ 1.64 $ 1.60 $ 1.56
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-31-
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN
- -------------------------------------
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain
Common Common Undivided (loss)- securities
(in thousands, except share amounts) shares stock Surplus profits available for sale Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,144,488 $ 3,814 $2,205 $ 8,189 $ -- $14,208
Net income 2,523 2,523
Cash dividends (380) (380)
Common stock issued:
Exercise of stock options 2,100 6 6
Proceeds from issuance of
common stock, net of
related expense 401,492 3,186 3,186
Unrealized loss -- securities
available for sale, net
of tax (1,092) (1,092)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 1,548,080 $ 7,006 $2,205 $10,332 $(1,092) $18,451
Net income 3,403 3,403
Cash dividends (738) (738)
Common stock issued:
Exercise of stock options 27,663 202 202
Exercise of warrants 83,849 1,283 1,283
Proceeds from issuance of
common stock, net of
related expense 690,000 7,918 7,918
Unrealized gain -- securities
available for sale, net
of tax 1,198 1,198
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 2,349,592 $16,409 $2,205 $12,997 $ 106 $31,717
Net income 4,026 4,026
Cash dividends (1,083) (1,083)
Common stock issued:
Exercise of stock options 63,882 562 562
Exercise of warrants 16,940 275 275
Unrealized loss -- securities
available for sale, net of tax (267) (267)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 2,430,414 $17,246 $2,205 $15,940 $ (161) $35,230
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-32-
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,026 $3,403 $ 2,523
Adjustments:
Provision for loan losses 1,640 865 305
Depreciation 666 474 411
Amortization and accretion 555 368 320
Losses on sales of securities available for sale 136 91 124
Writedown of other real estate 69 66 182
Increase in other assets (5,434) (3,289) (4,017)
Increase in other liabilities 1,326 1,617 344
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,984 3,595 192
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits (324) 61 328
Purchase of securities available for sale (65,492) (100,065) (15,408)
Maturities, calls and paydowns of securities available for sale 23,475 17,000 5,450
Proceeds from sales of securities available for sale 45,864 10,481 9,380
Proceeds from maturities and paydowns of investment securities 4,355 4,148 4,859
Purchase of investment securities (452) (646) (1,109)
Net increase in loans (86,915) (48,962) (62,353)
Expenditures for bank premises and equipment (2,058) (565) (497)
Proceeds from sale of other real estate 533 353 1,301
Capital improvements to other real estate -- (12) (74)
- -------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (81,014) (118,207) (58,123)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing
demand, money market, and savings deposits 15,704 19,044 12,128
Net increase in certificates of deposit 45,769 24,632 40,480
Net increase (decrease) in borrowed funds 21,118 64,006 (83)
Proceeds from issuance of common stock 837 9,403 3,192
Dividends paid (1,083) (738) (380)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 82,345 116,347 55,337
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,315 1,735 (2,594)
Cash and cash equivalents as of beginning of year 12,835 11,100 13,694
- -------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Year $17,150 $12,835 $11,100
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $16,338 $11,432 $ 5,979
Income taxes 2,324 1,908 1,744
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Corporation transferred $372 in 1996, $454 in 1995, and $220 in 1994, net of
charge offs, from loans to other real estate.
See Accompanying Notes to Consolidated Financial Statements.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Years ended December 31, 1996, 1995, and 1994
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business
Yardville National Bancorp through its subsidiary Yardville National Bank (the
Bank) provides a full range of services to individuals and corporate customers
in Mercer County. The Bank is subject to competition from other financial
institutions. The Bank is also subject to the regulations of certain Federal
agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the balance sheet and revenues and expenses
for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans.
A. Consolidation - The consolidated financial statements include the accounts of
Yardville National Bancorp and its sole subsidiary, the Bank and the Bank's
wholly owned subsidiary, the Yardville National Investment Corporation
(collectively, the Corporation). All significant inter-company accounts and
transactions have been eliminated.
B. Cash and Cash Equivalents - For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash on hand, amounts due from
banks, and Federal funds sold. Generally, Federal funds are purchased or sold
for one day periods.
C. Securities - The Corporation's securities portfolio is classified into three
separate portfolios: held to maturity, available for sale and trading. The
Corporation currently has no securities classified as trading. Securities
classified as available for sale may be used by the Corporation as funding and
liquidity sources and can be used to manage the Corporation's interest rate
sensitivity position. These securities are carried at their estimated market
value with their unrealized gains and losses carried, net of income tax, as
adjustments to stockholders' equity. Amortization of premium or accretion of
discount are recognized as adjustments to interest income, on a level yield
basis. Gains and losses on disposition are included in earnings using the
specific identification method.
Investment securities are composed of securities that the Corporation has
the positive intent and ability to hold to maturity. These securities are stated
at cost, adjusted for amortization of premium or accretion of discount. The
premium or discount adjustments are recognized as adjustments to interest
income, on a level yield basis. Unrealized losses due to fluctuations in market
value are recognized as investment security losses when a decline in value is
assessed as being other than temporary.
D. Loans - Interest on loans is recognized based upon the principal amount
outstanding. Loans are stated at face value, less unearned income and net
deferred fees. Generally, commercial loans are placed on a nonaccrual status
when they are 90 days past due unless they are well secured and in the process
of collection or, regardless of the past due status of the loan, when management
determines that the complete recovery of principal and interest is in doubt.
Consumer loans are generally charged off after they become 90 days past due.
Mortgage loans are not generally placed on a nonaccrual basis unless the value
of the real estate has deteriorated to the point that a potential loss of
principal or interest exists. Subsequent payments are credited to income only if
collection of principal is not in doubt. Loan origination and commitment fees
less certain costs are deferred and the net amount amortized as an adjustment to
the related loan's yield. Loans held for sale are recorded at the lower of
aggregate cost or market.
E. Mortgage Servicing Rights - Effective January 1, 1996, the Corporation
adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights and Excess
Servicing Receivables and for Securitization of Mortgage Loans" (SFAS 122). This
standard prospectively requires the Corporation, which services mortgage loans
for others in return for a servicing fee, to recognize these servicing rights as
assets, regardless of how such assets were acquired. Additionally, the
Corporation is required to assess the fair value of these assets at each
reporting date to determine impairment. The adoption of SFAS 122 did not have a
material effect on the 1996 financial statements. The mortgage servicing rights
(included in other assets) are amortized against loan servicing fee income on an
accelerated basis in proportion to, and over the period of, estimated net future
loan servicing fee income, which periods initially do not exceed seven years.
Service fee income is recognized when the related loan payments are collected.
-34-
<PAGE>
F. Allowance for Loan Losses - For financial reporting purposes, the provision
for loan losses charged to operating expense is determined by management and is
based upon a periodic review of the loan portfolio, past experience, the
economy, and other factors that may affect a borrower's ability to repay the
loan. This provision is based on management's estimates, and actual losses may
vary from these estimates. These estimates are reviewed and adjustments, as they
become necessary, are reported in the periods in which they become known.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in New Jersey. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Corporation's allowance for loan losses and the valuation of other real
estate. Such agencies may require the Corporation to recognize additions to the
allowance or adjustments to the carrying value of other real estate based on
their judgments about information available to them at the time of their
examination.
The Corporation adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosures," on January 1, 1995. Management, considering
current information and events regarding the borrowers' ability to repay their
obligations, considers a loan to be impaired when it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
When a loan is considered to be impaired, the amount of impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or fair value of the collateral. Impairment
losses are included in the allowance for loan losses through provisions charged
to operations. In accordance with the adoption of SFAS No. 114, insubstance
foreclosures are classified as nonperforming loans for all periods presented.
G. Bank Premises and Equipment - Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on straight-line and
accelerated methods over the estimated useful lives of the assets (buildings 25
to 50 years, furniture and fixtures 7 to 10 years). Charges for maintenance and
repairs are expensed as they are incurred.
H. Other Real Estate (O.R.E.) - O.R.E. comprises real properties acquired
through foreclosure or deed in lieu of foreclosure in partial or total
satisfaction of problem loans. The properties are recorded at the lower of cost
or fair value less estimated disposal costs at the date acquired. When a
property is acquired, the excess of the loan balance over the fair value is
charged to the allowance for loan losses. Any subsequent writedowns that may be
required to the carrying value of the property are included in other
non-interest expense. Gains realized from the sales of other real estate are
included in other non-interest income, while losses are included in non-interest
expense.
I. Federal Income Taxes - Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in the tax rates is recognized
in income in the period of the enactment date.
J. Stock Based Compensation - The Corporation adopted the provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," for transactions entered
into after December 15, 1995. The Corporation elected to continue to apply
Accounting Principles Board (APB) Opinion 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Pro forma disclosures, as required by
SFAS 123, have been included for awards granted after January 1, 1995 (see
note 9).
K. Earnings Per Share - Earnings per share are based on the weighted average
number of shares outstanding including common stock equivalents (2,462,000
shares in 1996, 2,192,000 shares in 1995 and 1,757,000 shares in 1994) utilizing
the treasury stock method in 1996 and the modified treasury stock method in 1995
and 1994. The modified treasury stock method includes the potential dilutive
effect of options and warrants not included in the treasury stock method.
2. CASH AND DUE FROM BANKS
The Corporation maintains various deposits with other banks. As of December 31,
1996 and 1995, the Corporation maintained sufficient cash on hand to satisfy
Federal regulatory requirements.
-35-
<PAGE>
3. SECURITIES
The amortized cost and estimated market value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
other U.S. government
agencies and corporations $31,951 $ 27 $ (36) $31,942 $17,795 $ 63 $ (35) $17,823
Mortgage-backed securities 59,441 339 (598) 59,182 78,725 320 (171) 78,874
Federal Reserve Bank Stock 572 -- -- 572 512 -- -- 512
Federal Home Loan Bank Stock 1,975 -- -- 1,975 1,260 -- -- 1,260
- -----------------------------------------------------------------------------------------------------------------------------------
Total $93,939 $366 $(634) $93,671 $98,292 $383 $(206) $98,469
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of state and
political subdivisions $ 9,070 $62 $ (24) $ 9,108 $ 8,630 $56 $ (27) $ 8,659
Mortgage-backed securities 22,226 -- (456) 21,770 26,754 -- (376) 26,378
- -----------------------------------------------------------------------------------------------------------------------------------
Total $31,296 $62 $(480) $30,878 $35,384 $56 $(403) $35,037
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of securities available for
sale and investment securities as of December 31, 1996 by contractual maturity
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Securities available for sale:
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Due in 1 year or less $6,005 $5,998
Due after 1 year
through 5 years 15,946 15,944
Due after 10 years 12,547 12,547
- --------------------------------------------------------------------------------
Subtotal 34,498 34,489
Mortgage-backed securities 59,441 59,182
- --------------------------------------------------------------------------------
Total $93,939 $93,671
- --------------------------------------------------------------------------------
Investment securities:
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Due in 1 year or less $760 $760
Due after 1 year
through 5 years 3,091 3,084
Due after 5 years
through 10 years 5,004 5,039
Due after 10 years 215 225
- --------------------------------------------------------------------------------
Subtotal 9,070 9,108
Mortgage-backed securities 22,226 21,770
- --------------------------------------------------------------------------------
Total $31,296 $30,878
- --------------------------------------------------------------------------------
Proceeds from sales of securities available for sale during 1996, 1995, and
1994 were $45,864,000, $10,481,000, and $9,380,000, respectively. Gross gains of
$43,000, $27,000, and $23,000 and gross losses of $179,000, $118,000, and
$147,000, respectively, were realized on those sales.
-36-
<PAGE>
Securities with a carrying value of approximately $74,953,000 as of
December 31, 1996 were pledged to secure public deposits and for other purposes
as required or permitted by law. As of December 31, 1996, Federal Home Loan Bank
(FHLB) stock with a carrying value of $1,975,000 was held by the Corporation as
required by the FHLB.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table shows comparative year-end detail of the loan portfolio:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Commercial and
agricultural loans $ 63,426 $ 33,218
Real estate loans -- mortgage 219,554 173,191
Real estate loans -- construction 25,958 19,353
Consumer loans 15,034 12,386
Other loans 7,265 6,906
- --------------------------------------------------------------------------------
Total loans $331,237 $245,054
- --------------------------------------------------------------------------------
Residential mortgage loans held for sale amounted to $2,921,000, and
$2,979,000 as of December 31, 1996 and 1995, respectively. These loans are
accounted for at the lower of aggregate cost or market value and are included in
the table above.
The Corporation originates and sells mortgage loans to Freddie Mac and
FNMA. Generally, servicing on such loans is retained by the Corporation. As of
December 31, 1996 and 1995, loans serviced for Freddie Mac were $44,637,000, and
$49,097,000, respectively. Loans serviced for FNMA were $2,682,000 and
$1,503,000, respectively, as of December 31, 1996 and 1995.
In accordance with the provisions of SFAS 122, the Corporation has
capitalized $29,000 of originated servicing rights as of December 31, 1996.
These rights are included in other assets in the consolidated balance sheet.
The Corporation has extended credit in the ordinary course of business to
directors, officers, and their associates on substantially the same terms,
including interest rates and collateral, as those prevailing for comparable
transactions with other customers of the Corporation.
The following table summarizes activity with respect to such loans:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Balance as of beginning of year $3,581 $2,633
Additions 752 1,400
Repayments and resignations 1,003 452
- --------------------------------------------------------------------------------
Balance as of end of year $3,330 $3,581
- --------------------------------------------------------------------------------
The majority of the Corporation's business is with customers located within
Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount of
real estate are subject to changes in the region's real estate market. A portion
of the total portfolio is secured by real estate. The principal areas of
exposure are construction and development loans, which are primarily commercial
and residential projects and commercial mortgage loans. Commercial mortgage
loans are completed projects and are generally owner-occupied, creating cash
flow.
Changes in the allowance for loan losses are as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Balance as of beginning
of year $ 3,677 $ 2,912 $ 2,703
Loans charged off (399) (209) (206)
Recoveries of loans
charged off 39 109 110
- --------------------------------------------------------------------------------
Net charge offs (360) (100) (96)
Provision charged
to operations 1,640 865 305
- --------------------------------------------------------------------------------
Balance as of
end of year $ 4,957 $ 3,677 $ 2,912
- --------------------------------------------------------------------------------
The detail of loans charged off is as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Commercial and
agricultural $ -- $ -- $ 47
Real estate loans
-- mortgage 72 26 51
Real estate loans
-- construction 75 30 25
Consumer loans 252 153 83
- --------------------------------------------------------------------------------
Total $ 399 $ 209 $ 206
- --------------------------------------------------------------------------------
Nonperforming assets include nonperforming loans and other real estate. The
nonperforming loan category includes loans on which accrual of interest has been
discontinued with subsequent interest payments credited to income as received
and loans 90 days past due or greater on which interest is still accruing.
Nonperforming loans as a percentage of total loans were 2.46% as of December 31,
1996 and 1.15% as of December 31, 1995.
-37-
<PAGE>
A summary of nonperforming assets is as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Nonaccruing loans:
Commercial and
agricultural loans $ 961 $ --
Real estate loans
-- mortgage 1,451 1,395
Real estate loans
-- construction 4,659 142
Consumer loans 12 30
- --------------------------------------------------------------------------------
Total nonaccruing loans $ 7,083 $ 1,567
- --------------------------------------------------------------------------------
Restructured loan $ -- $ 612
- --------------------------------------------------------------------------------
Past due 90 days or more:
Real estate loans
-- mortgage $ 1,014 $ 588
Consumer loans 43 52
- --------------------------------------------------------------------------------
Total past due 90 days or more 1,057 640
- --------------------------------------------------------------------------------
Total nonperforming loans 8,140 2,819
Other real estate 395 625
- --------------------------------------------------------------------------------
Total nonperforming assets $ 8,535 $ 3,444
- --------------------------------------------------------------------------------
The Corporation adopted the provisions of SFAS No. 114 and SFAS No. 118
effective January 1, 1995. All loans receivable have been evaluated for
collectibility under the provisions of these statements.
The Corporation has defined the population of impaired loans to be all
nonaccrual commercial loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value of
the collateral or the present value of the loan's expected cash flows. Smaller
balance homogeneous loans that are collectively evaluated for impairment,
including residential mortgage and consumer loans, are specifically excluded
from the impaired loan portfolio.
The recorded investment in loans receivable for which an impairment has
been recognized as of December 31, 1996 and 1995 was $6,827,000 and $1,291,000,
respectively. The related allowance for loan losses on these loans as of
December 31, 1996 and 1995 was $861,000 and $184,000, respectively. The average
recorded investment in impaired loans during 1996 and 1995 was $2,548,000 and
$1,322,000, respectively. There was no interest income recognized on impaired
loans in 1996 or 1995.
Additional income before income taxes amounting to approximately $351,000
in 1996, $143,000 in 1995, and $183,000 in 1994 would have been recognized if
interest on all loans had been recorded based upon original contract terms.
There was $9,858 of interest income recorded on the restructured loan
during 1995. There are no restructured loans as of December 31, 1996.
5. BANK PREMISES AND EQUIPMENT
The following table represents comparative information for premises and
equipment:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Land and improvements $ 528 $ 524
Buildings and improvements 4,296 3,874
Furniture and equipment 5,128 3,496
- --------------------------------------------------------------------------------
Total 9,952 7,894
Less accumulated depreciation 4,534 3,868
- --------------------------------------------------------------------------------
Bank premises
and equipment, net $ 5,418 $ 4,026
- --------------------------------------------------------------------------------
6. DEPOSITS
Total deposits consist of the following:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 55,519 $ 46,682
Money market deposits 62,783 56,759
Savings deposits 71,574 70,731
Certificates of deposit
of $100,000 and over 22,162 15,021
Other time deposits 152,407 113,779
- --------------------------------------------------------------------------------
Total $364,445 $302,972
- --------------------------------------------------------------------------------
A summary of certificates of deposit by maturity is as follows:
December 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Within one year $ 84,529 $ 73,602
One to two years 50,357 20,579
Two to three years 27,731 13,500
Three to four years 9,942 12,408
Four to five years 2,010 8,711
- --------------------------------------------------------------------------------
Total $174,569 $128,800
- --------------------------------------------------------------------------------
7. BORROWED FUNDS
Borrowed funds include securities sold under agreements to repurchase and FHLB
advances. Other borrowed funds consist of Federal funds purchased and Treasury
tax and loan deposits.
-38-
<PAGE>
The following table presents comparative data related to borrowed funds of
the Corporation at and for the years ended December 31, 1996 and 1995.
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Securities sold under
agreements to repurchase $ 64,185 $54,830
FHLB advances 20,813 10,000
Other 1,341 391
- --------------------------------------------------------------------------------
Total $ 86,339 $65,221
- --------------------------------------------------------------------------------
Maximum amount outstanding
at any month end $105,577 $65,221
Average interest rate
on year end balance 5.72% 6.01%
Average amount outstanding
during the year $ 87,065 $33,339
Average interest rate
for the year 5.70% 6.18%
- --------------------------------------------------------------------------------
The following is a summary of securities sold under agreements to
repurchase and their maturities as of December 31, 1996:
(in thousands)
- --------------------------------------------------------------------------------
30 to 90 days $41,355
Over 90 days 22,830
- --------------------------------------------------------------------------------
Total $64,185
- --------------------------------------------------------------------------------
The FHLB advances as of December 31, 1996, mature as follows:
(in thousands)
- --------------------------------------------------------------------------------
Less than three months $10,000
Three to six months 5,000
Over one year 5,813
- --------------------------------------------------------------------------------
Total $20,813
- --------------------------------------------------------------------------------
Interest expense on borrowed funds is comprised of the following:
Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Securities sold under
agreements to repurchase $ 3,792 $ 1,429 $ --
FHLB advances 1,116 576 --
Other 59 54 95
- --------------------------------------------------------------------------------
Total $ 4,967 $ 2,059 $ 95
- --------------------------------------------------------------------------------
8. INCOME TAXES
Income taxes reflected in the consolidated financial statements for 1996, 1995,
and 1994 are as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Statements of Income:
Federal:
Current $ 2,281 $ 1,881 $ 1,238
Deferred (521) (400) (129)
State:
Current $ 560 $ 253 $ 34
Deferred (142) 88 (58)
- --------------------------------------------------------------------------------
Total tax expense $ 2,178 $ 1,822 $ 1,085
- --------------------------------------------------------------------------------
Statements of Condition:
Deferred tax on securities
available for sale $ (178) $ 798 $ (727)
- --------------------------------------------------------------------------------
Deferred income taxes for 1996, 1995, and 1994 reflect the impact of
"temporary differences" between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws. Temporary
differences which give rise to a significant portion of deferred tax assets and
liabilities for 1996, 1995, and 1994 are as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Deferred loan fees $ 170 $ 119 $ 141
Allowance for
loan losses 1,686 1,174 838
Writedown of basis
of O.R.E. properties 36 36 46
Deferred income 1 1 5
Nonaccrual loans 40 40 59
Net state operating
loss carryforward -- -- 124
Unrealized loss on
securities available
for sale 107 -- 727
Deferred compensation 223 183 --
Other -- 26 93
- --------------------------------------------------------------------------------
Total deferred tax assets $ 2,263 $ 1,579 $ 2,033
- --------------------------------------------------------------------------------
Valuation allowance (78) (78) (78)
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Unrealized gain on
securities available
for sale -- (71) --
Unamortized discount
accretion (94) (76) (39)
Depreciation (207) (227) (304)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 1,884 $ 1,127 $ 1,612
- --------------------------------------------------------------------------------
-39-
<PAGE>
The Corporation has established the valuation allowance against certain
temporary differences. The Corporation is not aware of any factors which would
generate significant differences between taxable income and pre-tax accounting
income in future years except for the effects of the reversal of current or
future net deductible temporary differences. Management believes, based upon
current information, that it is more likely than not that there will be
sufficient taxable income through carryback to prior years to realize the net
deferred tax asset. However, there can be no assurance regarding the level of
earnings in the future.
A reconciliation of the tax expense computed by multiplying pre-tax
accounting income by the statutory Federal income tax rate of 34% is as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Income tax expense
at statutory rate $ 2,105 $ 1,776 $ 1,227
State income taxes, net
of Federal benefit,
before change in
valuation reserve 276 226 151
Changes in taxes resulting from:
Tax exempt interest (122) (117) (117)
Tax exempt income (142) (93) --
Non-deductible
expenses 61 30 76
Change in Federal
valuation reserve -- -- (252)
- --------------------------------------------------------------------------------
Total $ 2,178 $ 1,822 $1,085
- --------------------------------------------------------------------------------
9. BENEFIT PLANS
Retirement Savings Plan
The Corporation has a 401(K) plan which covers substantially all employees with
one or more years of service. The plan permits all eligible employees to make
basic contributions to the plan up to 12% of base compensation. Under the plan,
the Corporation provided a matching contribution of 50% in 1996 and 25% in 1995
and 1994, up to 6% of base compensation. Employer contributions to the plan
amounted to $83,000 in 1996, $36,000 in 1995, and $31,000 in 1994.
Postretirement Benefits
The Corporation provides additional postretirement benefits, namely life and
health insurance, to retired employees over the age of 62 who have completed 15
years of service. The plan calls for retirees to contribute a portion of the
cost of providing these benefits in relation to years of service.
SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," requires an employer to recognize the cost of retiree health and life
insurance benefits over the employees' period of service. The transition
obligation is being amortized over a twenty year period.
The periodic postretirement benefit cost under SFAS 106 was as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 79 $ 50 $ 46
Interest cost 83 68 47
Amortization of transition
obligation 30 30 30
Amortization of
actuarial loss 13 -- --
- --------------------------------------------------------------------------------
Net postretirement cost $205 $148 $123
- --------------------------------------------------------------------------------
The actuarial present value of benefit obligations was as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees $ 316 $ 325 $ 143
Fully eligible active plan
participants 320 299 212
Other active plan
participants 701 582 274
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation 1,337 1,206 629
Unrecognized transition
obligation (480) (510) (540)
Unrecognized actuarial
(loss) gain (337) (350) 137
- --------------------------------------------------------------------------------
Accrued postretirement
benefit obligation $ 520 $ 346 $ 226
- --------------------------------------------------------------------------------
The assumed annual rate of future increases in per capita cost of health
care benefits was 10% for 1996 and 11% for 1995. The rate was assumed to decline
gradually to 5% in 2001 and remain at that level thereafter. Increasing the
health care cost trend by 1% in each year would increase the accumulated
postretirement benefit obligation by $349,000 and $300,000 and the service,
interest and amortization costs by $49,000 and $29,000 in 1996 and 1995,
respectively. The weighted average discount rate used in determining the
accumulated benefit obligation was 7% in 1996 and 8.5% in 1995.
-40-
<PAGE>
Stock Option Plan
In March 1988, the Stockholders approved an incentive stock option plan
(employee plan) for the purpose of assisting the Corporation in attracting and
retaining highly qualified persons as employees of the Corporation and to
provide such key employees with incentives to contribute to the growth and
development of the Corporation. In general, the plan allows the granting of up
to 44,000 shares of the Corporation's common stock at an option price to be no
less than the fair market value of the stock on the date such options are
granted. The vesting schedule of the stock options is set by a committee
appointed by the Board of Directors. In April 1994, the stock option plan was
amended and approved by the Board of Directors to increase the maximum number of
shares subject to grant to 164,000.
Stock options vest during a period of up to five years after the date of
grant. The status of the plan for the years ended December 31, 1996, 1995, and
1994 is as follows:
Options Outstanding
- --------------------------------------------------------------------------------
Price
Shares Per Share
- --------------------------------------------------------------------------------
Balance,
December 31, 1993 39,850 $3.10 - $ 8.00
- --------------------------------------------------------------------------------
Shares:
Granted 122,480 $ 8.75
Exercised 2,100 $ 3.10
- --------------------------------------------------------------------------------
Balance,
December 31, 1994 160,230 $3.10 - $ 8.75
- --------------------------------------------------------------------------------
Shares:
Granted 3,520 $ 14.75
Exercised 16,720 $3.10 - $ 14.75
Expired 2,350 $8.00 - $ 8.75
- --------------------------------------------------------------------------------
Balance,
December 31, 1995 144,680 $8.00 - $ 14.75
- --------------------------------------------------------------------------------
Shares:
Exercised 57,339 $8.75 - $ 14.75
Expired 2,811 $8.75 - $ 14.75
- --------------------------------------------------------------------------------
Balance,
December 31, 1996 84,530 $8.00 - $ 14.75
- --------------------------------------------------------------------------------
Shares exercisable as of
December 31, 1996 84,530 $8.00 - $ 14.75
- --------------------------------------------------------------------------------
1994 Stock Option Plan
In April 1994, the Board of Directors approved a non-qualified stock option plan
(director plan) for non-employee directors for the purpose of assisting the
Corporation in attracting and retaining highly qualified persons as non-employee
members of the Board of Directors and to provide such directors with incentives
to contribute to the growth and development of the business of the Corporation.
In general, the plan allows for the granting of up to 40,000 shares of the
Corporation's common stock at an option price to be no less than the fair market
value of the stock on the date such options are granted. The vesting schedule of
the stock options is set by a committee appointed by the Board of Directors.
The shares granted in 1994 under this plan, vested immediately. The status
of the plan for the years ended December 31, 1996, 1995, and 1994 is as follows:
Options Outstanding
- --------------------------------------------------------------------------------
Price
Shares Per Share
- --------------------------------------------------------------------------------
Balance,
December 31, 1994 32,000 $ 8.75
- --------------------------------------------------------------------------------
Shares:
Exercised 10,943 $ 8.75
Expired 3,200 $ 8.75
- --------------------------------------------------------------------------------
Balance,
December 31, 1995 17,857 $ 8.75
- --------------------------------------------------------------------------------
Shares:
Granted 3,200 $ 15.75
Exercised 6,543 $ 8.75
Expired 800 $ 8.75
- --------------------------------------------------------------------------------
Balance,
December 31, 1996 13,714 $8.75 - $ 15.75
- --------------------------------------------------------------------------------
Shares exercisable as of
December 31, 1996 13,714 $8.75 - $ 15.75
- --------------------------------------------------------------------------------
As of December 31, 1996, there were 2,261 and 8,800 additional shares
available for grant under the employee and director plans, respectively.
As presented in the tables above, there were 3,200 options granted under
the director plan in 1996 and 3,520 options granted under the employee plan in
1995. The per share weighted average fair value of stock options granted during
1996 and 1995 was $2.46 and $2.00, respectively, on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions in 1996 and 1995: (1) an expected annual dividend of $0.45 and
$0.38, respectively, (2) risk free interest rate of 5.2% and 5.1%, respectively,
and expected life of approximately 1 year.
The Corporation adopted the provisions of SFAS 123 for transactions entered
into after December 15, 1995. Pro forma disclosures for options granted in 1996
and 1995 are required. The Corporation applies APB Opinion No. 25 in accounting
for its plans and, accordingly, no compensation cost has been recognized for
stock options in the consolidated financial statements.
-41-
<PAGE>
Had the Corporation determined compensation cost based on the fair value at the
grant date for its stock options under SFAS 123, the Corporation's 1996 and 1995
net income would have been reduced to the pro forma amounts indicated below:
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Net income:
As reported $4,026 $3,403
Pro forma 4,019 3,395
- --------------------------------------------------------------------------------
Earnings per share:
Primary:
As reported $1.64 $ 1.61
Pro forma 1.64 1.61
Fully diluted:
As reported $1.64 $ 1.60
Pro forma 1.64 1.60
- --------------------------------------------------------------------------------
Benefit Plans
The Corporation has a salary continuation plan for three key executives and
a director deferred compensation plan for five board members. The plans provide
for yearly retirement benefits to be paid over a specified period. The present
value of the benefits accrued under these plans as of December 31, 1996 and 1995
is approximately $226,000 and $110,000, respectively, and is included in other
liabilities in the accompanying consolidated statements of condition.
Compensation expense of approximately $120,000 and $100,000 is included in the
accompanying consolidated statements of income for the years ended December 31,
1996 and 1995, respectively.
In connection with the benefit plans, the Corporation has purchased life
insurance policies on the lives of the executives and directors. The Corporation
is the owner and beneficiary of the policies. The cash surrender values of the
policies are approximately $5,560,000 and $5,020,000 as of December 31, 1996 and
1995, respectively, and are included in other assets in the accompanying
consolidated statements of condition.
The Corporation implemented an officer group term replacement plan for
certain executives in 1996. This plan replaces group term life insurance for
these executives. This plan is funded through life insurance policies purchased
by the Corporation. This plan is a split dollar plan; therefore, the policy
interests are divided between the bank and the employee. The death benefits over
and above the cash surrender of the life insurance policy, if any, are endorsed
to the beneficiary of the executive. The cash surrender value of the policies is
approximately $2,990,000 as of December 31, 1996 and is included in other assets
in the accompanying consolidated statements of condition.
10. COMMON STOCK
On September 23, 1994, the Corporation completed its Rights Offering. This
offering, available only to stockholders of record on August 8, 1994, raised
$2,901,000, net of offering expenses. In connection with the 1993 private
placement capital offering, the Corporation agreed, subject to limits on total
ownership of common stock, to offer up to 21,000 shares to two accredited
private investors ("Additional Units Offering"). On October 11, 1994 each
private investor purchased the additional shares. The Corporation issued 401,492
units, from the Rights Offering and the Additional Units Offering, consisting of
one share of common stock and one warrant to purchase one share of common stock.
The proceeds from these offerings were $3,186,000, net of offering expenses.
During 1996 and 1995, warrants totaling 16,940 and 83,849, respectively,
were exercised with proceeds of $275,000 and $1,283,000, respectively. On June
13, 1996, all outstanding warrants from prior capital offerings expired.
On June 14, 1995 the Corporation completed its underwritten public offering
by issuing 690,000 shares of common stock. The proceeds from this offering were
$7,918,000, net of offering expenses.
11. OTHER NON-INTEREST EXPENSE
Other non-interest expense included the following:
Year ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
FDIC insurance premium $ 1 $290 $464
O.R.E. expenses 163 166 306
Stationery and supplies 388 300 229
Computer services 83 285 270
Insurance (other) 102 93 119
Marketing 522 479 415
Other 1,976 1,715 1,377
- --------------------------------------------------------------------------------
Total $3,235 $3,328 $3,180
- --------------------------------------------------------------------------------
12. OTHER COMMITMENTS AND
CONTINGENT LIABILITIES
The Corporation enters into a variety of financial instruments with
off-balance sheet risk in the normal course of business. These financial
instruments include commitments to extend credit and letters of credit, both of
which involve, to varying degrees, elements of risk in excess of the amount
recognized in the consolidated financial statements.
Credit risk, the risk that a counterparty of a particular financial
instrument will fail to perform, is the contract amount of the commitments to
extend credit and letters of credit. The credit risk associated with these
financial instruments is essentially the same as that involved in extending
loans to customers. Credit risk is managed by limiting the total amount of
arrangements outstanding and by applying normal credit policies to all
activities with credit risk. Collateral is obtained based on management's credit
assessment of the customer.
The contract amounts of off-balance sheet financial instruments as of
December 31, 1996 and 1995 for commitments to extend credit were $56,071,000 and
$63,531,000, respectively. For standby letters of credit, the contract amounts
were $6,831,000 and $6,720,000, respectively.
-42-
<PAGE>
Many such commitments to extend credit may expire without being drawn upon,
and therefore, the total commitment amounts do not necessarily represent future
cash flow requirements.
The Corporation maintains lines of credit with the FHLB and two of its
correspondent banks. There were approximately $27,000,000 in lines of credit
available as of December 31, 1996.
The Corporation leases its banking offices in Ewing Township, East Windsor
Township, Trenton and Hamilton Square. Total lease rental expense was $186,305,
$103,002, and $42,678 for the years ended December 31, 1996, 1995, and 1994,
respectively. Minimum rentals under the terms of these leases for years 1997
through 2001 are $222,922, $222,922, $224,602, $225,162, and $229,017,
respectively.
The Corporation and the Bank are party, in the ordinary course of business,
to litigation involving collection matters, contract claims and other
miscellaneous causes of action arising from their business. Management does not
consider that any such proceedings depart from usual routine litigation, and in
its judgment, the Corporation's consolidated financial position or results of
operations will not be affected materially by the final outcome of any pending
legal proceedings.
13. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated 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 classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios and capital adequacy requirements
are presented in the table below.
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provision
- ---------------------------------------------------------------------------------------------------------------
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk-weighted assets) $ 39,304 11.4% $27,521 8.0% $34,401 10.0%
Tier I capital (to risk-weighted assets) 34,996 10.2 13,761 4.0 20,641 6.0
Tier I capital (to average assets) 34,996 7.8 17,940 4.0 22,425 5.0
As of December 31, 1995:
Total capital (to risk-weighted assets) 34,498 13.2 20,914 8.0 26,142 10.0
Tier I capital (to risk-weighted assets) 31,230 12.0 10,457 4.0 15,685 6.0
Tier I capital (to average assets) 31,230 9.1 13,776 4.0 17,219 5.0
</TABLE>
Permission from the Comptroller of the Currency is required if the total of
dividends declared in a calendar year exceeds the total of the Bank's net
profits, as defined by the Comptroller, for that year, combined with its
retained net profits of the two preceding years. The retained net profits of the
Bank available for dividends are approximately $5,651,000 as of December 31,
1996.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDIC Improvement Act") became law. While the FDIC Improvement
Act primarily addresses additional sources of funding for the Bank Insurance
Fund, which insures the deposits of commercial banks and saving banks, it also
imposes a number of new mandatory supervisory measures on savings associations
and banks.
The FDIC Improvement Act requires financial institutions to take certain
actions relating to their internal operations, including: providing annual
reports on financial condition and management to the appropriate federal banking
regulators, having an annual independent audit of financial statements performed
by an independent public accountant and establishing an independent audit
committee composed solely of outside directors. The FDIC Improvement Act also
imposes certain operational and managerial standards on financial institutions
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits.
-43-
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instruments for which it is practical
to estimate that value:
Cash and Cash Equivalents:
For such short-term investments, the carrying amount was considered to be a
reasonable estimate of fair value.
Securities and Mortgage-backed Securities:
The carrying amounts for short-term investments approximate fair value because
they mature in 90 days or less and do not present unanticipated credit concerns.
The fair value of longer-term investments and mortgage-backed securities, except
certain state and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair value
estimates are based on quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued.
Loans:
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage and other consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing loans, except residential mortgage loans, is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimate of maturity is based on the
Corporation's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for prepayment
estimates using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
Deposit Liabilities:
The fair value of deposits with no stated maturity, such as non-interest bearing
demand deposits, savings, and NOW accounts, and money market and checking
accounts, is considered to be equal to the amount payable on demand. The fair
value of certificates of deposit is based on the discounted value of contractual
cash flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
Borrowed Funds:
For securities sold under agreements to repurchase fair value was based on rates
currently available to the Corporation for agreements with similar terms and
remaining maturities. For other borrowed funds, the carrying amount was
considered to be a reasonable estimate of fair values.
The estimated fair values of the Corporation's financial instruments are as
follows:
December 31, 1996
- --------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- --------------------------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents $17,150 $17,150
Interest bearing
deposits 1,357 1,357
Securities available for
sale 93,671 93,671
Investment securities 31,296 30,878
Loans 326,280 333,502
Financial Liabilities:
Deposits 364,445 365,976
Borrowed funds 86,339 86,042
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- --------------------------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents $12,835 $12,835
Interest bearing
deposits 1,033 1,033
Securities available for
sale 98,469 98,469
Investment securities 35,384 35,037
Loans 241,377 249,848
Financial Liabilities:
Deposits 302,972 304,039
Borrowed funds 65,221 64,333
- --------------------------------------------------------------------------------
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, and as the fair value for
these financial instruments was not material, these disclosures are not included
above.
Limitations:
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not
-44-
<PAGE>
reflect any premium or discount that could result from offering for sale at one
time the Corporation's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Corporation's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets that are not considered financial
assets include the deferred tax assets and bank premises and equipment. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
15. PARENT CORPORATION INFORMATION
The condensed financial statements of the parent company only are presented
below:
YARDVILLE NATIONAL BANCORP
(Parent Corporation)
Condensed Statements of Condition
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Assets:
Cash $ 316 $ 342
Investment in subsidiary 34,835 31,336
Other assets 79 39
- --------------------------------------------------------------------------------
Total Assets $35,230 $31,717
- --------------------------------------------------------------------------------
Stockholders' Equity $35,230 $31,717
- --------------------------------------------------------------------------------
Condensed Statements of Income
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Operating Income:
Dividends from
subsidiary $1,083 $843 $580
- --------------------------------------------------------------------------------
Total Operating
Income 1,083 843 580
- --------------------------------------------------------------------------------
Operating Expense:
Other expense 114 115 11
- --------------------------------------------------------------------------------
Total Operating Expense 114 115 11
- --------------------------------------------------------------------------------
Income before income
taxes and equity in
undistributed income
of subsidiary 969 728 569
Federal income tax
benefit (40) (41) (3)
- --------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiary 1,009 769 572
Equity in undistributed
income of subsidiary 3,017 2,634 1,951
- --------------------------------------------------------------------------------
Net Income $4,026 $3,403 $2,523
- --------------------------------------------------------------------------------
Condensed Statements of Cash Flows
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Cash Flows from
Operating Activities:
Net Income $ 4,026 $ 3,403 $ 2,523
Adjustments:
(Decrease) increase
in other assets (40) (36) 96
Equity in undistributed
income of subsidiary (3,017) (2,634) (1,951)
Decrease in
other liabilities -- (1) (5)
- --------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 969 732 663
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Investing in subsidiary (749) (9,650) (2,902)
- --------------------------------------------------------------------------------
Net Cash Used by
Investing Activities (749) (9,650) (2,902)
- --------------------------------------------------------------------------------
Cash flows from financing
activities:
Proceeds from shares
issued 837 9,403 3,192
Dividends paid (1,083) (738) (380)
- --------------------------------------------------------------------------------
Net Cash (Used) Provided by
Financing Activities (246) 8,665 2,812
- --------------------------------------------------------------------------------
Net (decrease) increase
in cash (26) (253) 573
Cash as of beginning of year 342 595 22
- --------------------------------------------------------------------------------
Cash as of End of Year $ 316 $ 342 $ 595
- --------------------------------------------------------------------------------
-45-
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND STOCKHOLDERS
YARDVILLE NATIONAL BANCORP:
We have audited the accompanying consolidated statements of condition of
Yardville National Bancorp and subsidiary as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Corporation'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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Yardville
National Bancorp and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
- -------------------------------
Princeton, New Jersey
January 31, 1997
-46-
<PAGE>
OFFICERS
-----------------
Yardville National Bancorp
President and Chief Executive Officer
Patrick M. Ryan
Secretary and Treasurer
Stephen F. Carman
Assistant Secretary and Treasurer
Diane H. Polyak
Yardville National Bank
President and Chief Executive Officer
Patrick M. Ryan
Executive Vice President,
Chief Financial Officer and Cashier
Stephen F. Carman
First Senior Vice President/Senior Loan Officer
James F. Doran
First Senior Vice President/Credit Administration
Mary C. O'Donnell
Senior Vice President and Controller
Richard A. Kauffman
Senior Vice President and Bank Administrator
Frank Durand III
Senior Vice President/Commercial Loans
Sarah J.Strout
Vice Presidents
Maida H. Bell
James T. Brotherton
Vincent P. Ditta
Elmer C. Fawcett
Kathleen A. Fone
Nancy C. German
Maurice F. Lippincott
Sandra R. Malanga
Thomas A. McBain
Nina D. Melker
Thomas L. Nash
Diane H. Polyak
Jane M. Trout
Susan M.Valentino
Assistant Vice Presidents
Shawn Chase-Merritt
Scott W. Civil
Nancy J. Collar
Sandra A. Gray
Dale K. Inman
Anne S. Marsilio
Debra L. Mincarelli
Leslie Rita
Christine A. Secrist
Joan M. Tarr
Assistant Cashiers
Sharon E. Bokma
June A. Haney
Fay Horrocks
Peggy A. Iucolino
Linda A. Kelly
Kathleen M. Kirkham
Patricia D. Majeski
Dawn L. Melker
Barbara G. Morgan
Michael J. Pelosci
Joseph H. Robotin
Elizabeth A. Salvatore
Flora B. Shiarappa
-47-
<PAGE>
BOARD OF DIRECTORS
- ------------------
Yardville National Bancorp
Jay G. Destribats, Chairman of the Board
John C. Stewart, Vice Chairman*
Patrick M. Ryan, President and C.E.O.
C. West Ayres
Elbert G. Basolis, Jr.
Lorraine Buklad
Anthony M. Giampetro, M.D., F.C.C.P.
Gilbert W. Lugossy
Weldon J. McDaniel, Jr.
William J. Steiner, Jr.*+
F. Kevin Tylus
Edward M. Hendrickson, Director Emeritus +
* Director Emeritus as of March 1997
+ Deceased as of March 1997
Yardville National Bank
Jay G. Destribats, Chairman of the Board
John C. Stewart, Vice Chairman*
Patrick M. Ryan, President and C.E.O.
C. West Ayres
Elbert G. Basolis, Jr.
Lorraine Buklad
Anthony M. Giampetro, M.D., F.C.C.P.
Gilbert W. Lugossy
Weldon J. McDaniel, Jr.
William J. Steiner, Jr.*+
F. Kevin Tylus
Edward M. Hendrickson, Director Emeritus +
* Director Emeritus as of March 1997
+ Deceased as of March 1997
ADVISORY BOARD
- --------------
William C. Broderick
W. Michael Bryant
Nancy S. Ellis
William G. Engel
Daniel J. Graziano, Esq.
Sidney L. Hofing ++
James J. Kelly ++
John J. Klein III
Richard J. Klockner
Nancy J. Knight
Eugene P. Marfuggi
George S. Martin
Louis R. Matlack, Ph.D. ++
Robert E. Mule
Joyce H. Rainear
Marvin A. Rosen
N. Gerald Sapnar
Ronald K. Vernon
Robert L. Workman
Harold N. Zeltt
++ On the proxy ballot for nomination to Director
-48-
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from to
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2670267
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Quakerbridge Road, Mercerville, New Jersey 08619
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(609) 585-5100
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes(X) No( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1997
Common Stock, no par value 2,473,934
--------------------------- ----------------------------
Class Number of shares outstanding
<PAGE>
INDEX
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
PART I FINANCIAL INFORMATION PAGE NO.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Statements of Condition
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three months and six months ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1997
and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-15
PART II OTHER INFORMATION
- -------------------------
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
Item 10.1 1988 Stock Option Plan 19
Exhibit 27.1 Financial Data Schedule 27
<PAGE>
<TABLE>
<CAPTION>
Yardville National Bancorp and Subsidiary
Consolidated Statements of Condition
(unaudited)
June 30, December 31,
(in thousands, except share data) 1997 1996
-------- ------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 19,119 $ 13,110
Federal funds sold 1,250 4,040
Cash and Cash Equivalents 20,369 17,150
Interest bearing deposits 873 1,357
Securities available for sale 106,002 93,671
Investment securities (market value of $28,732 in 1997
and $30,878 in 1996) 29,105 31,296
Loans 352,941 331,237
Less: Allowance for loan losses (5,284) (4,957)
Loans, net 347,657 326,280
Bank premises and equipment, net 5,307 5,418
Other real estate 873 395
Other assets 15,534 14,978
Total Assets $525,720 $490,545
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits
Non-interest bearing $ 59,154 $ 55,519
Interest bearing 355,676 308,926
Total Deposits 414,830 364,445
Borrowed funds
Securities sold under agreements to repurchase 50,020 64,185
Other 18,119 22,154
Total Borrowed Funds 68,139 86,339
Other liabilities 5,122 4,531
Total Liabilities $488,091 $455,315
Stockholders' equity
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common stock: no par value
Authorized 6,000,000 shares
Issued and outstanding 2,472,954 shares in 1997
and 2,430,414 shares in 1996 17,625 17,246
Surplus 2,205 2,205
Undivided Profits 17,818 15,940
Unrealized loss - securities available for sale (19) (161)
Total Stockholders' Equity 37,629 35,230
Total Liabilities and Stockholders' Equity $525,720 $490,545
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
Yardville National Bancorp and Subsidiary
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(in thousands, except per share amounts) 1997 1996 1997 1996
------- ------- ------- -------
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 7,751 $ 6,191 $15,096 $12,078
Interest on deposits with banks 16 32 32 66
Interest on securities available for sale 1,760 1,608 3,329 3,011
Interest on investment securities:
Taxable 329 395 671 805
Exempt from Federal income tax 100 97 202 193
Interest on Federal funds sold 72 29 236 86
Total Interest Income 10,028 8,352 19,566 16,239
Interest Expense:
Interest on savings account deposits 1,288 990 2,518 1,962
Interest on certificates of deposit of $100,000 or more 339 190 644 393
Interest on other time deposits 2,414 1,631 4,642 3,248
Interest on borrowed funds 1,059 1,281 2,216 2,256
Total Interest Expense 5,100 4,092 10,020 7,859
Net Interest Income 4,928 4,260 9,546 8,380
Less provision for loan losses 300 450 575 715
Net Interest Income After Provision for Loan Losses 4,628 3,810 8,971 7,665
Non-Interest Income:
Service charges on deposit accounts 287 294 570 584
Gains on sales of mortgages, net 9 -- 9 --
Security gains (losses), net 7 (25) 7 (46)
Other non-interest income 331 256 654 497
Total Non-Interest Income 634 525 1,240 1,035
Non-Interest Expense:
Salaries and employee benefits 1,852 1,619 3,669 3,200
Occupancy expense, net 241 225 475 445
Equipment 278 180 528 357
Other non-interest expense 959 773 1,737 1,613
Total Non-Interest Expense 3,330 2,797 6,409 5,615
Income before income tax expense 1,932 1,538 3,802 3,085
Income tax expense 677 547 1,335 1,102
Net Income $ 1,255 $ 991 $ 2,467 $ 1,983
Earnings Per Share:
Primary $ 0.50 $ 0.41 $ 0.99 $ 0.81
Fully diluted $ 0.50 $ 0.41 $ 0.99 $ 0.81
Weighted average shares outstanding 2,503 2,422 2,492 2,389
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
Yardville National Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------
(in thousands) 1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,467 $ 1,983
Adjustments:
Provision for Loan Losses 575 715
Depreciation 420 346
Amortization and accretion 216 309
(Gain) loss on sale of securities available for sale (7) 46
Writedown of other real estate 8 35
Increase in other assets (651) (4,268)
Increase in other liabilities 591 246
1,153 (2,571)
Net Cash Provided by Operating Activities 3,619 (588)
Cash Flows from Investing Activities:
Net (increase) decrease in interest bearing deposits 484 (2,324)
Proceeds from maturities and paydowns of
investment securities 2,113 2,004
Purchase of securities available for sale (25,970) (56,346)
Proceeds from sale of securities available for sale 2,011 28,181
Purchase of investment securities -- (453)
Maturities, calls & paydowns of securities
available for sale 11,734 16,061
Net increase in loans (22,438) (41,121)
Expenditures for bank premises and equipment (309) (1,712)
Proceeds from sale of O.R.E -- 141
Net Cash Used by Investing Activities (32,375) (55,569)
Cash Flows from Financing Activities:
Net increase in non-interest bearing
demand, money market, and saving deposits 28,755 9,893
Net increase in certificates of deposit 21,630 4,193
Net increase in borrowed funds (18,200) 40,356
Proceeds from issuance of common stock 379 821
Dividends paid (589) (525)
Net Cash Provided by Financing Activities 31,975 54,738
Net increase (decrease) in cash and cash equivalents 3,219 (1,419)
Cash and cash equivalents at beginning of period 17,150 12,835
Cash and Cash Equivalents at End of Period $ 20,369 $ 11,416
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest expense $ 9,131 $ 7,709
Income taxes 2,301 1,555
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
Supplemental Schedule of Non-cash Financing Activities: During the six month
period ended June 30, 1997 the Corporation transferred $486,000, net of charge
offs, from loans to other real estate.
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
The consolidated financial data as of and for the six months ended June 30,
1997 and 1996 includes, in the opinion of management, all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation
of such periods. The consolidated financial data for the interim periods
presented is not necessarily indicative of the results of operations that might
be expected for the entire year ending December 31, 1997.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses and the valuation of other real estate, management obtains
independent appraisals for significant properties.
Consolidation
The consolidated financial statements include the accounts of Yardville
National Bancorp (the "Corporation") and its sole subsidiary, the Yardville
National Bank (the "Bank") and Yardville's wholly owned subsidiaries, The
Yardville National Investment Corporation, Brenden, Inc., a subsidiary of the
Bank utilized for the control and disposal of other real estate properties and
the YNB Real Estate Holding Company, a subsidiary of the Bank utilized to hold
Bank branch properties. All significant intercompany accounts and transactions
have been eliminated.
<PAGE>
Allowance for Loan Losses
For financial reporting purposes, the provision for loan losses charged to
operating expense is determined by management and is based upon a periodic
review of the loan portfolio, past experience, the economy, and other factors
that may affect the borrower's ability to repay the loan. This provision is
based on management's estimates, and actual losses may vary from these
estimates. These estimates are reviewed and, as adjustments become necessary,
they are reported in the periods in which they become known. Management believes
that the allowance for losses on loans is adequate. While management uses
available information to recognize losses on loans and other real estate, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in New Jersey. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for losses on loans and the valuation of other real estate.
Such agencies may require the Bank to recognize additions to the allowance or
adjustments to the carrying value of other real estate based on their judgments
about information available to them at the time of their examination.
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This financial review presents Management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated financial statements and the accompanying notes. The term
"Yardville" as used herein refers to the Company together with its sole
subsidiary, the Bank.
FINANCIAL CONDITION
Assets
Total consolidated assets at June 30, 1997 totaled $525,720,000 an increase of
$35,175,000 or 7.2%, compared to $490,545,000 at December 31, 1996. The growth
in Yardville's asset base during the first six months of 1997 was primarily due
to an increase in loans and securities. The increase in loans was the product of
a strategy to improve profitability of the organization through relationship
banking and the continued consolidation in Yardville's marketplace, which has
solidified Yardville's competitive position in the small and middle markets.
Yardville's asset base includes investments of approximately $57,100,000
purchased utilizing repurchase agreements and time deposits (Investment Growth
Strategy) at June 30, 1997, an increase of $6,000,000 compared to approximately
$51,000,000 at December 31, 1996. The primary goals of the growth strategy are
to improve return on equity and earnings per share.
Securities
Total securities increased by $10,140,000 or 8.1% to $135,107,000 as of June 30,
1997 compared to year end 1996. The growth in the securities portfolio in the
first half of 1997 was due to the purchase of short term treasuries and
government agency bonds to enhance short-term liquidity and the increase in the
investment growth strategy offset by principal paydowns on mortgage-backed
securities.
At June 30, 1997, the amortized cost of investment securities classified as held
to maturity was $29,105,000 compared to $31,296,000 at December 31, 1996, a
decrease of $2,191,000 or 7.0%.
Net unrealized losses as of June 30, 1997 in Yardville's available for sale
securities portfolio were $31,000. Net unrealized losses, net of tax effect of
$19,000, were reported as a reduction of stockholders' equity at June 30, 1997.
The available for sale portfolio, except those securities purchased utilizing
repurchase agreements, provides a secondary source of liquidity.
-1-
<PAGE>
Federal Funds
At June 30, 1997 Federal funds sold totaled $1,250,000, a decrease of $2,790,000
as compared to $4,040,000 at December 31, 1996. While management continues to
focus on maintaining adequate short term liquidity levels, federal funds will
fluctuate due to other liquidity demands.
Loans
Total loans, net of unearned discounts, increased by $21,704,000 or 6.6%, to
$352,941,000 at June 30, 1997 compared to $331,237,000 at year end 1996.
Yardville's loan portfolio represented 67.1% of assets at June 30, 1997 compared
to 67.5% of assets at December 31, 1996.
Yardville's lending focus continues to be centered on commercial loans,
owner-occupied commercial mortgage loans and tenanted commercial real estate
loans. Yardville showed continued growth throughout its loan portfolio for the
six months ended June 30, 1997 as a result of management's emphasis on customer
relationships and opportunities associated with the continued consolidation of
the banking industry in Yardville's markets.
On a component basis, for the six month period ended June 30, 1997, commercial
loan balances increased $14,109,000 or 22.2%. Real estate-construction and real
estate-residential mortgage loan balances increased $4,189,000 and $1,280,000
respectively, or 16.1% and 1.5% respectively. Real estate-commercial mortgage
loan balances decreased $305,000 or 0.3% due to increased competition.
Liabilities
Yardville's deposit base is the principal source of funds supporting interest
earning assets. Total deposits amounted to $414,830,000 at June 30, 1997
compared to $364,445,000 at December 31, 1996, an increase of $50,385,000 or
13.8%. Yardville was successful in bidding for Mercer County Surrogate's
deposits which netted Yardville $15,000,000 in deposits in early January 1997.
Growth in Yardville's deposit base continues in higher yielding certificates of
deposit (CD's) and premium money market accounts, both higher cost funding
sources. Average interest bearing deposits including CD's of $100,000 or more,
increased $66,333,000 or 23.9% to total $343,303,000 for the six month period
ended June 30, 1997 as compared to $276,970,000 for the year ended December 31,
1996. Of the total increase, average time deposits grew $43,084,000 for the
comparable periods. Time deposits were competitively priced to reduce levels of
borrowed funds. Average non-interest bearing deposits have increased 9.2% for
the six month period ended June 30, 1997 compared to the year ended December 31,
1996. At June 30, 1997 interest bearing and non-interest bearing deposits
totaled $355,676,000 and $59,154,000, respectively.
Borrowed funds totaled $68,139,000 at June 30, 1997 compared to $86,339,000 at
December 31, 1996. The decrease of $18,200,000 or 21.1% in the first six months
of 1997 was principally due to the repayment of repurchase agreements.
Securities sold under agreements to repurchase decreased $14,165,000 or 22.1%
to $50,020,000 compared to $64,185,000 at December 31, 1996. Federal Home Loan
Bank advances are being utilized to strengthen short-term liquidity and support
core deposits in funding balance sheet growth. At June 30, 1997 Yardville has
$15,000,000 outstanding in FHLB advances. $10,000,000 of these advances will
mature on July 30, 1997 and the remaining $5,000,000 will mature in November of
1998.
Yardville has the availability to borrow up to $24,500,000 from the FHLB through
its line of credit program. In addition, the bank is eligible to borrow up to
-2-
<PAGE>
30% of assets under the FHLB advance program subject to FHLB stock level
requirements, collateral requirements and individual advance proposals based on
FHLB credit standards. Yardville also has the ability to borrow at the Federal
Reserve discount window along with agreements to use two unsecured federal funds
lines of credit with two of its correspondent banks for daily funding needs.
Management's strategy, however, is to further build the bank's core deposit base
to fund asset growth. Borrowed funds will be utilized to meet short term
liquidity needs and as an additional source of funding for the loan and
investment portfolios.
Capital
Total stockholders' equity of $37,629,000 at June 30, 1997 increased $2,399,000
or 6.8% from $35,230,000 at December 31, 1996. This increase resulted from the
following factors during the six months ended June 30, 1997 (i) earnings of
$2,467,000 (less dividend payments of $589,000) and a decrease of $142,000 in
the unrealized loss on securities available for sale, net of income tax effect.
(ii) proceeds of $379,000 from exercised options.
Yardville's leverage ratio was 7.3% at June 30, 1997 compared to 7.8% at
December 31, 1996. At June 30, 1997 tier I and total tier I and II capital to
risk weighted assets were 10.1% and 11.4%, respectively. The risk based capital
levels at year end 1996 were 10.2% and 11.4% for tier I and total risk based
capital, respectively.
The minimum regulatory requirements require financial institutions to have a
tier I leverage ratio of 4.0%, a tier I risk-based ratio of 4.0% and a total
tier I and tier II ratio of 8.0%. A bank is considered "well capitalized" if it
has a minimum Tier 1 and total risk-based capital ratios of 6% and 10%,
respectively, and a minimum Tier 1 leverage ratio of 5%.
Credit Risk
At June 30, 1997, nonperforming loans, consisting of loans 90 days or more past
due, and nonaccruing loans totaled $7,630,000 compared to $8,140,000 at December
31, 1996. Other real estate owned at June 30, 1997 totaled $873,000 compared to
$395,000 at December 31, 1996.
Total nonperforming assets decreased $32,000 or 0.4% to $8,503,000 at June 30,
1997 compared to $8,535,000 at year end 1996. Nonperforming assets as a
percentage of total assets were 1.62% at June 30, 1997. Yardville continues to
actively manage nonperforming assets with the goal of reducing these assets in
relation to the entire portfolio. Where possible, existing loan relationships
are being restructured in an effort to return these loans to a performing
status.
The allowance for loan losses increased to $5,284,000 and remained at 1.50% of
total loans at June 30, 1997 compared to $4,957,000, or 1.50% of total loans, at
year end 1996. The provision for loan losses through June 30, 1997 was $575,000.
Yardville had net loan charge-offs of $248,000 for the six months ended June 30,
1997. At June 30, 1997 the allowance for loan losses covered 69.3% of
nonperforming loans and 62.1% of nonperforming assets. The allowance for loan
losses, in management's judgment, is adequate to provide for potential losses.
-3-
<PAGE>
RESULTS OF OPERATIONS
Net Income
Yardville reported net income of $2,467,000 for the six months ended June 30,
1997, an increase of $484,000 or 24.4%, from net income of $1,983,000 reported
for the same time period in 1996. The increase in net income for the comparable
periods is attributable to an increase in net interest income, and to a lesser
extent, non-interest income, partially offset by an increase in non-interest
expenses. On a per share basis, the net income was $0.99 for the first six
months of 1997 compared to $0.81 for the first six months of 1996. The increase
in earnings per share is due primarily to the increase in net income during the
first six months of 1997 compared to the same time period in 1996.
On a quarterly basis, the income for the second quarter of 1997 was $1,255,000
or $0.50 per share, compared with $991,000 or $0.41 per share for the same
quarter a year ago. The increase in net income and net income per share for the
quarterly comparison are for the same reasons discussed above.
Net Interest Income
Yardville's net interest income for the six months ended June 30, 1997 was
$9,546,000, an increase of $1,166,000 or 13.9% over the $8,380,000 for the
comparable 1996 period. The principal factors contributing to the increase in
net interest income for the six months ended June 30, 1997 was an increase in
interest income of $3,327,000 resulting principally from an increase in
commercial loan volume, offset by an increase in interest expense of $2,161,000
due to increases in the volume of interest bearing deposits.
The net interest margin (tax equivalent basis) between yields on average
interest earning assets and costs of average funding sources was 3.99% at June
30, 1997 compared to 4.22% at June 30, 1996. The principal reason for the
decrease in the net interest margin was higher costs on interest bearing
liabilities.
The management strategy continuing through 1997 is to increase net interest
income by purchasing investments using repurchase agreements or other funding
sources. At June 30, 1997 approximately $57,100,000 was being utilized for this
purpose. The targeted spread on this strategy is 75 basis points after tax. This
strategy, while successful in increasing net interest income, has had a negative
impact on the net interest margin. Increased loan pricing competition and the
-4-
<PAGE>
subsequent decrease in loan yields also accounted, in part, for the reduction in
the net interest margin of 23 basis points for the comparable periods.
On a quarterly comparison, net interest income was $4,928,000 for the second
quarter of 1997, an increase of $668,000 or 15.7% from net interest income of
$4,260,000 for the second quarter of 1996. The 1997 increase was the result of
an increase in average earning assets of $73,967,000 combined with a decrease of
$19,066,000 in average borrowed funds offset by an increase of $87,606,000 in
average interest bearing deposits compared to the second quarter of 1996.
Interest Income
For the six month period ended June 30, 1997 total interest income of
$19,566,000 increased $3,327,000 or 20.5% as compared to $16,239,000 reported
for the same period a year earlier. On a quarterly comparison, the second
quarter of 1997 experienced an increase of $1,676,000 or 20.1% in total interest
income compared to the same period a year earlier. The increase in interest
income is due primarily to the higher volume of average loan assets. Average
loans increased $76,972,000 or 29.0% for the six months ended June 30, 1997
compared to the same 1996 period. The average yield on the loan portfolio
decreased 28 basis points for the comparable period in a lower rate competitive
marketplace.
Interest income on securities increased $193,000 or 4.8%, for the first six
months of 1997, due to a 22 basis point increase in average yield and an
increase of $1,464,000 in average balances for the six months ended June 30,
1997 as compared to the same period a year earlier. On a quarterly comparison
interest on securities increased 4.2% primarily as a result of a 27 basis point
increase in average yield. Interest on Federal Funds sold increased $150,000 for
the six month period ended June 30, 1997 due to increases in average balances of
$5,803,000 combined with a decrease in the average yields of 12 basis points.
Overall, the yield on Yardville's interest earning assets decreased 1 basis
point to 8.06% for the period ended June 30, 1997 from 8.07% for the period
ended June 30, 1996 for the combined reasons discussed above.
Interest Expense
Total interest expense increased $2,161,000 or 27.5% to $10,020,000 for the six
months ended June 30, 1997 compared to $7,859,000 reported for the six months
ended June 30, 1996. The increase in interest expense for the comparable time
periods is the result of a larger deposit base, and higher market interest
rates. Deposit products continue to be competitively priced to increase the
bank's deposit base and provide a source of funds for asset growth.
Average interest bearing liabilities amounted to $420,437,000 for the six months
ended June 30, 1997 compared to $341,499,000 for the six months ended June 30,
1996. The average rate paid on interest bearing liabilities increased 17 basis
points for the time period discussed. Increases in deposit account relationships
are attributable in part to increased commercial loan activity, community
presence, ongoing consolidation within the banking industry and the impact of
new branches opened during 1996 that now have established deposit relationships
with the bank. Average time deposits, a higher cost funding source, increased
$55,741,000 or 42.6% for the first six months of 1997 compared to the first six
months of 1996.
For the second quarter of 1997, total interest expense increased $1,008,000 or
24.6% as compared to the second quarter of a year earlier. The increase in
interest expense for the comparable quarters is due primarily to higher levels
of average time deposits.
Interest expense on borrowed funds decreased during both the quarterly and
year-to-date periods when comparing 1997 to 1996. For the year-to-date
comparison interest expense decreased $40,000. For the three months ended June
30, 1997 interest on borrowed funds decreased $222,000 or 17.3% primarily as a
result of lower average balances. Repurchase agreements were repaid during the
period to reduce borrowed funds.
-5-
<PAGE>
Provision For Loan Losses
Yardville provides for possible loan losses by a charge to current operations.
The provision for loan losses for the six months and three months ended June 30,
1997 was $575,000 and $300,000, respectively compared to $715,000 and $450,000,
respectively for the six months and three months ended June 30, 1996. The
year-to-date and quarterly 1997 provisions reflect management's continuing
analysis of the loan portfolio and non-performing assets. Management believes
that the allowance for loan losses is adequate in relation to credit risk
exposure levels.
Non-Interest Income
Total non-interest income was $1,240,000 for the first six months of 1997
compared to $1,035,000 for the same period in 1996. The increase of $205,000 or
19.8% is primarily attributable to an increase in other non-interest income
principally due to additional fee income derived from life insurance assets and
other fee income.
Service charges on deposit accounts decreased $14,000 or 2.4% for the first six
months of 1997 as compared to the same period a year earlier. The decrease in
service charge income resulted from a reduction in insufficient fund fees offset
by an increase in service charges on deposit accounts. Yardville realized $7,000
in gains on the sale of securities, net, in the first six months of 1997 versus
a loss of $46,000 on the sale of securities, net, in the first six months of
1996. Other non-interest income increased $157,000 or 31.6% in the first six
months of 1997 versus the first six months of 1996 for the reasons discussed
above.
For the second quarter comparison, the results were similar. Total non-interest
income for the second quarter of 1997 increased 20.8% over the same period a
year earlier. Service charges on deposit accounts decreased 2.4% for the
comparable quarters. Conversely, the increase experienced during the second
quarter of 1997 was in gains on the sale of securities of $7,000 net, compared
to a loss of $25,000 on the sale of securities net, for the three months ended
June 30, 1996. Other non-interest income increased $75,000 or 29.3% for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996 due primarily to increased income derived from life insurance assets and
fee assessments for "others on us" Automated Teller Machine (ATM) card usage.
Offsetting these two increases was the elimination of the annual ATM fee for
Yardville National Bank cardholders in January 1997.
Non-Interest Expense
Total non-interest expense increased $794,000 or 14.1% to $6,409,000 for the
first six months of 1997 compared to $5,615,000 for the first six months of
1996. The increase in non-interest expense is primarily the result of increases
in salaries and employee benefits, equipment expenses and other non-interest
expenses.
Salaries and employee benefits were $3,669,000 for the first six months of 1997,
an increase of $469,000 or 14.7% compared to the same six month period of 1996.
The increase resulted from additional staffing required as Yardville has grown
for the comparable time periods and normal annual salary compensation and
benefit increases. Full time equivalent staff increased to 168 at June 30, 1997
from 152 at June 30, 1996.
Net occupancy increased $30,000 or 6.7% for the first six months of 1997 as
compared to the same period in 1996. This increase is primarily the result of
additional occupancy costs associated with new branch offices offset by
decreases in snow removal costs due to a milder winter.
Equipment expense increased $171,000 or 47.9% for the same period primarily due
to increased depreciation costs associated with new furniture and fixtures in
Yardville's new branches and in-house computer system as well as related
expenses of additional computer hardware and software upgrades required for the
implementation of a Windows 95 based computer system.
-6-
<PAGE>
Other non-interest expenses totaled $1,737,000 for the six months ended June 30,
1997, an increase of $124,000 or 7.7%, from the comparable 1996 period. The
increase in other non-interest expense is primarily the result of increased
professional fees, marketing costs and expenses incurred in working out troubled
loans and other real estate. Other real estate expenses totaled $127,000 for the
six months ended June 30, 1997 compared to $44,000 for the six months ended June
30, 1996. The increase in other non-interest expenses was offset partially by
the elimination of computer service fees in late February 1996 with Yardville's
conversion to an in-house computer system.
When comparing the second quarter of 1997 with the second quarter of 1996, the
explanations for the fluctuations are similar to those presented above for the
six month period ended June 30. Non-interest expenses increased $533,000 or
19.1% versus the same period a year earlier. Salary and employee benefits
increased $233,000 or 14.4%. Net occupancy and equipment expenses increased 7.1%
and 54.4%, respectively. Other non-interest expenses increased 24.1% in the
second quarter of 1997 compared to the same period in 1996. The quarterly
comparison increase is due primarily to the same factors discussed in the
year-to-date review above.
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share." SFAS 128 supersedes AFB opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. This statement is effective for financial statements for periods
ending after December 15, 1997. The adoption of this statement should not have a
material effect on the consolidated financial statements of Yardville.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure." SFAS 129 lists required
disclosures about capital structure that have been included in a number of
separate statements and opinions. This statement is effective for financial
statements for periods ending after December 15, 1997. The adoption of the
Statement should not have a material effect on the consolidated financial
statements of Yardville.
-7-
<PAGE>
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A. The following exhibits are filed with this Form 10-Q for the fiscal quarter
ended June 30, 1997 by Yardville National Bancorp:
INDEX TO EXHIBITS
No. Exhibits Page
---- -------- ----
* 3.1 Restated Certificate of Incorporation of
the Registrant
++ 3.2 By-Laws of the Registrant
++ 4.1 Specimen of Share of Common Stock
10.1 1988 Stock Option Plan 19
+++ 10.2 1997 Stock Option Plan
27.1 Financial Data Schedule 27
* Incorporated by reference to the Issuer's Annual Report on Form 10-KSB for
the Fiscal Year Ended December 31, 1994, as amended by Form 10-KSB/A filed
on July 25, 1995.
++ Incorporated by reference to the Issuer's Registration Statement on Form
SB-2 (Registration No. 33-78050)
+++ Incorporated by reference to the Issuer's Registration Statement on Form
S-8 (Registration No. 333-28193)
B. No reports on FORM 8-K were filed by the registrant during the quarter
ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
YARDVILLE NATIONAL BANCORP
--------------------------
(Registrant)
Date: August 15, 1997 By: /s/ Stephen F. Carman
------------------ ---------------------------------------
Stephen F. Carman
Executive Vice President
and Chief Financial Officer
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from to
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2670267
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Quakerbridge Road, Mercerville, New Jersey 08619
- -------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(609) 585-5100
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes(X) No( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1997
Common Stock, no par value 2,473,934
-------------------------- ----------------------------
Class Number of shares outstanding
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This financial review presents Management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated financial statements and the accompanying notes. The term
"Yardville" as used herein refers to the Company together with its sole
subsidiary, the Bank.
FINANCIAL CONDITION
Assets
Total consolidated assets at June 30, 1997 totaled $525,720,000 an increase of
$35,175,000 or 7.2%, compared to $490,545,000 at December 31, 1996. The growth
in Yardville's asset base during the first six months of 1997 was primarily due
to an increase in loans and securities. The increase in loans was the product of
a strategy to improve profitability of the organization through relationship
banking and the continued consolidation in Yardville's marketplace, which has
solidified Yardville's competitive position in the small and middle markets.
Yardville's asset base includes investments of approximately $57,100,000
purchased utilizing repurchase agreements and time deposits (Investment Growth
Strategy) at June 30, 1997, an increase of $6,000,000 compared to approximately
$51,000,000 at December 31, 1996. The primary goals of the growth strategy are
to improve return on equity and earnings per share.
Securities
Total securities increased by $10,140,000 or 8.1% to $135,107,000 as of June 30,
1997 compared to year end 1996. The growth in the securities portfolio in the
first half of 1997 was due to the purchase of short term treasuries and
government agency bonds to enhance short-term liquidity and the increase in the
investment growth strategy offset by principal paydowns on mortgage-backed
securities.
At June 30, 1997, the amortized cost of investment securities classified as held
to maturity was $29,105,000 compared to $31,296,000 at December 31, 1996, a
decrease of $2,191,000 or 7.0%.
Net unrealized losses as of June 30, 1997 in Yardville's available for sale
securities portfolio were $31,000. Net unrealized losses, net of tax effect of
$19,000, were reported as a reduction of stockholders' equity at June 30, 1997.
The available for sale portfolio, except those securities purchased utilizing
repurchase agreements, provides a secondary source of liquidity.
-1-
<PAGE>
Federal Funds
At June 30, 1997 Federal funds sold totaled $1,250,000, a decrease of $2,790,000
as compared to $4,040,000 at December 31, 1996. While management continues to
focus on maintaining adequate short term liquidity levels, federal funds will
fluctuate due to other liquidity demands.
Loans
Total loans, net of unearned discounts, increased by $21,704,000 or 6.6%, to
$352,941,000 at June 30, 1997 compared to $331,237,000 at year end 1996.
Yardville's loan portfolio represented 67.1% of assets at June 30, 1997 compared
to 67.5% of assets at December 31, 1996.
Yardville's lending focus continues to be centered on commercial loans,
owner-occupied commercial mortgage loans and tenanted commercial real estate
loans. Yardville showed continued growth throughout its loan portfolio for the
six months ended June 30, 1997 as a result of management's emphasis on customer
relationships and opportunities associated with the continued consolidation of
the banking industry in Yardville's markets.
On a component basis, for the six month period ended June 30, 1997, commercial
loan balances increased $14,109,000 or 22.2%. Real estate-construction and real
estate-residential mortgage loan balances increased $4,189,000 and $1,280,000
respectively, or 16.1% and 1.5% respectively. Real estate-commercial mortgage
loan balances decreased $305,000 or 0.3% due to increased competition.
Liabilities
Yardville's deposit base is the principal source of funds supporting interest
earning assets. Total deposits amounted to $414,830,000 at June 30, 1997
compared to $364,445,000 at December 31, 1996, an increase of $50,385,000 or
13.8%. Yardville was successful in bidding for Mercer County Surrogate's
deposits which netted Yardville $15,000,000 in deposits in early January 1997.
Growth in Yardville's deposit base continues in higher yielding certificates of
deposit (CD's) and premium money market accounts, both higher cost funding
sources. Average interest bearing deposits including CD's of $100,000 or more,
increased $66,333,000 or 23.9% to total $343,303,000 for the six month period
ended June 30, 1997 as compared to $276,970,000 for the year ended December 31,
1996. Of the total increase, average time deposits grew $43,084,000 for the
comparable periods. Time deposits were competitively priced to reduce levels of
borrowed funds. Average non-interest bearing deposits have increased 9.2% for
the six month period ended June 30, 1997 compared to the year ended December 31,
1996. At June 30, 1997 interest bearing and non-interest bearing deposits
totaled $355,676,000 and $59,154,000, respectively.
Borrowed funds totaled $68,139,000 at June 30, 1997 compared to $86,339,000 at
December 31, 1996. The decrease of $18,200,000 or 21.1% in the first six months
of 1997 was principally due to the repayment of repurchase agreements.
Securities sold under agreements to repurchase decreased $14,165,000 or 22.1%
to $50,020,000 compared to $64,185,000 at December 31, 1996. Federal Home Loan
Bank advances are being utilized to strengthen short-term liquidity and support
core deposits in funding balance sheet growth. At June 30, 1997 Yardville has
$15,000,000 outstanding in FHLB advances. $10,000,000 of these advances will
mature on July 30, 1997 and the remaining $5,000,000 will mature in November of
1998.
Yardville has the availability to borrow up to $24,500,000 from the FHLB through
its line of credit program. In addition, the bank is eligible to borrow up to
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<PAGE>
30% of assets under the FHLB advance program subject to FHLB stock level
requirements, collateral requirements and individual advance proposals based on
FHLB credit standards. Yardville also has the ability to borrow at the Federal
Reserve discount window along with agreements to use two unsecured federal funds
lines of credit with two of its correspondent banks for daily funding needs.
Management's strategy, however, is to further build the bank's core deposit base
to fund asset growth. Borrowed funds will be utilized to meet short term
liquidity needs and as an additional source of funding for the loan and
investment portfolios.
Capital
Total stockholders' equity of $37,629,000 at June 30, 1997 increased $2,399,000
or 6.8% from $35,230,000 at December 31, 1996. This increase resulted from the
following factors during the six months ended June 30, 1997 (i) earnings of
$2,467,000 (less dividend payments of $589,000) and a decrease of $142,000 in
the unrealized loss on securities available for sale, net of income tax effect.
(ii) proceeds of $379,000 from exercised options.
Yardville's leverage ratio was 7.3% at June 30, 1997 compared to 7.8% at
December 31, 1996. At June 30, 1997 tier I and total tier I and II capital to
risk weighted assets were 10.1% and 11.4%, respectively. The risk based capital
levels at year end 1996 were 10.2% and 11.4% for tier I and total risk based
capital, respectively.
The minimum regulatory requirements require financial institutions to have a
tier I leverage ratio of 4.0%, a tier I risk-based ratio of 4.0% and a total
tier I and tier II ratio of 8.0%. A bank is considered "well capitalized" if it
has a minimum Tier 1 and total risk-based capital ratios of 6% and 10%,
respectively, and a minimum Tier 1 leverage ratio of 5%.
Credit Risk
At June 30, 1997, nonperforming loans, consisting of loans 90 days or more past
due, and nonaccruing loans totaled $7,630,000 compared to $8,140,000 at December
31, 1996. Other real estate owned at June 30, 1997 totaled $873,000 compared to
$395,000 at December 31, 1996.
Total nonperforming assets decreased $32,000 or 0.4% to $8,503,000 at June 30,
1997 compared to $8,535,000 at year end 1996. Nonperforming assets as a
percentage of total assets were 1.62% at June 30, 1997. Yardville continues to
actively manage nonperforming assets with the goal of reducing these assets in
relation to the entire portfolio. Where possible, existing loan relationships
are being restructured in an effort to return these loans to a performing
status.
The allowance for loan losses increased to $5,284,000 and remained at 1.50% of
total loans at June 30, 1997 compared to $4,957,000, or 1.50% of total loans, at
year end 1996. The provision for loan losses through June 30, 1997 was $575,000.
Yardville had net loan charge-offs of $248,000 for the six months ended June 30,
1997. At June 30, 1997 the allowance for loan losses covered 69.3% of
nonperforming loans and 62.1% of nonperforming assets. The allowance for loan
losses, in management's judgment, is adequate to provide for potential losses.
-3-
<PAGE>
RESULTS OF OPERATIONS
Net Income
Yardville reported net income of $2,467,000 for the six months ended June 30,
1997, an increase of $484,000 or 24.4%, from net income of $1,983,000 reported
for the same time period in 1996. The increase in net income for the comparable
periods is attributable to an increase in net interest income, and to a lesser
extent, non-interest income, partially offset by an increase in non-interest
expenses. On a per share basis, the net income was $0.99 for the first six
months of 1997 compared to $0.81 for the first six months of 1996. The increase
in earnings per share is due primarily to the increase in net income during the
first six months of 1997 compared to the same time period in 1996.
On a quarterly basis, the income for the second quarter of 1997 was $1,255,000
or $0.50 per share, compared with $991,000 or $0.41 per share for the same
quarter a year ago. The increase in net income and net income per share for the
quarterly comparison are for the same reasons discussed above.
Net Interest Income
Yardville's net interest income for the six months ended June 30, 1997 was
$9,546,000, an increase of $1,166,000 or 13.9% over the $8,380,000 for the
comparable 1996 period. The principal factors contributing to the increase in
net interest income for the six months ended June 30, 1997 was an increase in
interest income of $3,327,000 resulting principally from an increase in
commercial loan volume, offset by an increase in interest expense of $2,161,000
due to increases in the volume of interest bearing deposits.
The net interest margin (tax equivalent basis) between yields on average
interest earning assets and costs of average funding sources was 3.99% at
June 30, 1997 compared to 4.22% at June 30, 1996. The principal reason for the
decrease in the net interest margin was higher costs on interest bearing
liabilities.
The management strategy continuing through 1997 is to increase net interest
income by purchasing investments using repurchase agreements or other funding
sources. At June 30, 1997 approximately $57,100,000 was being utilized for this
purpose. The targeted spread on this strategy is 75 basis points after tax. This
strategy, while successful in increasing net interest income, has had a negative
impact on the net interest margin. Increased loan pricing competition and the
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<PAGE>
subsequent decrease in loan yields also accounted, in part, for the reduction in
the net interest margin of 23 basis points for the comparable periods.
On a quarterly comparison, net interest income was $4,928,000 for the second
quarter of 1997, an increase of $668,000 or 15.7% from net interest income of
$4,260,000 for the second quarter of 1996. The 1997 increase was the result of
an increase in average earning assets of $73,967,000 combined with a decrease of
$19,066,000 in average borrowed funds offset by an increase of $87,606,000 in
average interest bearing deposits compared to the second quarter of 1996.
Interest Income
For the six month period ended June 30, 1997 total interest income of
$19,566,000 increased $3,327,000 or 20.5% as compared to $16,239,000 reported
for the same period a year earlier. On a quarterly comparison, the second
quarter of 1997 experienced an increase of $1,676,000 or 20.1% in total interest
income compared to the same period a year earlier. The increase in interest
income is due primarily to the higher volume of average loan assets. Average
loans increased $76,972,000 or 29.0% for the six months ended June 30, 1997
compared to the same 1996 period. The average yield on the loan portfolio
decreased 28 basis points for the comparable period in a lower rate competitive
marketplace.
Interest income on securities increased $193,000 or 4.8%, for the first six
months of 1997, due to a 22 basis point increase in average yield and an
increase of $1,464,000 in average balances for the six months ended June 30,
1997 as compared to the same period a year earlier. On a quarterly comparison
interest on securities increased 4.2% primarily as a result of a 27 basis point
increase in average yield. Interest on Federal Funds sold increased $150,000 for
the six month period ended June 30, 1997 due to increases in average balances of
$5,803,000 combined with a decrease in the average yields of 12 basis points.
Overall, the yield on Yardville's interest earning assets decreased 1 basis
point to 8.06% for the period ended June 30, 1997 from 8.07% for the period
ended June 30, 1996 for the combined reasons discussed above.
Interest Expense
Total interest expense increased $2,161,000 or 27.5% to $10,020,000 for the six
months ended June 30, 1997 compared to $7,859,000 reported for the six months
ended June 30, 1996. The increase in interest expense for the comparable time
periods is the result of a larger deposit base, and higher market interest
rates. Deposit products continue to be competitively priced to increase the
bank's deposit base and provide a source of funds for asset growth.
Average interest bearing liabilities amounted to $420,437,000 for the six months
ended June 30, 1997 compared to $341,499,000 for the six months ended June 30,
1996. The average rate paid on interest bearing liabilities increased 17 basis
points for the time period discussed. Increases in deposit account relationships
are attributable in part to increased commercial loan activity, community
presence, ongoing consolidation within the banking industry and the impact of
new branches opened during 1996 that now have established deposit relationships
with the bank. Average time deposits, a higher cost funding source, increased
$55,741,000 or 42.6% for the first six months of 1997 compared to the first six
months of 1996.
For the second quarter of 1997, total interest expense increased $1,008,000 or
24.6% as compared to the second quarter of a year earlier. The increase in
interest expense for the comparable quarters is due primarily to higher levels
of average time deposits.
Interest expense on borrowed funds decreased during both the quarterly and
year-to-date periods when comparing 1997 to 1996. For the year-to-date
comparison interest expense decreased $40,000. For the three months ended June
30, 1997 interest on borrowed funds decreased $222,000 or 17.3% primarily as a
result of lower average balances. Repurchase agreements were repaid during the
period to reduce borrowed funds.
-5-
<PAGE>
Provision For Loan Losses
Yardville provides for possible loan losses by a charge to current operations.
The provision for loan losses for the six months and three months ended June 30,
1997 was $575,000 and $300,000, respectively compared to $715,000 and $450,000,
respectively for the six months and three months ended June 30, 1996. The
year-to-date and quarterly 1997 provisions reflect management's continuing
analysis of the loan portfolio and non-performing assets. Management believes
that the allowance for loan losses is adequate in relation to credit risk
exposure levels.
Non-Interest Income
Total non-interest income was $1,240,000 for the first six months of 1997
compared to $1,035,000 for the same period in 1996. The increase of $205,000 or
19.8% is primarily attributable to an increase in other non-interest income
principally due to additional fee income derived from life insurance assets and
other fee income.
Service charges on deposit accounts decreased $14,000 or 2.4% for the first six
months of 1997 as compared to the same period a year earlier. The decrease in
service charge income resulted from a reduction in insufficient fund fees offset
by an increase in service charges on deposit accounts. Yardville realized $7,000
in gains on the sale of securities, net, in the first six months of 1997 versus
a loss of $46,000 on the sale of securities, net, in the first six months of
1996. Other non-interest income increased $157,000 or 31.6% in the first six
months of 1997 versus the first six months of 1996 for the reasons discussed
above.
For the second quarter comparison, the results were similar. Total non-interest
income for the second quarter of 1997 increased 20.8% over the same period a
year earlier. Service charges on deposit accounts decreased 2.4% for the
comparable quarters. Conversely, the increase experienced during the second
quarter of 1997 was in gains on the sale of securities of $7,000 net, compared
to a loss of $25,000 on the sale of securities net, for the three months ended
June 30, 1996. Other non-interest income increased $75,000 or 29.3% for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996 due primarily to increased income derived from life insurance assets and
fee assessments for "others on us" Automated Teller Machine (ATM) card usage.
Offsetting these two increases was the elimination of the annual ATM fee for
Yardville National Bank cardholders in January 1997.
Non-Interest Expense
Total non-interest expense increased $794,000 or 14.1% to $6,409,000 for the
first six months of 1997 compared to $5,615,000 for the first six months of
1996. The increase in non-interest expense is primarily the result of increases
in salaries and employee benefits, equipment expenses and other non-interest
expenses.
Salaries and employee benefits were $3,669,000 for the first six months of 1997,
an increase of $469,000 or 14.7% compared to the same six month period of 1996.
The increase resulted from additional staffing required as Yardville has grown
for the comparable time periods and normal annual salary compensation and
benefit increases. Full time equivalent staff increased to 168 at June 30, 1997
from 152 at June 30, 1996.
Net occupancy increased $30,000 or 6.7% for the first six months of 1997 as
compared to the same period in 1996, This increase is primarily the result of
additional occupancy costs associated with new branch offices offset by
decreases in snow removal costs due to a milder winter.
Equipment expense increased $171,000 or 47.9% for the same period primarily due
to increased depreciation costs associated with new furniture and fixtures in
Yardville's new branches and in-house computer system as well as related
expenses of additional computer hardware and software upgrades required for the
implementation of a Windows 95 based computer system.
-6-
<PAGE>
Other non-interest expenses totaled $1,737,000 for the six months ended June 30,
1997, an increase of $124,000 or 7.7%, from the comparable 1996 period. The
increase in other non-interest expense is primarily the result of increased
professional fees, marketing costs and expenses incurred in working out troubled
loans and other real estate. Other real estate expenses totaled $127,000 for the
six months ended June 30, 1997 compared to $44,000 for the six months ended
June 30, 1996. The increase in other non-interest expenses was offset partially
by the elimination of computer service fees in late February 1996 with
Yardville's conversion to an in-house computer system.
When comparing the second quarter of 1997 with the second quarter of 1996, the
explanations for the fluctuations are similar to those presented above for the
six month period ended June 30. Non-interest expenses increased $533,000 or
19.1% versus the same period a year earlier. Salary and employee benefits
increased $233,000 or 14.4%. Net occupancy and equipment expenses increased 7.1%
and 54.4%, respectively. Other non-interest expenses increased 24.1% in the
second quarter of 1997 compared to the same period in 1996. The quarterly
comparison increase is due primarily to the same factors discussed in the
year-to-date review above.
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share." SFAS 128 supersedes AFB opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. This statement is effective for financial statements for periods
ending after December 15, 1997. The adoption of this statement should not have a
material effect on the consolidated financial statements of Yardville.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure." SFAS 129 lists required
disclosures about capital structure that have been included in a number of
separate statements and opinions. This statement is effective for financial
statements for periods ending after December 15, 1997. The adoption of the
Statement should not have a material effect on the consolidated financial
statements of Yardville.
-7-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
YARDVILLE NATIONAL BANCORP
--------------------------
(Registrant)
Date: August 15, 1997 By: /s/ Stephen F. Carman
------------------ ---------------------------------------
Stephen F. Carman
Executive Vice President
and Chief Financial Officer
<PAGE>
No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the company or any underwriter. This
prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
----
Summary......................................... 6
Summary Consolidated Financial Data.............12
Risk Factors....................................14
Yardville National Bancorp......................23
Yardville Capital Trust.........................25
Use of Proceeds.................................26
Market for Preferred Securities.................26
Accounting Treatment............................27
Capitalization..................................28
Description of Preferred Securities.............29
Description of the Subordinated
Debentures....................................42
Description of the Guarantee....................51
Expense Agreement...............................54
Relationship Among the Preferred
Securities, Subordinated
Debentures and the Guarantee..................54
Certain Federal Income Tax
Consequences..................................56
Certain ERISA Considerations....................59
Underwriting....................................61
Legal Matters...................................63
Experts.........................................63
Incorporation of Certain Documents by
Reference....................................63
Available Information...........................64
Appendix A - 1996 Annual Report to
Stockholders
Appendix B - Quarterly Report on Form 10-Q, as
amended, for the Quarter ended
June 30, 1997
1,000,000 Trust Preferred Securities
YARDVILLE CAPITAL
TRUST
% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Trust
Preferred Security)
guaranteed, as described herein, by
[LOGO]
YARDVILLE NATIONAL
BANCORP
PROSPECTUS
Sandler O'Neill & Partners, L.P.
, 1997
<PAGE>
YARDVILLE NATIONAL BANCORP
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The following table sets forth costs and expenses payable by Yardville
National Bancorp (the "Company") in connection with the sale and distribution of
securities registered hereunder. All amounts are estimated except the Securities
and Exchange Commission ("SEC") registration fee and the NASD filing fee.
SEC Registration Fee $3,484.85
NASD Filing Fee *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Trustee's, Transfer Agent's and Registrar's
Fees and Expenses *
Blue Sky Fees and Expenses *
Printing Expenses *
Transfer Agent and Registration Fees and Expenses *
Miscellaneous *
---------
Total Offering Expenses $ *
=========
- --------------------
* To be completed by amendment.
ITEM 15. Indemnification of Directors and Officers of the Company
Statutory Indemnification. Reference is made to Section 14A:3-5 of the
New Jersey Business Corporation Act, as amended, which sets forth the
extent to which a corporation may indemnify its directors, officers and
employees. More specifically, such law empowers a corporation to indemnify
a corporate agent against his or her expenses and liabilities incurred in
connection with any proceeding (other than a derivative law suit) involving
the corporate agent by reason of his or her being or having been a
corporate agent if (a) the corporate agent acted in good faith or in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and (b) with respect to any criminal
proceeding, the corporate agent had no reasonable cause to believe his or
her conduct was unlawful. For purposes of such law the term "corporate
agent" includes any present or former director, officer, employee or agent
of the corporation, and a person serving as a "corporate agent" at the
request of the corporation for any other enterprise, or the legal
representative of any such director, officer, trustee, employee or agent.
For purposes of this section, "proceeding" means any pending, threatened or
completed civil, criminal, administrative or arbitrative action, suit, or
proceeding, and any appeal therein and any inquiry or investigation which
could lead to such action, suit or proceeding.
With respect to any derivative action, the corporation is empowered to
indemnify a corporate agent against his or her expenses (but not his or her
liabilities) incurred in connection with any proceeding involving the
corporate agent by reason of his or her being or having been a corporate
agent if the agent acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation.
However,
II-1
<PAGE>
only a court can empower a corporation to indemnify a corporate agent
against expenses with respect to any claim, issue or matter as to which the
agent was adjudged liable to the corporation.
The corporation may indemnify a corporate agent in a specific case if
a determination is made by any of the following that the applicable
standard of conduct was met: (i) the Board of Directors, or a committee
thereof, acting by a majority vote of a quorum consisting of disinterested
directors; (ii) by independent legal counsel, if there is not a quorum of
disinterested directors or if the disinterested quorum empowers counsel to
make the determination; or (iii) by the stockholders.
A corporate agent is entitled to mandatory indemnification to the
extent that the agent is successful on the merits or otherwise in any
proceeding, or in defense of any claim, issue or matter in the proceeding.
If a corporation fails or refuses to indemnify a corporate agent, whether
the indemnification is permissive or mandatory, the agent may apply to a
court to grant him or her the requested indemnification. In advance of the
final disposition of a proceeding, the Board of Directors may direct the
corporation to pay an agent's expenses if the agent agrees to repay the
expenses in the event that it is ultimately determined that he is not
entitled to indemnification.
Indemnification Pursuant to Restated Certificate of Incorporation of
the Company. In accordance with the foregoing statutory provision, Article
VI of the Company's Restated Certificate of Incorporation provides as
follows:
"The Corporation shall indemnify its officers, directors, employees,
and agents and former officers, directors, employees and agents, and any
other persons serving at the request of the Corporation as an officer,
director, employee or agent of another corporation, association,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees, judgements, fines, and amounts paid in
settlement) incurred in connection with any pending or threatened action,
suit, or proceeding, whether civil, criminal, administrative or
investigative, with respect to which such officer, director, employee,
agent or other person is a party, or is threatened to be made a party, to
the full extent permitted by the New Jersey Business Corporation Act. The
indemnification provided herein shall not be deemed exclusive of any other
right to which any person seeking indemnification may be entitled under any
by-law, agreement, or vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity, and shall inure to the benefit of the heirs, executors,
and the administrators of any such person. The Corporation shall have the
power to purchase and maintain insurance on behalf of any persons
enumerated above against any liability asserted against him and incurred by
him in any such capacity, arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such
liability under the provisions under this Article."
II-2
<PAGE>
ITEM 16. Exhibits
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture relating to the Subordinated Debentures.
4.2 Form of Subordinated Debenture (included as an exhibit to Exhibit 4.1).
4.3 Form of Certificate of Trust of Yardville Capital Trust.
4.4 Form of Amended Restated Trust Agreement of Yardville Capital Trust.
4.5 Form of Preferred Security.
4.6 Form of Preferred Securities Guarantee Agreement.
4.7 Form of Agreement as to Expenses and Liabilities.
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to legality of
securities.
8.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to certain tax
matters (included in Exhibit 5.1).
10.1 Employment Contract between the Company and Patrick M. Ryan.
10.2 Employment Contract between the Company and Jay G. Destribats.
10.3 Employment Contract between the Company and Stephen F. Carman.
10.4 Employment Contract between the Company and Timothy J. Losch.
10.5 Employment Contract between The Yardville National Bank (the "Bank")
and James F. Doran.
10.6 Employment Contract between the Bank and Richard A. Kauffman.
10.7 Employment Contract between the Bank and Mary C. O'Donnell.
10.8 Employment Contract between the Bank and Frank Durand III.
10.9 Salary Continuation Plan for the Benefit of Patrick M. Ryan.
10.10 Salary Continuation Plan for the Benefit of Jay G. Destribats.
10.11 1988 Stock Option Plan.
10.12 1994 Stock Option Plan.
II-3
<PAGE>
10.13 Directors' Deferred Compensation Plan.
10.14 Lease Agreement between Jim Cramer and the Bank dated
November 3, 1993.
10.15 Lease between Richardson Realty Company and the Bank dated
November 14, 1994.
10.16 Agreement between the Lalor Urban Renewal Limited Partnership
and the Bank dated October, 1994.
10.17 Survivor Income Plan for the Benefit of Stephen F. Carman.
10.18 Lease Agreement between Devon, Inc. and the Bank dated
as of February 9, 1996.
10.19 1997 Stock Option Plan.
12.1 Statements re: Computation of Ratios
13.1 Annual Report on Form 10-K of the Company ("Form 10-K")
for the fiscal year ended December 31, 1996 (filed with
the SEC on March 31, 1997).
13.2 Quarterly Report on Form 10-Q of the Company for the fiscal
quarter ended March 31, 1997 (filed with the SEC
on May 15, 1997).
13.3 Quarterly Report on Form 10-Q, as amended by Form 10-Q/A,
of the Company for the fiscal quarter ended June 30, 1997
(filed with the SEC on August 15, 1997).
13.4 1996 Annual Report to Stockholders of the Company
(filed with SEC as Exhibit 13.1 to Form 10-K).
21.1 List of Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP (Independent Auditor).
23.2 Consent of Stradley, Ronon, Stevens & Young, LLP
(included in Exhibit 5.1).
24.1 Power of Attorney (see Signatures)
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company
- Preferred Securities.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company
- Subordinated Debentures.
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company
- Guarantee.
ITEM 17. Undertakings
1. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of either of the Registrants pursuant to the foregoing provisions, or
otherwise, the Registrants have been advised that in the opinion of the
Securities
II-4
<PAGE>
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 either
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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, each Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
2. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, 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 Registrant 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.
(b) For the purpose of determining any liability under the Securities Act
of 1933, 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, the registrant
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 amendment to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Trenton, State of New Jersey, on September 22,
1997.
YARDVILLE NATIONAL BANCORP
By: Patrick M. Ryan /s/*
-------------------------------
Patrick M. Ryan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this amendment to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Trenton, State of New Jersey, on September 22,
1997.
YARDVILLE CAPITAL TRUST
By: Jay G. Destribats /s/*
-------------------------------
Jay G. Destribats, Administrative
Trustee
By: Patrick M. Ryan /s/*
-------------------------------
Patrick M. Ryan, Administrative
Trustee
By: Stephen F. Carman /s/
-------------------------------
Stephen F. Carman, Administrative
Trustee
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amendment to
registration statement has been signed by the following persons in the
capacities stated on September 22, 1997.
Signatures Title
---------- -----
Jay G. Destribats /s/* Chairman of the Board
- --------------------------------- and Director
Jay G. Destribats
Patrick M. Ryan /s/* Director, President and
- --------------------------------- Chief Executive Officer
Patrick M. Ryan
Stephen F. Carman /s/ Treasurer, Secretary,
- --------------------------------- Principal Financial Officer
Stephen F. Carman and Principal Accounting Officer
C. West Ayres /s/* Director
- ---------------------------------
C. West Ayres
Lorraine Buklad /s/* Director
- ---------------------------------
Lorraine Buklad
- --------------------------------- Director
Anthony M. Giampetro
Gilbert W. Lugossy /s/* Director
- ---------------------------------
Gilbert W. Lugossy
Weldon J. McDaniel, Jr. /s/* Director
- ---------------------------------
Weldon J. McDaniel, Jr.
F. Kevin Tylus /s/* Director
- ---------------------------------
F. Kevin Tylus
Elbert G. Basolis, Jr. /s/* Director
- ---------------------------------
Elbert G. Basolis, Jr.
II-7
<PAGE>
Signatures Title
---------- -----
Sidney L. Hofing /s/* Director
---------------------------------
Sidney L. Hofing
James J. Kelly /s/* Director
---------------------------------
James J. Kelly
Louis R. Matlack /s/* Director
---------------------------------
Louis R. Matlack
*By: Stephen F. Carman /s/
-------------------------------
Stephen F. Carman,
Attorney-in-Fact
II-8
<PAGE>
INDEX TO EXHIBITS
No. Exhibits Page
- --- -------- ----
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture relating to the Subordinated
Debentures.
4.2 Form of Subordinated Debenture (included as exhibit
to Exhibit 4.1).
4.3 Certificate of Trust of Yardville Capital Trust. (2)
4.4 Amended and Restated Trust Agreement of Yardville
Capital Trust.
4.5 Form of Preferred Security.
4.6 Form of Preferred Securities Guarantee Agreement.
4.7 Form of Agreement as to Expenses and Liabilities.
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP
as to legality of securities. (1)
8.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to
certain tax matters (included in Exhibit 5.1).
+ 10.1 Employment Contract between Yardville National
Bancorp (the "Company") and Patrick M. Ryan.
+ 10.2 Employment Contract between the Company and
Jay G. Destribats.
- --------------------
+ Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
++ Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997.
+++ Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994, as
amended by Form 10-KSB/A filed on July 25, 1995.
* Incorporated by reference to the Company's Registration Statement
on Form SB-2 (Registration No. 33-78050).
** Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.
*** Incorporated by reference to the Company's Registration
Statement on Form S-8 (Registration No. 333-28193).
(1) To be filed by amendment.
(2) Previously filed with this Registration Statement.
E-1
<PAGE>
No. Exhibits Page
- --- -------- ----
10.3 Employment Contract between the Company and
Stephen F. Carman. (2)
10.4 Employment Contract between the Company and
Timothy J. Losch. (2)
10.5 Employment Contract between The Yardville
National Bank (the "Bank") and James F. Doran. (2)
10.6 Employment Contract between the Bank and
Richard A. Kauffman. (2)
10.7 Employment Contract between the Bank and
Mary C. O'Donnell.
10.8 Employment Contract between the Bank and
Frank Durand III. (2)
+ 10.9 Salary Continuation Plan for the Benefit
of Patrick M. Ryan.
+ 10.10 Salary Continuation Plan for the Benefit
of Jay G. Destribats.
++ 10.11 1988 Stock Option Plan.
+++ 10.12 1994 Stock Option Plan.
+++ 10.13 Directors' Deferred Compensation Plan.
* 10.14 Lease Agreement between Jim Cramer and
the Bank dated November 3, 1993.
+++ 10.15 Lease between Richardson Realty Company and
the Bank dated November 14, 1994.
+++ 10.16 Agreement between the Lalor Urban Renewal
Limited Partnership and the Bank
- --------------------
+ Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
++ Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997.
+++ Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994, as
amended by Form 10-KSB/A filed on July 25, 1995.
* Incorporated by reference to the Company's Registration
Statement on Form SB-2 (Registration No. 33-78050).
** Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.
*** Incorporated by reference to the Company's Registration
Statement on Form S-8 (Registration No. 333-28193).
(1) To be filed by amendment.
(2) Previously filed with this Registration Statement.
E-2
<PAGE>
No. Exhibits Page
- --- -------- ----
dated October, 1994.
** 10.17 Survivor Income Plan for the Benefit of
Stephen F. Carman.
** 10.18 Lease Agreement between Devon, Inc. and
the Bank dated as of February 9, 1996.
*** 10.19 1997 Stock Option Plan.
12.1 Statements re: Computation of Ratios. (2)
13.1 Annual Report on Form 10-K of the Company ("Form 10-K") for
the fiscal year ended December 31, 1996 (filed with the SEC on
March 31, 1997). (2)
13.2 Quarterly Report on Form 10-Q of the Company for the fiscal
quarter ended March 31, 1997 (filed with the SEC on May 15,
1997). (2)
13.3 Quarterly Report on Form 10-Q, as amended by Form 10-Q/A, of
the Company for the fiscal quarter ended June 30, 1997 (filed
with the SEC on August 15, 1997). (2)
13.4 1996 Annual Report to Stockholders of the Company (filed with
the SEC as Exhibit 13.1 to Form 10-K). (2)
21.1 List of Subsidiaries of the Company. (2)
23.1 Consent of KPMG Peat Marwick LLP (Independent Auditor). (2)
23.2 Consent of Stradley, Ronon, Stevens & Young, LLP (included in
Exhibit 5.1).
- --------------------
+ Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
++ Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997.
+++ Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994, as
amended by Form 10-KSB/A filed on July 25, 1995.
* Incorporated by reference to the Company's Registration Statement
on Form SB-2 (Registration No. 33-78050).
** Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.
*** Incorporated by reference to the Company's Registration Statement
on Form S-8 (Registration No. 333-28193).
(1) To be filed by amendment.
(2) Previously filed with this Registration Statement.
E-3
<PAGE>
No. Exhibits Page
- --- -------- ----
24.1 Power of Attorney (see Signatures). (2)
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company
- Preferred Securities. (2)
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company
- Subordinated Debentures. (2)
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company
- Guarantee. (2)
- --------------------
+ Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
++ Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997.
+++ Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994, as
amended by Form 10-KSB/A filed on July 25, 1995.
* Incorporated by reference to the Company's Registration Statement
on Form SB-2 (Registration No. 33-78050).
** Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.
*** Incorporated by reference to the Company's Registration Statement
on Form S-8 (Registration No. 333-28193).
(1) To be filed by amendment.
(2) Previously filed with this Registration Statement.
E-4
1,000,000 Preferred Securities
Yardville Capital Trust
_____% Cumulative Trust Preferred Securities
(Liquidation Amount of $10 per Preferred Security)
UNDERWRITING AGREEMENT
__________, 1997
SANDLER O'NEILL & PARTNERS, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Yardville National Bancorp, a New Jersey corporation (the "Company")
and its financing subsidiary, Yardville Capital Trust, a Delaware business trust
(the "Trust", and hereinafter together with the Company, the "Offerors"),
propose that the Trust issue and sell to Sandler O'Neill & Partners, L.P. (the
"Underwriter"), pursuant to the terms of this Agreement, 1,000,000 of the
Trust's _____% Cumulative Trust Preferred Securities, with a liquidation amount
of $10 per preferred security (the "Preferred Securities"), to be issued under
the Trust Agreement (as hereinafter defined), the terms of which are more fully
described in the Prospectus (as hereinafter defined). The aforementioned
1,000,000 Preferred Securities to be sold to the Underwriter are herein called
the "Firm Preferred Securities". Solely for the purpose of covering
over-allotments in the sale of the Firm Preferred Securities, the Offerors
further propose that the Trust issue and sell to the Underwriter, at the
Underwriter's option, up to an additional 150,000 Preferred Securities (the
"Option Preferred Securities") upon exercise of the over-allotment option
granted in Section 1 hereof. The Firm Preferred Securities and any Option
Preferred Securities are herein collectively referred to as the "Designated
Preferred Securities".
The Offerors hereby confirm as follows their agreement with the
Underwriter in connection with the proposed purchase of the Designated Preferred
Securities. The terms, conditions, covenants and agreements set forth in this
Agreement supersede and preempt the terms, conditions, covenants and agreements
of the parties set forth in any and all other agreements among the parties
hereto relating to the issuance of the Preferred Securities.
1. Sale, Purchase and Delivery of Designated Preferred Securities;
Description of Designated Preferred Securities.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth, the
Offerors hereby agree that the Trust shall issue and sell to the Underwriter and
the Underwriter agrees to purchase from the Trust, at a purchase price of $10
per share (the "Purchase Price"), the Firm Preferred Securities. Because the
proceeds from the sale of the Firm Preferred Securities will be used to purchase
from the Company its Debentures (as hereinafter defined and as described in the
Prospectus), the Company shall pay to the Underwriter a commission of $_____ per
Firm.
<PAGE>
Preferred Security purchased (the "Firm Preferred Securities Commission").
In addition, on the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions herein set
forth, the Trust hereby grants to the Underwriter, an option to purchase all or
any portion of the 150,000 Option Preferred Securities, and upon the exercise of
such option in accordance with this Section 1, the Offerors hereby agree that
the Trust shall issue and sell to the Underwriter all or any portion of the
Option Preferred Securities at the same Purchase Price per share paid for the
Firm Preferred Securities. Because the proceeds from the sale of the Option
Preferred Securities will be used to purchase from the Company its Debentures,
the Company shall pay to the Underwriter a commission of $_____ per Option
Preferred Security for each Option Preferred Security purchased (the "Option
Preferred Securities Commission"). The option hereby granted (the "Option")
shall expire 30 days after the date upon which the Registration Statement (as
hereinafter defined) becomes effective and may be exercised only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Firm Preferred Securities. The Option may be exercised
in whole or in part at any time (but not more than once) by you giving notice
(confirmed in writing) to the Trust setting forth the number of Option Preferred
Securities as to which the Underwriter is exercising the Option and the time,
date and place for payment and delivery of certificates for such Option
Preferred Securities. Such time and date of payment and delivery for the Option
Preferred Securities (the "Option Closing Date") shall be determined by you, but
shall not be earlier than two nor later than five full business days after the
exercise of such Option, nor in any event prior to the Closing Date (as
hereinafter defined). Certificates for the Option Preferred Securities will be
made available for inspection at least 24 hours prior to the Option Closing Date
at the offices of the DTC (as hereinafter defined), or its designated custodian,
or at such other location as specified by the Underwriter. The Option Closing
Date may be the same as the Closing Date.
Payment of the Purchase Price and the Firm Preferred Securities
Commission and delivery of the Firm Preferred Securities shall be made at the
offices of Sandler O'Neill & Partners, L.P., Two World Trade Center, 104th
Floor, New York, New York 10048, or such other place as shall be agreed to by
you and the Offerors, at 11:00 a.m., New York time, on ____________, 1997, or at
such other time not more than five full business days thereafter as the Offerors
and you shall determine (the "Closing Date"). The Firm Preferred 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 two
business days before the Closing Date. The Global Securities representing the
Firm Preferred Securities shall be made available for examination by the
Underwriter and counsel to the Underwriter not later than 9:30 a.m. Eastern
Standard Time on the last business day prior to the Closing Date. If the
Underwriter exercises the option to purchase any or all of the Option Preferred
Securities, payment of the Purchase Price and Option Preferred Securities
Commission and delivery of the certificate representing the Option Preferred
Securities shall be made on the Option Closing Date at the Underwriter's
offices, or at such other place as the Offerors and you shall determine. Such
payments shall be made to an account designated by the
- 2 -
<PAGE>
Trust by wire transfer or certified or bank cashier's check, in clearing house
or similar next day available funds, in the amount of the Purchase Price
therefor, against delivery by or on behalf of the Trust to you of certificates
for the Designated Preferred Securities to be purchased.
The Agreement contained herein with respect to the timing of the
Closing Date and Option Closing Date is intended to, and does, constitute an
express agreement, as described in Rule 15c6-1(a) and (d) promulgated under the
1934 Act (as defined herein), for a settlement date other than three business
days after the date of the contract.
(b) The Offerors propose that the Trust issue the Designated Preferred
Securities pursuant to an Amended and Restated Trust Agreement among Wilmington
Trust Company, as Property Trustee and as Delaware Trustee, the Administrative
Trustees named therein (collectively, the "Trustees"), and the Company, in
substantially the form heretofore delivered to the Underwriter, said Agreement
being hereinafter referred to as the "Trust Agreement". In connection with the
issuance of the Designated Preferred Securities, the Company proposes (i) to
issue its Subordinated Debentures (the "Debentures") pursuant to an Indenture,
dated as of ____________, 1997, between the Company and Wilmington Trust
Company, as Trustee (the "Indenture") and (ii) to guarantee certain payments on
the Designated Preferred Securities pursuant to a Guarantee Agreement between
the Company and Wilmington Trust Company, as guarantee trustee (the
"Guarantee"), to the extent described therein.
2. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to the
Underwriter that:
(i) The reports filed with the Securities and Exchange Commission
(the "Commission") by the Company under the Securities Exchange Act of
1934, as amended (the "1934 Act") and the rules and regulations
thereunder (the "1934 Act Regulations") during the two year period
ending on the date hereof, at the time they were filed with the
Commission, complied as to form in all material respects with the
requirements of the 1934 Act and the 1934 Act Regulations and did not
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 in which they were
made, not misleading.
(ii) The Offerors have prepared and filed with the Commission a
registration statement on Form S-2 (File Numbers 333-35061 and
333-35061-01) for the registration of the Designated Preferred
Securities, the Guarantee and $11,500,000 aggregate principal amount of
Debentures under the Securities Act of 1933, as amended (the "1933
Act"), including the related prospectus subject to completion, and one
or more amendments to such registration statement may have been so
filed, in each case in conformity in all material respects with the
requirements of the 1933 Act, the rules and regulations promulgated
thereunder (the "1933 Act Regulations") and the Trust Indenture
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Act of 1939, as amended (the "Trust Indenture Act") and the rules and
regulations thereunder. Copies of such registration statement,
including any amendments thereto, each Preliminary Prospectus (as
defined herein) contained therein and the exhibits, financial
statements and schedules to such registration statement, as finally
amended and revised, have heretofore been delivered by the Offerors to
the Underwriter. After the execution of this Agreement, the Offerors
will file with the Commission (A) if such registration statement, as it
may have been amended, has been declared by the Commission to be
effective under the 1933 Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A of the 1933 Act
Regulations ("Rule 430A") or permitted by Rule 424(b) of the 1933 Act
Regulations ("Rule 424(b)") and as have been provided to and not
objected to by the Underwriter prior to (or as are agreed to by the
Underwriter subsequent to) the execution of this Agreement, or (B) if
such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the 1933 Act, an
amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become
effective, a copy of which amendment has been furnished to and not
objected to by the Underwriter prior to (or is agreed to by the
Underwriter subsequent to) the execution of this Agreement. As used in
this Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is
declared effective under the 1933 Act, including (1) all financial
schedules and exhibits thereto, (2) all documents (or portions thereof)
incorporated by reference therein filed under the 1934 Act, and (3) any
information omitted therefrom pursuant to Rule 430A and included in the
Prospectus (as hereinafter defined); the term "Preliminary Prospectus"
means each prospectus subject to completion filed with such
registration statement or any amendment thereto including all documents
(or portions thereof) incorporated by reference therein under the 1934
Act (including the prospectus subject to completion, if any, included
in the Registration Statement and each prospectus filed pursuant to
Rule 424(a) under the 1933 Act); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b)(1)
or (4) or, if no prospectus is required to be filed pursuant to Rule
424(b)(1) or (4), the prospectus included in the Registration
Statement, in each case including the financial schedules and all
documents (or portions thereof) incorporated by reference therein under
the 1934 Act. The date on which the Registration Statement becomes
effective is hereinafter referred to as the "Effective Date."
(iii) The documents incorporated by reference in the Preliminary
Prospectus or Prospectus or from which information is so incorporated
by reference, when they became effective or were filed with the
Commission, as the case may be, complied in all material respects with
the requirements of the 1934 Act and the 1934 Act Regulations, and when
read together and with the other information in the Preliminary
Prospectus or Prospectus, as the case may be, at the time the
Registration Statement became or becomes effective and at the Closing
Date and any Option Closing Date, did not or will not, as the case may
be, contain an untrue statement of a material fact or omit
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<PAGE>
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.
(iv) No order preventing or suspending the use of any Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) has been issued by the Commission, nor has the Commission,
to the knowledge of the Offerors, threatened to issue such an order or
instituted proceedings for that purpose. Each Preliminary Prospectus,
at the time of filing thereof, (A) complied in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
(B) did not contain an untrue statement of a material fact or omit to
state any 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; provided, however, 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 inclusion in
the Prospectus beneath the heading "Underwriting" (such information
referred to herein as the "Underwriter's Information").
(v) At the Effective Date and at all times subsequent thereto, up
to and including the Closing Date and, if applicable, the Option
Closing Date, the Registration Statement and any post-effective
amendment thereto (A) complied and will comply in all material respects
with the requirements of the 1933 Act, the 1933 Act Regulations and the
Trust Indenture Act (and the rules and regulations thereunder) and (B)
did not and will not 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. At the
Effective Date and at all times when the Prospectus is required to be
delivered in connection with offers and sales of Designated Preferred
Securities, including, without limitation, the Closing Date and, if
applicable, the Option Closing Date, the Prospectus, as amended or
supplemented, (A) complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
the Trust Indenture Act (and the rules and regulations thereunder) and
(B) did not contain and will not contain an untrue statement of a
material fact or omit to state any 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; provided,
however, that this representation and warranty does not apply to
Underwriter's Information.
(vi) (A) The Company is duly organized, validly existing and in
good standing under the laws of the State of New Jersey, with full
corporate and other power and authority to own, lease and operate its
properties and conduct its business as described in and contemplated by
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) and as
currently being conducted and is duly registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act").
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<PAGE>
(B) The Trust has been duly created and is validly existing
as a as a statutory business trust in good standing under the Delaware
Business Trust Act with the power and authority (trust and other) to
own its property and conduct its business as described in the
Registration Statement and Prospectus, to issue and sell its common
securities (the "Common Securities") to the Company pursuant to the
Trust Agreement, to issue and sell the Designated Preferred Securities,
to enter into and perform its obligations under this Agreement and to
consummate the transactions herein contemplated; the Trust has no
subsidiaries and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
the ownership of its property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Trust; the Trust has
conducted and will conduct no business other than the transactions
contemplated by this Agreement and described 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 and 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; the Trust is
not a party to or subject to any action, suit or proceeding of any
nature; the Trust is not, and at the Closing Date or any Option Closing
Date will not be, to the knowledge of the Offerors, classified as an
association taxable as a corporation for United States federal income
tax purposes; and the Trust is, and as of the Closing Date or any
Option Closing Date will be, treated as a consolidated subsidiary of
the Company pursuant to generally accepted accounting principles.
(vii) The Company has one direct subsidiary and the Bank has five
direct subsidiaries. They are listed on Exhibit A attached hereto and
incorporated herein (the "Subsidiaries"). The Company does not own or
control, directly or indirectly, more than 5% of any class of equity
security of any corporation, association or other entity other than the
Subsidiaries. The Yardville National Bank is referred to herein as the
"Bank". Each Subsidiary is a bank, corporation, security corporation or
Delaware business trust duly incorporated (or created, as the case may
be), validly existing and in good standing under the laws of its
respective jurisdiction of incorporation. Each such Subsidiary has full
corporate and other power and authority to own, lease and operate its
properties and to conduct its business as described in and contemplated
by the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and as
currently being conducted. The deposit accounts of the Bank are insured
by the Bank Insurance Fund administered by the Federal Deposit
Insurance Corporation up to the maximum amount provided by law; and no
proceedings for the modification, termination or revocation of any such
insurance are pending or, to the knowledge of the Offerors, threatened.
(viii) Each of the Company and the 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 or
conducts its business so as to require
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<PAGE>
such qualification and in which the failure to so qualify would,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), earnings, business, prospects or
results of operations of the Company and the Subsidiaries on a
consolidated basis. All of the issued and outstanding shares of capital
stock of the Subsidiaries (A) have been duly authorized and are validly
issued, (B) are fully paid and nonassessable except to the extent such
shares may be deemed assessable under 12 U.S.C. Section 55, and (C)
except as disclosed in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), are directly owned
by the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, restriction upon voting or transfer,
preemptive rights, claim or equity. Except as disclosed in the
Prospectus, there are no outstanding rights, warrants or options to
acquire or instruments convertible into or exchangeable for any capital
stock or equity securities of the Offerors or the Subsidiaries.
(ix) The capital stock of the Company and the equity securities
of the Trust conform to the description thereof contained in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The outstanding shares of capital stock and
equity securities of each Offeror have been duly authorized and validly
issued and are fully paid and nonassessable, and no such shares were
issued in violation of the preemptive or similar rights of any security
holder of an Offeror; no person has any preemptive or similar right to
purchase any shares of capital stock or equity securities of the
Offerors. Except as disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), there are
no outstanding rights, options or warrants to acquire any securities of
the Offerors, and there are no outstanding securities convertible into
or exchangeable for any such securities and no restrictions upon the
voting or transfer of any capital stock of the Company or equity
securities of the Trust pursuant to the Company's corporate charter or
bylaws, the Trust Agreement or any agreement or other instrument to
which an Offeror is a party or by which an Offeror is bound.
(x) (A) The Trust has all requisite power and authority to issue,
sell and deliver the Designated Preferred Securities in accordance with
and upon the terms and conditions set forth in this Agreement, the
Trust Agreement, the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus). All corporate and trust action required to be taken by the
Offerors for the authorization, issuance, sale and delivery of the
Designated Preferred Securities in accordance with such terms and
conditions has been validly and sufficiently taken. The Designated
Preferred Securities, when delivered in accordance with this Agreement,
will be duly and validly issued and outstanding, will be fully paid and
nonassessable undivided beneficial interests in the assets of the
Trust, will be entitled to the benefits of the Trust Agreement, will
not be issued in violation of or subject to any preemptive or similar
rights, and will conform in all material respects to the description
thereof in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
and the Trust Agreement. None of the
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<PAGE>
Designated Preferred Securities, immediately prior to delivery, will be
subject to any security interest, lien, mortgage, pledge, encumbrance,
restriction upon voting or transfer, preemptive rights, claim, equity
or other title defect.
(B) The Debentures have been duly and validly authorized,
and, when duly and validly executed, authenticated and issued as
provided in the Indenture and delivered to the Trust pursuant to the
Trust Agreement, will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indenture and will
conform in all material respects to the description thereof contained
in the Prospectus.
(C) The Guarantee has been duly and validly authorized, and,
when duly and validly executed and delivered to the guarantee trustee
for the benefit of the Trust, will constitute a valid and legally
binding obligation of the Company and will conform in all material
respects to the description thereof contained in the Prospectus.
(D) The Agreement as to Expenses and Liabilities (the
"Expense Agreement") has been duly and validly authorized, and, when
duly and validly executed and delivered to the Company, will constitute
a valid and legally binding obligation of the Company and will conform
in all material respects to the description thereof contained in the
Prospectus.
(xi) The Offerors and the Subsidiaries have complied with all
federal, state and local statutes, regulations, ordinances and rules
applicable to the ownership and operation of their properties or the
conduct of their businesses as described in and contemplated by the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) and as currently
being conducted except where the failure to so comply would not have a
material adverse effect on the condition, financial or otherwise,
earnings, affairs, business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated basis.
(xii) The Offerors and the Subsidiaries have all permits,
easements, consents, licenses, franchises and other governmental and
regulatory authorizations from all appropriate federal, state, local or
other public authorities ("Permits") as are necessary to own and lease
their properties and conduct their businesses in the manner described
in and contemplated by the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and as currently being conducted, except where the failure
to have such Permits would not have a material adverse effect on the
condition, financial or otherwise, earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis. All such Permits are in full force and effect
and each of the Offerors and the Subsidiaries are in all material
respects complying therewith, and no event has occurred that allows, or
after notice or lapse of time would allow, revocation or termination
thereof or will result in any other material impairment of the rights
of the
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<PAGE>
holder of any such Permit, subject in each case to such qualification
as may be adequately disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), except
where the failure of such Permits to be in full force and effect or the
lack of such compliance would not have a material adverse effect on the
condition, financial or otherwise, earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis. Such Permits contain no restrictions that
would materially impair the ability of the Company or the Subsidiaries
to conduct their businesses in the manner consistent with their past
practices. Neither the Offerors nor any of the Subsidiaries has
received notice or otherwise has knowledge of any proceeding or action
relating to the revocation or modification of any such Permit.
(xiii) Neither of the Offerors nor any of the Subsidiaries is in
breach or violation of their corporate charter, by-laws or other
governing documents (including without limitation, the Trust
Agreement). Neither of the Offerors nor any of the Subsidiaries are,
and to the knowledge of the Offerors no other party is, in violation,
breach or default (with or without notice or lapse of time or both) in
the performance or observance of any term, covenant, agreement,
obligation, representation, warranty or condition contained in (A) any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease, franchise, license, Permit or any other agreement or
instrument to which it is a party or by which it or any of its
properties may be bound, except where such breach, violation or default
would not have a material adverse effect on the condition, financial or
otherwise, earnings, affairs, business, prospects, or results of
operations of the Offerors and the Subsidiaries on a consolidated
basis, and to the knowledge of the Offerors, no other party has
asserted that the Offerors or any of the Subsidiaries is in such
violation, breach or default (provided that the foregoing shall not
apply to defaults by borrowers from the Banks), or (B) except as
disclosed in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), any order, decree, judgment,
rule or regulation of any court, arbitrator, government, or
governmental agency or instrumentality, domestic or foreign, having
jurisdiction over the Offerors or the Subsidiaries or any of their
respective properties the breach, violation or default of which could
have a material adverse effect on the condition, financial or
otherwise, earnings, affairs, business, prospects, or results of
operations of the Offerors and the Subsidiaries on a consolidated
basis.
(xiv) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this
Agreement, the Trust Agreement, the Registration Statement and the
Prospectus (or, if the Prospectus in not in existence, the most recent
Preliminary Prospectus) do not and will not conflict with, result in
the creation or imposition of any material lien, claim, charge,
encumbrance or restriction upon any property or assets of the Offerors
or the Subsidiaries or the Designated Preferred Securities pursuant to,
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<PAGE>
constitute a breach or violation of, or constitute a default under,
with or without notice or lapse of time or both, any of the terms,
provisions or conditions of the charter or by-laws of the Company or
the Subsidiaries, the Trust Agreement, the Guarantee, the Indenture,
any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease, franchise, license, Permit or any other
agreement or instrument to which the Offerors or the Subsidiaries is a
party or by which any of them or any of their respective properties may
be bound or any order, decree, judgment, rule or regulation of any
court, arbitrator, government, or governmental agency or
instrumentality, domestic or foreign, having jurisdiction over the
Offerors or the Subsidiaries or any of their respective properties
which conflict, creation, imposition, breach, violation or default
would have either singly or in the aggregate a material adverse effect
on the condition, financial or otherwise, earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis. No authorization, approval, consent or order
of, or filing, registration or qualification with, any person
(including, without limitation, any court, governmental body or
authority) is required in connection with the transactions contemplated
by this Agreement, the Trust Agreement, the Indenture, the Guarantee,
the Registration Statement and the Prospectus (or such Preliminary
Prospectus), except such as may be required under the 1933 Act, and
such as may be required under state securities laws in connection with
the purchase and distribution of the Designated Preferred Securities by
the Underwriter. No authorization, approval, consent or order of or
filing, registration or qualification with, any person (including,
without limitation, any court, governmental body or authority) is
required in connection with the transactions contemplated by this
Agreement, the Trust Agreement, the Indenture, the Guarantee, the
Registration Statement and the Prospectus, except such as have been
obtained under the 1933 Act, and such as may be required under state
securities laws or Interpretations or Rules of the National Association
of Securities Dealers, Inc. ("NASD") in connection with the purchase
and distribution of the Designated Preferred Securities by the
Underwriters.
(xv) The Offerors have all requisite corporate power and
authority to enter into this Agreement and this Agreement has been duly
and validly authorized, executed and delivered by the Offerors and
constitutes the legal, valid and binding agreement of the Offerors,
enforceable against the Offerors in accordance with its terms, except
as the enforcement thereof may be limited by general principles of
equity and by bankruptcy or other laws relating to or affecting
creditors' rights generally and except as any indemnification or
contribution provisions thereof may be limited under applicable
securities laws. Each of the Indenture, the Trust Agreement, the
Guarantee and the Expense Agreement has been duly authorized by the
Company, and, when executed and delivered by the Company on the Closing
Date, each of said agreements will constitute a valid and legally
binding obligation of the Company and will be enforceable against the
Company in accordance with its terms, except as the enforcement thereof
may be limited by general principles of equity and by bankruptcy or
other laws relating to or affecting creditors' rights generally and
except as any indemnification or contribution provisions thereof may be
limited under applicable securities laws. The Trust Agreement has been
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<PAGE>
duly authorized and, when executed by the proper officers 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. Each
of the Indenture, the Trust Agreement and the Guarantee has been duly
qualified under the Trust Indenture Act and will conform in all
material respects to the description thereof contained in the
Prospectus.
(xvi) The Company and the Subsidiaries have good and marketable
title in fee simple to all real property and good title to all personal
property owned by them and material to their business, in each case
free and clear of all security interests, liens, mortgages, pledges,
encumbrances, restrictions, claims, equities and other defects except
such as are referred to in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) or such as do not
materially affect the value of such property in the aggregate and do
not materially interfere with the use made or proposed to be made of
such property; and all of the leases under which the Company or the
Subsidiaries hold real or personal property are valid, existing and
enforceable leases and in full force and effect with such exceptions as
are not material and do not materially interfere with the use made or
proposed to be made of such real or personal property, and neither the
Company nor any of the Subsidiaries is in default in any material
respect of any of the terms or provisions of any leases.
(xvii) KPMG Peat Marwick, LLP, who have certified certain of the
consolidated financial statements of the Company and the Subsidiaries
including the notes thereto, included or incorporated by reference in
the Registration Statement and Prospectus, are independent public
accountants with respect to the Company and the Subsidiaries, as
required by the 1933 Act and the 1933 Act Regulations.
(xviii) The consolidated financial statements including the notes
thereto, included by incorporation or otherwise in the Registration
Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) with respect to the
Company and the Subsidiaries comply in all material respects with the
1933 Act and the 1933 Act Regulations and present fairly the
consolidated financial position of the Company and the Subsidiaries as
of the dates indicated and the consolidated results of operations, cash
flows and shareholders' equity of the Company and the Subsidiaries for
the periods specified and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
The selected and summary consolidated financial data concerning the
Offerors and the Subsidiaries included in the Registration Statement
and the Prospectus (or such Preliminary Prospectus) comply in all
material respects with the 1933 Act and the 1933 Act Regulations,
present fairly the information set forth therein, and have been
compiled on a basis consistent with that of the consolidated financial
statements of the Offerors and the Subsidiaries in the Registration
Statement and the Prospectus (or such Preliminary Prospectus). The
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Company had an outstanding capitalization as set forth under
"Capitalization" in the Prospectus as of the date indicated therein and
there has been no material change therein since such date except as
disclosed in the Prospectus. The other financial, statistical and
numerical information included in the Registration Statement and the
Prospectus (or such Preliminary Prospectus) comply in all material
respects with the 1933 Act and the 1933 Act Regulations, present fairly
the information shown therein, and to the extent applicable have been
compiled on a basis consistent with the consolidated financial
statements of the Company and the Subsidiaries included in the
Registration Statement and the Prospectus (or such Preliminary
Prospectus).
(xix) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), except as
otherwise stated therein:
(A) neither of the Offerors nor any of the Subsidiaries have
sustained any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree which is material to the condition
(financial or otherwise), earnings, business, prospects or
results of operations of the Offerors and the Subsidiaries on a
consolidated basis;
(B) there has not been any material adverse change in, or
any development which is reasonably likely to have a material
adverse effect on, the condition (financial or otherwise),
earnings, business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated basis, whether or
not arising in the ordinary course of business;
(C) neither of the Offerors nor any of the Subsidiaries have
incurred any liabilities or obligations, direct or contingent, or
entered into any material transactions, other than in the
ordinary course of business which is material to the condition
(financial or otherwise), earnings, business, prospects or
results of operations of the Offerors and the Subsidiaries on a
consolidated basis;
(D) neither of the Offerors have declared or paid any
dividend, and neither of the Offerors nor any of the Subsidiaries
have become delinquent in the payment of principal or interest on
any outstanding borrowings; and
(E) there has not been any change in the capital stock,
equity securities, long-term debt, obligations under capital
leases or, other than in the ordinary course of business,
short-term borrowings of the Offerors or the Subsidiaries.
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<PAGE>
(xx) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), no charge, investigation, action, suit or
proceeding is pending or, to the knowledge of the Offerors, threatened,
against or involving the property or assets of the Offerors or the
Subsidiaries or any of their respective properties before or by any
court or any regulatory, administrative or governmental official,
commission, board, agency or other authority or body, or any
arbitrator, wherein an unfavorable decision, ruling or finding could
reasonably be expected to have a material adverse effect on the
consummation of this Agreement or the transactions contemplated herein
or the condition (financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis or which is required to be disclosed in the
Registration Statement or the Prospectus (or such Preliminary
Prospectus) and is not so disclosed.
(xxi) There are no contracts or other documents required to be
filed as exhibits to the Registration Statement by the 1933 Act or the
1933 Act Regulations or the Trust Indenture Act (or any rules or
regulations thereunder) which have not been filed as exhibits or
incorporated by reference to the Registration Statement, or that are
required to be summarized in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) that are not
so summarized.
(xxii) Neither of the Offerors has taken, directly or indirectly,
any action designed to result in or which has constituted or which
might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Offerors to facilitate
the sale or resale of the Designated Preferred Securities, and neither
of the Offerors is aware of any such action taken or to be taken by any
officer, director, trustee or 5% or more shareholder of the Offerors.
(xxiii) The Offerors and the Subsidiaries own, or possess
adequate rights to use, all patents, copyrights, trademarks, service
marks, trade names and other rights necessary to conduct the businesses
now conducted by them in all material respects or as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and neither the Offerors nor the Subsidiaries
have received any notice of infringement or conflict with asserted
rights of others with respect to any patents, copyrights, trademarks,
service marks, trade names or other rights which, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, affairs, business, prospects or
results of operations of the Offerors and the Subsidiaries on a
consolidated basis, and the Offerors do not know of any basis for any
such infringement or conflict.
(xxiv) Except as adequately disclosed in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus), no labor dispute involving the Company or the Subsidiaries
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exists or, to the knowledge of the Offerors, is imminent which might be
expected to have a material adverse effect on the condition (financial
or otherwise), earnings, affairs, business, prospects or results of
operations of the Offerors and the Subsidiaries on a consolidated basis
or which is required to be disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus). Neither the Company nor any of the Subsidiaries have
received notice of any existing or threatened labor dispute by the
employees of any of its principal suppliers, customers or contractors
which might be expected to have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Company and the Subsidiaries
on a consolidated basis.
(xxv) The Offerors and the Subsidiaries have properly prepared
and timely filed all necessary federal, state, local and foreign tax
returns which are required to be filed and have paid all taxes shown as
due thereon and have paid all other taxes and assessments to the extent
that the same shall have become due, except such as are being contested
in good faith or where the failure to so timely and properly prepare
and file would not have a material adverse effect on the condition
(financial or otherwise), earnings, affairs, business, prospects or
results of operations of the Offerors and the Subsidiaries on a
consolidated basis. The Offerors have no knowledge of any tax
deficiency which has been or might be assessed against the Offerors or
the Subsidiaries which, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis.
(xxvi) Each of the material contracts, agreements and instruments
described or referred to in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and each contract, agreement and instrument
filed as an exhibit to the Registration Statement is in full force and
effect and is the legal, valid and binding agreement of the Offerors or
the Subsidiaries, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by general principles of equity
and by bankruptcy or other laws relating to or affecting creditors'
rights generally. Except as disclosed in the Prospectus (or such
Preliminary Prospectus), to the knowledge of the Offerors, no other
party to any such agreement is (with or without notice or lapse of time
or both) in breach or default in any material respect thereunder.
(xxvii) No relationship, direct or indirect, exists between or
among the Offerors or the Subsidiaries, on the one hand, and the
directors, officers, trustees, shareholders, customers or suppliers of
the Offerors or the Subsidiaries, on the other hand, which is required
to be described in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus) which is not adequately described therein.
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(xxviii) No person has the right to request or require the
Offerors or the Subsidiaries to register any securities for offering
and sale under the 1933 Act by reason of the filing of the Registration
Statement with the Commission or the issuance and sale of the
Designated Preferred Securities except as adequately disclosed in the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(xxix) The Designated Preferred Securities have been approved for
quotation on the Nasdaq National Market subject to official notice of
issuance.
(xxx) Except as described (or referred to) in the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no contractual encumbrances or restrictions or
material legal restrictions, on the ability of the Subsidiaries (A) to
pay dividends or make any other distributions on its capital stock or
to pay any indebtedness owed to the Offerors, (B) to make any loans or
advances to, or investments in, the Offerors or (C) to transfer any of
its property or assets to the Offerors.
(xxxi) Neither of the Offerors is an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(xxxii) The Offerors have not distributed and will not distribute
prior to the Closing Date any prospectus in connection with the
Offering, other than a Preliminary Prospectus, the Prospectus, the
Registration Statement and the other materials permitted by the 1933
Act and the 1933 Act Regulations and reviewed by the Underwriter.
(xxxiii) The Company and each Subsidiary have in place and
effective such policies of insurance, with limits of liability in such
amounts, as are normal and prudent in the ordinary scope of business
similar to that of the Company and such Subsidiary in the respective
jurisdiction in which they conduct business.
(xxxiv) The provisions of any employee pension benefit plan
("Pension Plan") as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), in which the Company
or any Subsidiary is a participating employer are in substantial
compliance with ERISA, and neither the Company nor any Subsidiary is in
violation of ERISA. The Company, each Subsidiary, or the plan sponsor
thereof, as the case may be, has duly and timely filed the reports
required to be filed by ERISA in connection with the maintenance of any
Pension Plans in which the Company or any Subsidiary is a participating
employer, and no facts, including any "reportable event" as defined by
ERISA and the regulations thereunder, exist in connection with any
Pension Plan in which the Company or any Subsidiary is a participating
employer which might constitute grounds for the termination of such
plan by the Pension Benefit Guaranty Corporation or for the appointment
by the appropriate U.S. District Court of a trustee to administer any
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such plan. The provisions of any employee benefit welfare plan, as
defined in Section 3(1) of ERISA, in which the Company or any
Subsidiary is a participating employer, are in substantial compliance
with ERISA, and the Company, any Subsidiary, or the plan sponsor
thereof, as the case may be, has duly and timely filed the reports
required to be filed by ERISA in connection with the maintenance of any
such plans.
3. Offering by the Underwriter. After the Registration Statement
becomes effective or, if the Registration Statement is already effective, after
this Agreement becomes effective, the Underwriter proposes to offer the Firm
Preferred Securities for sale to the public upon the terms and conditions set
forth in the Prospectus. Because the 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 Underwriter may from time to time
thereafter reduce the public offering price and change the other selling terms,
provided the proceeds to the Trust shall not be reduced as a result of such
reduction or change.
The Underwriter may reserve and sell such of the Designated Preferred
Securities purchased by the Underwriter as the Underwriter may elect to dealers
chosen by it (the "Selected Dealers") at the public offering price set forth in
the Prospectus less the applicable Selected Dealers' concessions set forth
therein, for re-offering by Selected Dealers to the public at the public
offering price. The Underwriter may allow, and Selected Dealers may re-allow, a
concession set forth in the Prospectus to certain other brokers and dealers.
4. Certain Covenants of the Offerors. The Offerors jointly and
severally covenant with the Underwriter as follows:
(a) The Offerors shall use their best efforts to cause the Registration
Statement and any amendments thereto, if not effective at the time of execution
of this Agreement, to become effective as promptly as possible. If the
Registration Statement has become or becomes effective pursuant to Rule 430A and
information has been omitted therefrom in reliance on Rule 430A, then, the
Offerors will prepare and file in accordance with Rule 430A and Rule 424(b)
copies of the Prospectus or, if required by Rule 430A, a post-effective
amendment to the Registration Statement (including the Prospectus) containing
all information so omitted and will provide evidence satisfactory to the
Underwriter of such timely filing.
(b) The Offerors shall notify you immediately, and confirm such notice
in writing:
(i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, has become effective, or when
the Prospectus or any supplement to the Prospectus or any amended
Prospectus has been filed;
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(ii) of the receipt of any comments or requests from the
Commission;
(iii) of any request of the Commission to amend or supplement the
Registration Statement, any Preliminary Prospectus or the Prospectus or
for additional information; and
(iv) of the issuance by the Commission or any state or other
regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement, preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, or suspending
the qualification of any of the Designated Preferred Securities for
offering or sale in any jurisdiction or the institution or threat of
institution of any proceedings for any of such purposes. The Offerors
shall use their best efforts to prevent the issuance of any such stop
order or of any other such order and if any such order is issued, to
cause such order to be withdrawn or lifted as soon as possible.
(c) The Offerors shall furnish to the Underwriter, from time to time
without charge, as soon as available, as many copies as the Underwriter may
reasonably request of (i) the registration statement as originally filed and of
all amendments thereto, in executed form, including exhibits, whether filed
before or after the Registration Statement becomes effective, (ii) all exhibits
and documents incorporated therein or filed therewith, (iii) all consents and
certificates of experts in executed form, (iv) each Preliminary Prospectus and
all amendments and supplements thereto, and (v) the Prospectus, and all
amendments and supplements thereto.
(d) During the time when a prospectus is required to be delivered under
the 1933 Act, the Offerors shall comply to the best of their 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 Designated
Preferred Securities as contemplated herein and in the Trust Agreement and the
Prospectus. The Offerors shall not file any amendment to the registration
statement as originally filed or to the Registration Statement and shall not
file any amendment thereto or make any amendment or supplement to any
Preliminary Prospectus or to the Prospectus of which you shall not previously
have been advised in writing and provided a copy a reasonable time prior to the
proposed filings thereof or to which you or counsel to the Underwriter shall
object. If it is necessary, in the Company's reasonable opinion or in the
reasonable opinion of the Company's counsel to amend or supplement the
Registration Statement or the Prospectus in connection with the distribution of
the Designated Preferred Securities, the Offerors shall forthwith amend or
supplement the Registration Statement or the Prospectus, as the case may be, by
preparing and filing with the Commission (provided you or counsel to the
Underwriter does not reasonably object), and furnishing to you, such number of
copies as you may reasonably request of an amendment or amendments of, or a
supplement or supplements to, the Registration Statement or the Prospectus, as
the case may be (in form and substance reasonably satisfactory to you and
counsel to the Underwriter). If any event shall occur as a result of which it is
necessary to amend or supplement the Prospectus to correct an untrue statement
of a material fact or to include a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
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not misleading, or if for any reason it is necessary at any time to amend or
supplement the Prospectus to comply with the 1933 Act and the 1933 Act
Regulations, the Offerors shall, subject to the second sentence of this
subsection (d), forthwith amend or supplement the Prospectus by preparing and
filing with the Commission, and furnishing to you, such number of copies as you
may reasonably request of an amendment or amendments of, or a supplement or
supplements to, the Prospectus (in form and substance satisfactory to you and
counsel to the Underwriter) so that, as so amended or supplemented, the
Prospectus shall not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) The Offerors shall cooperate with you and counsel to the
Underwriter in order to qualify the Designated Preferred Securities for offering
and sale under the securities or blue sky laws of such jurisdictions as you may
reasonably request and shall continue such qualifications in effect so long as
may be advisable for distribution of the Designated Preferred Securities;
provided, however, that the Offerors shall not be required to qualify to do
business as a foreign corporation or file a general consent to service of
process in any jurisdiction in connection with the foregoing (except with
respect to the offering and sale of the Designated Preferred Securities). The
Offerors shall file such statements and reports as may be required by the laws
of each jurisdiction in which the Designated Preferred Securities have been
qualified as above. The Offerors will notify you immediately of, and confirm in
writing, the suspension of qualification of the Designated Preferred Securities
or threat thereof in any jurisdiction.
(f) The Offerors shall make generally available to their security
holders in the manner contemplated by Rule 158 of the 1933 Act Regulations, and
furnish to you, as soon as practicable, but in any event not later than 15
months after the Effective Date, a consolidated earnings statement of the
Offerors conforming with the requirements of Section 11(a) of the 1933 Act and
Rule 158.
(g) The Offerors shall use the proceeds from the sale of the Designated
Preferred Securities to be sold by the Trust hereunder in the manner specified
in the Prospectus under the caption "Use of Proceeds."
(h) For five years from the Effective Date, the Offerors shall furnish
to the Underwriter copies of all reports and communications (financial or
otherwise) furnished by the Offerors to the holders of the Designated Preferred
Securities as a class, copies of all reports and financial statements filed with
or furnished to the Commission (other than portions for which confidential
treatment has been obtained from the Commission) or with any national securities
exchange or the Nasdaq National Market and such other documents, reports and
information concerning the business and financial conditions of the Offerors as
the Underwriter may reasonably request, other than such documents, reports and
information which the Offerors have a legal obligation not to reveal to the
Underwriter.
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<PAGE>
(i) For a period of 180 days from the Effective Date, the Offerors
shall not, directly or indirectly, offer for sale, sell or agree to sell or
otherwise dispose of any Designated Preferred Securities other than pursuant to
this Agreement, any other beneficial interests in the assets of the Trust or any
securities of the Trust or the Company that are substantially similar to the
Designated Preferred Securities or the Debentures, including any guarantee of
such beneficial interests or substantially similar securities, or securities
convertible into or exchangeable for or that represent the right to receive any
such beneficial interest or substantially similar securities, without the prior
written consent of the Underwriter.
(j) The Offerors shall use their best efforts to cause the Designated
Preferred Securities to become quoted on the Nasdaq National Market, or in lieu
thereof a national securities exchange, and to remain so quoted for at least
five years from the Effective Date or for such shorter period as may be
specified in a written consent of the Underwriter, provided this shall not
prevent the Company from redeeming the Designated Preferred Securities pursuant
to the terms of the Trust Agreement. If the Designated Preferred Securities are
exchanged for Debentures, the Company will use its best efforts to have the
Debentures promptly listed on the Nasdaq National Market or other organization
on which the Designated Preferred Securities are then listed, and to have the
Debentures promptly registered under the Exchange Act.
(k) Subsequent to the date of this Agreement and through the date which
is the later of (i) the day following the date on which the Underwriter's option
to purchase the Option Preferred Securities shall expire or (ii) the day
following the Option Closing Date with respect to any Option Preferred
Securities that the Underwriter shall elect to purchase, except as described in
or contemplated by the Prospectus, neither the Offerors nor any of the
Subsidiaries shall take any action (or refrain from taking any action) which
will result in the Offerors or the Subsidiaries incurring any material liability
or obligation, direct or contingent, or enter into any material transaction,
except in the ordinary course of business, and there will not be any material
change in the capital stock, or any material increase in long-term debt,
obligations under capital leases or short-term borrowings of the Offerors and
the Subsidiaries on a consolidated basis.
(l) The Offerors shall not, for a period of 180 days after the date
hereof, without the prior written consent of the Underwriter, purchase, redeem
or call for redemption, or prepay or give notice of prepayment (or announce any
redemption or call for redemption, or any repayment or notice of prepayment) of
any of the Preferred Securities.
(m) The Offerors shall not take, directly or indirectly, any action
designed to result in or which has constituted or which might reasonably be
expected to cause or result in a violation of the Commission's Regulation M and
the Offerors are not aware of any such action taken or to be taken by any
affiliate of the Offerors.
(n) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Offerors will not issue any press release or other communication
directly or indirectly or hold any press conference with respect to the
Offerors, the Subsidiaries or the offering of the Designated Preferred
Securities (the "Offering") without your prior written consent.
(o) The Offerors will use their best efforts to satisfy or cause to be
satisfied the conditions to the obligations of the Underwriter in Section 6
hereof.
(p) The Trust shall comply in all respects with the undertakings given
by the Trust in connection with the qualification or registration of the
Designated Preferred Securities for offering and sale under the Blue Sky Laws.
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5. Payment of Expenses. Whether or not this Agreement is terminated or
the sale of the Designated Preferred Securities to the Underwriter is
consummated, the Company covenants and agrees that it will pay or cause to be
paid (directly or by reimbursement) all costs and expenses incident to the
performance of the obligations of the Offerors under this Agreement, including:
(a) the preparation, printing, filing, delivery and shipping of
the initial registration statement, the Preliminary Prospectus or Prospectuses,
the Registration Statement and the Prospectus and any amendments or supplements
thereto, and the printing, delivery and shipping of this Agreement and any other
underwriting documents (including, without limitation, selected dealers
agreements), the certificates for the Designated Preferred Securities and the
Preliminary and Final Blue Sky Memoranda and any legal investment surveys and
any supplements thereto;
(b) all fees, expenses and disbursements of the Offerors' counsel
and accountants;
(c) all fees and expenses incurred in connection with the
qualification of the Designated Preferred Securities, Debentures and the
Guarantee under the securities or blue sky laws of such jurisdictions as you may
request, including all filing fees and reasonable fees and disbursements of
counsel to the Underwriter in connection therewith, including, without
limitation, in connection with the preparation of the Preliminary and Final Blue
Sky Memoranda and any legal investment surveys and any supplements thereto;
(d) all fees and expenses incurred in connection with filings
made with the NASD;
(e) any applicable fees and other expenses incurred in connection
with the listing of the Designated Preferred Securities and, if applicable, the
Guarantee and the Debentures on the Nasdaq National Market;
(f) the cost of furnishing to you copies of the initial
registration statements, any Preliminary Prospectus, the Registration Statement
and the Prospectus and all amendments or supplements thereto;
(g) the costs and charges of any transfer agent or registrar and
the fees and disbursements of counsel to any transfer agent or registrar;
(h) all costs and expenses (including stock transfer taxes)
incurred in connection with the issuance and delivery of the Designated
Preferred Securities to the Underwriter;
(i) all expenses incident to the preparation, execution and
delivery of the Trust Agreement, the Indenture and the Guarantee; and
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(j) all other costs and expenses incident to the performance of
the obligations of the Company hereunder and under the Trust Agreement that are
not otherwise specifically provided for in this Section 5.
If the sale of Designated Preferred Securities contemplated by
this Agreement is not completed for any reason whatsoever, whether or not such
termination is allowable hereunder, the Company will pay you your accountable
out-of-pocket expenses in connection herewith or in contemplation of the
performance of your obligations hereunder, including without limitation travel
expenses, reasonable fees, expenses and disbursements of counsel or other
out-of-pocket expenses incurred by you in connection with any discussion of the
Offering or the contents of the Registration Statement, any investigation of the
Offerors and the Subsidiaries, or any preparation for the marketing, purchase,
sale or delivery of the Designated Preferred Securities, in each case following
presentation of reasonably detailed invoices therefor.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter to purchase and pay for the Firm Preferred Securities and, following
exercise of the option granted by the Offerors in Section 1 of this Agreement,
the Option Preferred Securities, are subject, in your sole discretion, to the
accuracy of and compliance with the representations and warranties and
agreements of the Offerors herein as of the date hereof and as of the Closing
Date (or in the case of the Option Preferred Securities, if any, as of the
Option Closing Date), to the accuracy of the written statements of the Offerors
made pursuant to the provisions hereof, to the performance by the Offerors of
their covenants and obligations hereunder and to the following additional
conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Closing Date has not been declared effective prior to the time of
execution hereof, the Registration Statement shall become effective not later
than 11:00 a.m., New York time, on the first business day following the time of
execution of this Agreement, or at such later time and date as you may agree to
in writing. If required, the Prospectus and any amendment or supplement thereto
shall have been timely filed in accordance with Rule 424(b) and Rule 430A under
the 1933 Act and Section 4(a) hereof. No stop order suspending the effectiveness
of the Registration Statement or any amendment or supplement thereto shall have
been issued under the 1933 Act or any applicable state securities laws and no
proceedings for that purpose shall have been instituted or shall be pending, or,
to the knowledge of the Offerors or the Underwriter, shall be contemplated by
the Commission or any state authority. Any request on the part of the Commission
or any state authority for additional information (to be included in the
Registration Statement or Prospectus or otherwise) shall have been disclosed to
you and complied with to your satisfaction and to the satisfaction of your
counsel.
(b) The Underwriter shall not have advised the Company at or
before the Closing Date (and, if applicable, the Option Closing Date) that the
Registration Statement or any post-effective amendment thereto, or the
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Prospectus or any amendment or supplement thereto, contains an untrue statement
of a fact which, in your opinion, is material or omits to state a fact which, in
your opinion, is material and is required to be stated therein or is necessary
to make statements therein (in the case of the Prospectus or any amendment or
supplement thereto, in light of the circumstances under which they were made)
not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Trust Agreement, and
the Designated Preferred Securities, and the authorization and form of the
Registration Statement and Prospectus, other than financial statements and other
financial data, and all other legal matters relating to this Agreement and the
transactions contemplated hereby or by the Trust Agreement shall be reasonably
satisfactory in all respects to counsel to the Underwriter, and the Offerors and
the Subsidiaries shall have furnished to such counsel all documents and
information relating thereto that they may reasonably request to enable them to
pass upon such matters.
(d) Stradley, Ronon, Stevens & Young, LLP, counsel to the
Offerors, shall have furnished to you their signed opinion, dated the Closing
Date or the Option Closing Date, as the case may be, in form and substance
reasonably satisfactory to counsel to the Underwriter, to the effect that:
(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of New
Jersey, and is duly registered as a bank holding company under
the BHC Act. Each of the Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and the
Subsidiaries has full corporate power and authority to own or
lease its properties and to conduct its business as such business
is described in the Prospectus and is currently conducted in all
material respects. The Company and each Subsidiary are qualified
to do 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 properties, has an office, or in
which business is conducted and such qualification is required.
All outstanding shares of capital stock of the Subsidiaries have
been duly authorized and validly issued and are fully paid and
nonassessable except to the extent such shares may be deemed
assessable under 12 U.S.C. Section 55 and, to the best of such
counsel's knowledge, except as disclosed in the Prospectus, there
are no outstanding rights, options or warrants to purchase any
such shares or securities convertible into or exchangeable for
any such shares.
(ii) The capital stock, Debentures and Guarantee of the
Company and the equity securities of the Trust conform to the
description thereof contained in the Prospectus in all material
respects. The capital stock of the Company authorized and issued
as of June 30, 1997 is as set forth under the caption
"Capitalization" in the Prospectus, has been duly authorized and
validly issued, and is fully paid and nonassessable. To the best
of such counsel's knowledge, there are no outstanding rights,
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options or warrants to purchase, no other outstanding securities
convertible into or exchangeable for, and no commitments, plans
or arrangements to issue, any shares of capital stock of the
Company or equity securities of the Trust, except as described in
the Prospectus.
(iii) The issuance, sale and delivery of the Designated
Preferred Securities and Debentures in accordance with the terms
and conditions of this Agreement and the Indenture have been duly
authorized by all necessary actions of the Offerors. All of the
Designated Preferred Securities have been duly and validly
authorized and, when delivered in accordance with this Agreement
will be duly and validly issued, fully paid and nonassessable,
and will conform in all material respects to the description
thereof in the Registration Statement, the Prospectus and the
Trust Agreement. The Designated Preferred Securities have been
approved for quotation on the Nasdaq National Market subject to
official notice of issuance. There are no preemptive or other
rights to subscribe for or to purchase, and other than as
disclosed in the Prospectus no restrictions upon the voting or
transfer of, any shares of capital stock or equity securities of
the Offerors or the Subsidiaries pursuant to the corporate
charter, by-laws or other governing documents (including without
limitation, the Trust Agreement) of the Offerors or the
Subsidiaries, or, to the best of such counsel's knowledge, any
agreement or other instrument to which either Offeror or any of
the Subsidiaries is a party or by which either Offeror or any of
the Subsidiaries may be bound.
(iv) The Offerors have all requisite corporate and trust
power to enter into and perform their obligations under this
Agreement, and this Agreement has been duly and validly
authorized, executed and delivered by the Offerors and
constitutes the legal, valid and binding obligations of the
Offerors enforceable in accordance with its terms, except as the
enforcement hereof or thereof may be limited by general
principles of equity and by bankruptcy or other laws relating to
or affecting creditors' rights generally, and except as the
indemnification and contribution provisions hereof may be limited
under applicable laws and certain remedies may not be available
in the case of a non-material breach.
(v) Each of the Indenture, the Trust Agreement and the
Guarantee has been duly qualified under the Trust Indenture Act,
has been duly authorized, executed and delivered by the Company,
and is a valid and legally binding obligation of the Company
enforceable in accordance with its terms, subject to the effect
of bankruptcy, insolvency, reorganization, receivership,
moratorium and other laws affecting the rights and remedies of
creditors generally and of general principles of equity.
(vi) The Debentures have been duly authorized, executed,
authenticated and delivered by the Company, are entitled to the
benefits of the Indenture and are legal, valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, subject to the effect of bankruptcy,
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insolvency, reorganization, receivership, moratorium and other
laws affecting the rights and remedies of creditors generally and
of general principles of equity.
(vii) The Expense Agreement has been duly authorized,
executed and delivered by the Company, and is a valid and legally
binding obligation of the Company enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other laws affecting
the rights and remedies of creditors generally and of general
principles of equity.
(viii) To the best of such counsel's knowledge, neither of
the Offerors nor any of the Subsidiaries is in breach or
violation of, or default under, with or without notice or lapse
of time or both, its corporate charter, by-laws or governing
document (including without limitation, the Trust Agreement). The
execution, delivery and performance of this Agreement, the Trust
Agreement, the Guarantee Agreement, the Expense Agreement and the
Indenture, the issue and sale of the Designated Preferred
Securities and the Debentures, the compliance by the Company with
the provisions of the Designated Preferred Securities, the
Debentures, the Indenture and this Agreement and the consummation
of the transactions contemplated by this Agreement and the Trust
Agreement do not and will not conflict with, result in the
creation or imposition of any material lien, claim, charge,
encumbrance or restriction upon any property or assets of the
Offerors or the Subsidiaries or the Designated Preferred
Securities pursuant to, or constitute a material breach or
violation of, or constitute a material default under, with or
without notice or lapse of time or both, any of the terms,
provisions or conditions of the charter, by-laws or governing
document (including without limitation, the Trust Agreement) of
the Offerors or the Subsidiaries, or to the best of such
counsel's knowledge, any material contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease, franchise,
license or any other agreement or instrument to which either
Offeror or the Subsidiaries is a party or any order, decree,
judgment, franchise, license, Permit, rule or regulation of any
court, arbitrator, government, or governmental agency or
instrumentality known to such counsel having jurisdiction over
the Offerors or the Subsidiaries which, in each case, is material
to the Offerors and the Subsidiaries on a consolidated basis. No
authorization, approval, consent or order of, or filing,
registration or qualification with, any person (including,
without limitation, any court, governmental body or authority) is
required under New Jersey law in connection with the transactions
contemplated by this Agreement in connection with the purchase
and distribution of the Designated Preferred Securities by the
Underwriter, except such as may be required under state
securities laws or Interpretations or Rules of the NASD in
connection with the purchase and distribution of the Designated
Preferred Securities by the Underwriter, as to which no opinion
need be rendered.
(ix) To the best of such counsel's knowledge, holders of
securities of the Offerors either do not have any right that, if
exercised, would require the Offerors to cause such securities to
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be included in the Registration Statement or have waived such
right. To the best of such counsel's knowledge, neither the
Offerors nor any of the Subsidiaries is a party to any agreement
or other instrument which grants rights for or relating to the
registration of any securities of the Offerors.
(x) Except as set forth in the Registration Statement and
the Prospectus, to the best of such counsel's knowledge, (i) no
action, suit or proceeding at law or in equity is pending or
threatened in writing to which the Offerors or the Subsidiaries
is or may be a party, and (ii) no action, suit or proceeding is
pending or threatened in writing against or affecting the
Offerors or the Subsidiaries or any of their properties, before
or by any court or governmental official, commission, board or
other administrative agency, authority or body, or any
arbitrator, wherein an unfavorable decision, ruling or finding
could reasonably be expected to have a material adverse effect on
the consummation of this Agreement or the issuance and sale of
the Designated Preferred Securities as contemplated herein or the
condition (financial or otherwise), earnings, affairs, business,
or results of operations of the Offerors and the Subsidiaries on
a consolidated basis or which is required to be disclosed in the
Registration Statement or the Prospectus and is not so disclosed.
(xi) No authorization, approval, consent or order of or
filing, registration or qualification with, any person
(including, without limitation, any court, governmental body or
authority) is required in connection with the transactions
contemplated by this Agreement, the Trust Agreement, the
Guarantee Agreement, the Expense Agreement, the Indenture, the
Registration Statement and the Prospectus, except such as have
been obtained under the 1933 Act, and except such as may be
required under state securities laws or Interpretations or Rules
of the NASD in connection with the purchase and distribution of
the Designated Preferred Securities by the Underwriter, as to
which no opinion need be rendered.
(xii) The Registration Statement and the Prospectus and any
amendments or supplements thereto (other than the financial
statements or other financial or statistical data included
therein or omitted therefrom and Underwriter's Information, as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations as of their respective dates of
effectiveness and in each case at the Closing Date or any Option
Closing Date.
(xiii) To the best of such counsel's knowledge, there are no
contracts, agreements, leases or other documents of a character
required to be disclosed in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration
Statement that are not so disclosed or filed.
(xiv) The statements under the captions, "Description of
Preferred Securities", "Description of the Subordinated
Debentures", "Description of the Guarantee", "Expense Agreement",
"Relationship Among the Preferred Securities, Subordinated
Debentures and the Guarantee", "Certain Federal Income Tax
Consequences", and "Certain ERISA Considerations" in the
Prospectus (or incorporated therein by reference), insofar as
such statements constitute a summary of legal and regulatory
matters, documents, instruments or proceedings referred to
therein are accurate in all material respects, other than
financial and statistical data as to which said counsel expresses
no opinion or belief.
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(xv) Such counsel has been advised by the staff of the
Commission that the Registration Statement has become effective
under the 1933 Act; any required filing of the Prospectus
pursuant to Rule 424(b) has been made within the time period
required by Rule 424(b); to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for a stop order are
pending or threatened by the Commission.
(xvi) Except as set forth (or referred to) in the
Prospectus, to the best of such counsel's knowledge, there are no
contractual encumbrances or restrictions, or material legal
restrictions on the ability of the Subsidiaries (A) to pay
dividends or make any other distributions on its capital stock or
to pay indebtedness owed to the Offerors, (B) to make any loans
or advances to, or investments in, the Offerors or (C) to
transfer any of its property or assets to the Offerors.
(xvii) To the best of such counsel's knowledge, the business
and operations of the Offerors and the Subsidiaries comply in all
material respects with all statutes, ordinances, laws, rules and
regulations applicable thereto which are material to the Offerors
and the Subsidiaries on a consolidated basis, except in those
instances where non-compliance would not materially impair the
ability of the Offerors and the Subsidiaries to conduct their
business.
(xviii) The Trust is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are
defined in Investment Company Act of 1940, as amended.
(xix) 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.
In giving the above opinion, such counsel may state that, insofar as
such opinion involves factual matters, they have relied upon certificates of
officers of the Offerors including, without limitation, certificates as to the
identity of any and all material contracts, indentures, mortgages, deeds of
trust, loans or credit agreements, notes, leases, franchises, licenses or other
agreements or instruments, and all material permits, easements, consents,
licenses, franchises and government regulatory authorizations, for purposes of
paragraphs (viii), (xiii) and (xvii) hereof and certificates of public
officials.
Such counsel shall also confirm that, in connection with the
preparation of the Registration Statement and Prospectus, such counsel has
participated in conferences with officers and representatives of the Offerors
and with their independent public accountants and with you and your counsel, at
which conferences such counsel made inquiries of such officers, representatives
and accountants and discussed in detail the contents of the Registration
Statement and Prospectus and such counsel has no reason to believe (A) that the
Registration Statement or
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any amendment thereto (except for the financial statements and related schedules
and statistical data included therein or omitted therefrom or Underwriter's
Information, as to which such counsel need express no opinion), at the time the
Registration Statement or any such amendment became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
the 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 related schedules and statistical data included therein
or omitted therefrom or Underwriter's Information, as to which such counsel need
express no opinion), at the time the Registration Statement became effective
(or, if the term "Prospectus" refers to the prospectus first filed pursuant to
Rule 424(b) of the 1933 Act Regulations, at the time the Prospectus was issued),
at the time any such amended or supplemented Prospectus was issued, at the
Closing Date and, if applicable, the Option Closing Date, contained or contains
any untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or (C) that there is any amendment to the Registration
Statement required to be filed that has not already been filed.
(e) Stradley, Ronon, Stevens & Young, LLP, as Delaware counsel to
the Offerors, shall have furnished to you their signed opinion, dated as of
Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to counsel to the Underwriter, to the effect that:
(i) 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. ss.ss. 3801 et seq. (the "Delaware Act"),
with the business trust power and authority to (a) own its
property and conduct its business as described in the Prospectus,
(b) execute and deliver, and perform its obligations under, this
Agreement, and (c) issue and perform its obligations under the
Preferred Securities. 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.
(ii) The Trust Agreement constitutes a legal, valid and
binding obligation of the Company and the trustees of the Trust
in accordance with its terms, except to the extent that
enforcement thereof may be limited by (a) bankruptcy, insolvency,
receivership, liquidation, fraudulent conveyance, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creditors' rights and remedies, (b) general
principles of equity (regardless of whether considered and
applied in a proceeding in equity or at law), and (c)
considerations of public policy and the effect of applicable law
relating to fiduciary duties.
(iii) Under the Trust Agreement and the Delaware Act, all
necessary trust action has been taken on the part of the Trust to
duly authorize the execution and delivery of this Agreement by
the Trust and the performance of its obligations hereunder.
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(iv) The Preferred Securities have been duly authorized for
issuance by the Trust Agreement and, when issued and delivered in
accordance with the terms of the Trust Agreement and this
Agreement and as described in the Prospectus, will be validly
issued and (subject to the terms of the Trust Agreement) fully
paid and non-assessable undivided beneficial interests in the
assets of the Trust. The holders of the Preferred Securities will
be entitled to the benefits of the Trust Agreement (subject to
the limitations set forth in paragraph (ii) above) and will be
entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under
the Delaware General Corporation Law. Such opinion may note that
the holders of the Preferred Securities may be required to make
payment or provide indemnity or security as set forth in the
Trust Agreement.
(v) Under the Trust Agreement and the Delaware Act, the
issuance of the Preferred Securities is not subject to preemptive
rights.
(vi) The issuance and sale by the Trust of the Preferred
Securities and the Common Securities, the purchase by the Trust
of the Debentures, the execution, delivery and performance by the
Trust of this Agreement, and the consummation by the Trust of the
transactions contemplated by this Agreement will not (a) to our
knowledge constitute a violation of or default under any
indenture, mortgage, deed of trust, loan agreement or other
agreement that is set forth on Annex A to such opinion; (b)
violate any of the provisions of the Certificate of Trust or the
Trust Agreement or (c) violate any applicable Delaware law or
administrative regulation.
(vii) The issuance, sale and delivery of the Debentures, the
execution, delivery and performance by the Company of this
Agreement, and the consummation by the Company of the
transactions contemplated by this Agreement will not violate any
applicable Delaware law or administrative regulation.
(viii) Assuming that the Trust derives no income from or
connected with services provided within the State of Delaware and
has no assets, activities (other than having a Delaware trustee
as required by the Delaware Act and the filing of documents with
the Secretary of State of the State of Delaware) or employees in
the State of Delaware, no filing with, or authorization,
approval, consent, license, order, registration, qualification or
decree of, any Delaware court or Delaware governmental authority
or agency (other than as may be required under the securities or
blue sky laws of the State of Delaware as to which such counsel
may express no opinion) is necessary or required to be obtained
by the Trust solely in connection with the due authorization,
execution and delivery of this Agreement by the Trust or the
offering, issuance, sale or delivery of the Preferred Securities
by the Trust in accordance with the Trust Agreement and the
Prospectus.
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<PAGE>
(ix) To such counsel's knowledge, there are no actions,
suits or proceedings pending or judgments outstanding against the
Trust in any court or agency or instrumentality of the United
States of America that relate to or place or may place in
question the validity or enforceability of this Agreement or the
issuance and sale of the Preferred Securities and the Common
Securities by the Trust or the purchase of the Debentures by the
Trust.
(x) 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.
Such opinion may state that it is limited to the laws of the State of
Delaware and that the opinion expressed in paragraph (ii) above is subject to
the effect upon the Trust Agreement of (i) bankruptcy, insolvency, moratorium,
receivership, reorganization, liquidation, fraudulent conveyance and other
similar laws relating to or affecting the rights and remedies of creditors
generally, (ii) principles of equity, including applicable law relating to
fiduciary duties (regardless of whether considered and applied in a proceeding
in equity or at law), and (iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification or contribution.
(f) Richards, Layton & Finger, counsel to Wilmington Trust Company (the
"Trust Company") shall have furnished to you their signed opinion, dated the
Closing Date or the Option Closing Date, as the case may be, in form and
substance reasonably satisfactory to counsel to the Underwriter, to the effect
that:
(i) 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 Delaware.
(ii) The Trust Company, as 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.
(iii) The Trust Company, as 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.
(iv) The Trust Company, as 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.
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<PAGE>
(v) Each of the Indenture and the Guarantee Agreement has
been duly executed and delivered by the Trust Company, as
Indenture Trustee and 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 of
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
effect of applicable public policy on the enforceability of
provisions relating to indemnification or contribution.
(vi) The Debentures delivered on the date hereof have been
duly authenticated by the Trust Company, as Indenture Trustee, in
accordance with the terms of the Indenture.
(g) Malizia, Spidi, Sloane & Fisch, P.C., counsel to the
Underwriter, shall have furnished you their signed opinion, dated the Closing
Date or the Option Closing Date, as the case may be, with respect to the
sufficiency of all corporate procedures and other legal matters relating to this
Agreement, the validity of the Designated Preferred Securities, the Registration
Statement, the Prospectus and such other related matters as you may reasonably
request and there shall have been furnished to such counsel such documents and
other information as they may request to enable them to pass on such matters. In
giving such opinion, Malizia, Spidi, Sloane & Fisch, P.C. may rely as to matters
of fact upon statements and certifications of officers of the Offerors and of
other appropriate persons and may rely as to matters of law, other than law of
the United States, and upon the opinions of Stradley, Ronon, Stevens & Young,
LLP described herein.
(h) On the date of this Agreement and on the Closing Date (and,
if applicable, any Option Closing Date), the Underwriter shall have received
from KPMG Peat Marwick, LLP a letter, dated the date of this Agreement and the
Closing Date (and, if applicable, the Option Closing Date), respectively, in
form and substance satisfactory to the Underwriter, confirming that they are
independent public accountants with respect to Company, within the meaning of
the 1933 Act and the 1933 Act Regulations, and stating in effect that:
(i) In their opinion, the consolidated financial statements
of the Company audited by them and included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933
Act Regulations.
(ii) On the basis of the procedures specified by the
American Institute of Certified Public Accountants as described
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<PAGE>
in SAS No. 71, "Interim Financial Information", inquiries of
officials of the Company responsible for financial and accounting
matters, and such other inquiries and procedures as may be
specified in such letter, which procedures do not constitute an
audit in accordance with U.S. generally accepted auditing
standards, nothing came to their attention that caused them to
believe that, if applicable, the unaudited interim consolidated
financial statements of the Company included in the Registration
Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and 1933
Act Regulations or are not in conformity with U.S. generally
accepted accounting principles applied on a basis substantially
consistent, except as noted in the Registration Statement, with
the basis for the audited consolidated financial statements of
the Company included in the Registration Statement.
(iii) On the basis of limited procedures, not constituting
an audit in accordance with U.S. generally accepted auditing
standards, consisting of a reading of the unaudited interim
financial statements and other information referred to below, a
reading of the latest available unaudited condensed consolidated
financial statements of the Company, inspection of the minute
books of the Company since the date of the latest audited
financial statements of the Company included in the Registration
Statement, inquiries of officials of the Company 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) as of a specified date not more than five days
prior to the date of such letter, there have been any
changes in the consolidated capital stock of the Company,
any increase in the consolidated debt of the Company, any
decreases in consolidated total assets or shareholders
equity of the Company, or any changes, decreases or
increases in other items specified by the Underwriters, in
each case as compared with amounts shown in the latest
unaudited interim consolidated statement of financial
condition of the Company included in the Registration
Statement except in each case for changes, increases or
decreases which the Registration Statement specifically
discloses, have occurred or may occur or which are described
in such letter; and
(B) for the period from the date of the latest
unaudited interim consolidated financial statements included
in the Registration Statement to the specified date referred
to in Clause (iii)(A), there were any decreases in the
consolidated interest income, net interest income, or net
income of the Company or in the per share amount of net
income of the Company, or any changes, decreases or
increases in any other items specified by the Underwriter,
in each case as compared with the comparable period of the
preceding year and with any other period of corresponding
length specified by the Underwriter, except in each case for
increases or decreases which the Registration Statement
discloses have occurred or may occur, or which are described
in such letter.
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(iv) In addition to the audit referred to in their report
included in the Registration Statement and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (ii) and (iii) above, they
have carried out certain specified procedures, not constituting
an audit in accordance with U.S. generally accepted auditing
standards, with respect to certain amounts, percentages and
financial information specified by the Underwriter which are
derived from the general accounting records and consolidated
financial statements of the Company which appear in the
Registration Statement specified by the Underwriter in the
Registration Statement, and have compared such amounts,
percentages and financial information with the accounting records
and the material derived from such records and consolidated
financial statements of the Company have found them to be in
agreement.
In the event that the letters to be delivered referred to above
set forth any such changes, decreases or increases as specified in Clauses
(iii)(A) or (iii)(B) above, or any exceptions from such agreement specified in
Clause (iv) above, it shall be a further condition to the obligations of the
Underwriter that the Underwriter shall have determined, after discussions with
officers of the Company responsible for financial and accounting matters, that
such changes, decreases, increases or exceptions as are set forth in such
letters do not (x) reflect a material adverse change in the items specified in
Clause (iii)(A) above as compared with the amounts shown in the latest unaudited
consolidated statement of financial condition of the Company included in the
Registration Statement, (y) reflect a material adverse change in the items
specified in Clause (iii)(B) above as compared with the corresponding periods of
the prior year or other period specified by the Underwriter, or (z) reflect a
material change in items specified in Clause (iv) above from the amounts shown
in the Preliminary Prospectus distributed by the Underwriter in connection with
the offering contemplated hereby or from the amounts shown in the Prospectus.
(i) At the Closing Date and, if applicable, the Option Closing
Date, you shall have received certificates of the chief executive officer and
the chief financial and accounting officer of the Company, which certificates
shall be deemed to be made on behalf of the Company dated as of the Closing Date
and, if applicable, the Option Closing Date, evidencing satisfaction of the
conditions of Section 6(a) and stating that (i) the representations and
warranties of the Company set forth in Section 2(a) hereof are accurate as of
the Closing Date and, if applicable, the Option Closing Date, and that the
Offerors have complied with all agreements and satisfied all conditions on their
part to be performed or satisfied at or prior to such Closing Date; (ii) since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any material adverse change in
the condition (financial or otherwise), earnings, affairs, business, prospects
or results of operations of the Offerors and the Subsidiaries on a consolidated
basis; (iii) since such dates there has not been any material transaction
entered into by the Offerors or the Subsidiaries other than transactions in the
ordinary course of business; and (iv) they have carefully examined the
Registration Statement and the Prospectus as amended or supplemented and nothing
has come to their attention that would lead them to believe that either the
Registration Statement or the Prospectus, or any amendment or supplement thereto
as of their respective effective or issue dates, contained, and the Prospectus
as amended or supplemented at such Closing Date (and, if applicable, the Option
Closing Date), contains any untrue statement of a material fact, or omits to
state a material fact required to be stated therein or necessary in order to
make the statements
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therein, in the light of the circumstances under which they were made, not
misleading; and (v) covering such other matters as you may reasonably request.
The officers' certificate of the Company shall further state that no stop order
affecting the Registration Statement is in effect or, to their knowledge,
threatened.
(j) At the Closing Date and, if applicable, the Option Closing
Date, you shall have received a certificate of an authorized representative of
the Trust to the effect that to the best of his or her knowledge based upon a
reasonable investigation, the representations and warranties of the Trust in
this Agreement are true and correct as though made on and as of the Closing Date
(and, if applicable, the Option Closing Date); the Trust has complied with all
the agreements and satisfied all the conditions required by this Agreement to be
performed or satisfied by the Trust on or prior to the Closing Date and since
the most recent date as of which information is given in the Prospectus, except
as contemplated by the Prospectus, the Trust has not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business and there has not been any
material adverse change in the condition (financial or otherwise) of the Trust.
(k) On the Closing Date, you shall have received duly executed
counterparts of the Trust Agreement, the Guarantee, the Indenture and the
Expense Agreement.
(l) The NASD, upon review of the terms of the public offering of
the Designated Preferred Securities, shall not have objected to the
Underwriter's participation in such offering. The Preferred Securities, the
Guarantee and the Debentures shall have been qualified or registered for sale,
or subject to an available exemption from such qualification or registration,
under the Blue Sky Laws of such jurisdictions as shall have been reasonably
specified by the Underwriter.
(m) Prior to the Closing Date and, if applicable, the Option
Closing Date, the Offerors shall have furnished to you and counsel to the
Underwriter all such other documents, certificates and opinions as they have
reasonably requested.
All opinions, certificates, letters and other documents shall be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you. The Offerors shall furnish you with
conformed copies of such opinions, certificates, letters and other documents as
you shall reasonably request.
If any of the conditions referred to in this Section 6 shall not
have been fulfilled when and as required by this Agreement, this Agreement and
all of the Underwriter's obligations hereunder may be terminated by you on
notice to the Company at, or at any time before, the Closing Date or the Option
Closing Date, as applicable. Any such termination shall be without liability of
the Underwriter to the Offerors.
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7. Indemnification and Contribution.
(a) The Offerors jointly and severally agree to indemnify and
hold harmless the Underwriter, each of its directors, partners, officers and
agents, and each person, if any, who controls the Underwriter within the meaning
of the 1933 Act, against any and all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and reasonable attorney
fees and expenses), joint or several, arising out of or based upon (i) any
untrue statement or alleged untrue statement of a material fact made by the
Company or the Trust contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus, or in any amendment or supplement thereto, (ii)
any blue sky application or other document executed by the Company or the Trust
specifically for that purpose or based upon written information furnished by the
Company or the Trust filed in any state or other jurisdiction in order to
qualify any of the Designated Preferred Securities under the securities laws
thereof (any such application, document or information being hereinafter
referred to as a "Blue Sky Application"), (iii) any omission or alleged omission
to state a material fact in the registration statement as originally filed or
the Registration Statement, any Preliminary Prospectus or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky Application required to
be stated therein or necessary to make the statements therein not misleading,
and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and attorney fees), joint or
several, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus, or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading or
(iv) the enforcement of this indemnification provision or the contribution
provisions of Section 7(d); and shall reimburse each such indemnified party for
any reasonable legal or other expenses as incurred, but in no event less
frequently than 30 days after each invoice is submitted, incurred by them in
connection with investigating or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case such payments shall be promptly refunded;
provided, however, that the Offerors shall not be liable in any such case to the
extent, but only to the extent, that any such losses, claims, damages,
liabilities and expenses arise out of or are based upon any untrue statement or
omission or allegation thereof that has been made or omitted in reliance upon
and in conformity with the Underwriter's Information; provided, that the
indemnification contained in this paragraph with respect to any Preliminary
Prospectus shall not inure to the benefit of the Underwriter (or of any person
controlling the Underwriter) to the extent any such losses, claims, damages,
liabilities or expenses directly results from the fact that the Underwriter sold
Designated Preferred Securities to a person to whom there was not sent or given,
at or prior to the written confirmation of such sale, a copy of the Prospectus
(as amended or supplemented if any amendments or supplements thereto shall have
been furnished to you in sufficient time to distribute same with or prior to the
written confirmation of the sale involved), if required by law, and if such
loss, claim, damage, liability or expense would not have arisen but for the
failure to give or send such person such document. The foregoing indemnity
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<PAGE>
agreement is in addition to any liability the Company or the Trust may otherwise
have to any such indemnified party.
(b) The Underwriter agrees to indemnify and hold harmless each
Offeror, each of its directors, each of its officers and trustees who signed the
Registration Statement and each person, if any, who controls an Offeror within
the meaning of the 1933 Act, to the same extent as required by the foregoing
indemnity from the Company to the Underwriter, but only with respect to the
Underwriter's Information or information relating to the Underwriter furnished
in writing to an Offeror through the Underwriter by or on behalf of it expressly
for use in a Blue Sky Application. The foregoing indemnity agreement is in
addition to any liability which the Underwriter may otherwise have to any such
indemnified party.
(c) If any action or claim shall be brought or asserted against
any indemnified party or any person controlling an indemnified party in respect
of which indemnity may be sought from the indemnifying party, such indemnified
party or controlling person shall promptly notify the indemnifying party in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all expenses; provided, however, that the failure so to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under such paragraph, and further, shall
only relieve it from liability under such paragraph to the extent prejudiced
thereby. Any indemnified party or any such controlling person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) the indemnifying party has failed to assume the defense or to
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
such indemnified party or such controlling person and the indemnifying party and
such indemnified party or such controlling person shall have been advised by
counsel that there may be one or more legal defenses available to it that are
different from or in addition to those available to the indemnifying party (in
which case, if such indemnified party or controlling person notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
or such controlling person); it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) separate from their own counsel at any time and for all such
indemnified parties and controlling persons, which firm shall be designated in
writing by the indemnified party. Each indemnified party and each controlling
person, as a condition of such indemnity, shall use reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. The indemnifying party shall not be liable for any settlement of any such
action effected without its written consent, but if there be a final judgment
for the plaintiff in any such action, the indemnifying party agrees
- 35 -
<PAGE>
to indemnify and hold harmless any indemnified party and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
An indemnifying party shall not, without the prior written
consent of each indemnified party, settle, compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnity may be sought hereunder (whether or not such
indemnified party or any person who controls such indemnified party within the
meaning of the 1933 Act is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes a release of each such
indemnified party reasonably satisfactory to each such indemnified party and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding or unless the indemnifying party shall confirm in a
written agreement with each indemnified party, that notwithstanding any federal,
state or common law, such settlement, compromise or consent shall not alter the
right of any indemnified party or controlling person to indemnification or
contribution as provided in this Agreement.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Offerors on the one hand and the
Underwriter on the other from the offering of the Designated Preferred
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Offerors on the one hand and the Underwriter on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Offerors on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total proceeds from the offering of the Designated Preferred
Securities (before deducting expenses) received by the Offerors bear to the
total underwriting discounts, commissions and compensation received by the
Underwriter, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Offerors on the one hand and of the
Underwriter on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Offerors or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Offerors and the Underwriter agree that it
would not be just and equitable if contribution pursuant to this paragraph (d)
were determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in the first sentence of
this paragraph (d) shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses
- 36 -
<PAGE>
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
paragraph (d), the Underwriter shall not be required to contribute any amount in
excess of the underwriting discount received by it. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
Neither party shall be liable for contribution for claims settled
without such party's consent, provided such consent shall not be unreasonably
withheld, conditioned or delayed.
For purposes of this paragraph (d), each person who controls the
Underwriter within the meaning of Section 15 of the 1933 Act, the partners,
directors, officers, employees and agents of the Underwriter shall have the same
rights to contribution as the Underwriter, and each person who controls an
Offeror within the meaning of Section 15 of the 1933 Act, each officer and
trustee of an Offeror who shall have signed the Registration Statement and each
director of an Offeror shall have the same rights to contribution as the
Offerors subject in each case to the preceding sentence. The obligations of the
Offerors under this paragraph (d) shall be in addition to any liability which
the Offerors may otherwise have and the obligations of the Underwriter under
this paragraph (d) shall be in addition to any liability that the Underwriter
may otherwise have.
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Offerors set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of the Underwriter or its
partners, directors, officers, employees or agents (or any person controlling
the Underwriter) or by or on behalf of the Offerors, or their directors,
trustees or officers (or any person controlling an Offeror), (ii) acceptance of
any Designated Preferred Securities and payment therefor hereunder and (iii) any
termination of this Agreement. A successor of the Underwriter or its partners,
directors, officers, employees or agents, or of an Offeror, or its directors,
trustees or officers (or of any person controlling the Underwriter or an
Offeror) shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 7.
(f) The Company agrees to indemnify the Trust against any and all
losses, claims, damages or liabilities that may become due from the Trust under
this Section 7.
8. Termination. You shall have the right to terminate this Agreement at
any time at or prior to the Closing Date or, with respect to the Underwriter's
obligation to purchase the Option Preferred Securities, at any time at or prior
to the Option Closing Date, without liability on the part of the Underwriter to
the Offerors, if:
- 37 -
<PAGE>
(a) Either Offeror shall have failed, refused, or been unable to
perform any agreement on its part to be performed under this Agreement, or any
of the conditions referred to in Section 6 shall not have been fulfilled, when
and as required by this Agreement;
(b) The Offerors or any of the Subsidiaries shall have sustained
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree which in the judgment
of the Underwriter materially impairs the investment quality of the Designated
Preferred Securities;
(c) There has been since the respective dates as of which
information is given in the Registration Statement or the Prospectus, any
materially adverse change in, or any development which is reasonably likely to
have a material adverse effect on, the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the Offerors
and the Subsidiaries on a consolidated basis, whether or not arising in the
ordinary course of business;
(d) Any event shall have occurred or shall exist that makes
untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or that is not reflected in the
Registration Statement but should be reflected therein to make the statements or
information contained therein not misleading in any material respect; or
(e) There has occurred any outbreak of hostilities or other
calamity or crisis or material change in general economic, political or
financial conditions, or internal conditions, the effect of which on the
financial markets of the United States is such as to make it, in your reasonable
judgment, impracticable to market the Designated Preferred Securities or enforce
contracts for the sale of the Designated Preferred Securities;
(f) Trading generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required, by any of said
exchanges or market system or by the Commission or any other governmental
authority;
(g) A banking moratorium shall have been declared by either
federal or New Jersey authorities; or
(h) Any action shall have been taken by any government in respect
of its monetary affairs which, in your reasonable judgment, has a material
adverse effect on the United States securities markets.
If this Agreement shall be terminated pursuant to this Section 8,
the Offerors shall not then be under any liability to the Underwriter except
that the provisions of Sections 5 and 7 hereof shall survive any termination of
this Agreement.
- 38 -
<PAGE>
9. Effective Date of Agreement. If the Registration Statement is not
effective at the time of execution of this Agreement, this Agreement shall
become effective on the Effective Date at the time the Commission declares the
Registration Statement effective. The Company shall immediately notify the
Underwriter when the Registration Statement becomes effective.
If the Registration Statement is effective at the time of
execution of this Agreement, this Agreement shall become effective at the
earlier of 11:00 a.m. Eastern Standard time, on the first full business day
following the day on which this Agreement is executed, or at such earlier time
as the Underwriter shall release the Designated Preferred Securities for initial
public offering. The Underwriter shall notify the Offerors immediately after
they have taken any action which causes this Agreement to become effective.
Until such time as this Agreement shall have become effective, it
may be terminated by the Offerors, by notifying the Underwriter, or by you, by
notifying either Offeror, except that the provisions of Sections 5 and 7 shall
at all times be effective.
10. Representations, Warranties and Agreements to Survive Delivery. The
representations, warranties, indemnities, agreements and other statements of the
Offerors and their officers and trustees set forth in or made pursuant to this
Agreement and the agreements of the Underwriter contained in Section 7 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Offerors or controlling persons of
either Offeror, or by or on behalf of the Underwriter or controlling persons of
the Underwriter or any termination or cancellation of this Agreement and shall
survive delivery of and payment for the Designated Preferred Securities.
11. Notices. Except as otherwise provided in this Agreement, all
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, mailed by registered or
certified mail, return receipt requested, or transmitted by any standard form of
telecommunication and confirmed. Notices to either Offeror shall be sent to 3111
Quakerbridge Road, Trenton, New Jersey 08619, Attention: Patrick M. Ryan (with a
copy to Stradley, Ronon, Stevens & Young LLP, 2600 One Commerce Square,
Philadelphia, Pennsylvania 19103, Attention: Brian S. Vargo, Esq.); and notices
to the Underwriter shall be sent to Sandler O'Neill & Partners, L.P., Two World
Trade Center, 104th Floor, New York, New York 10048, Attention: William Hickey
(with a copy to Malizia, Spidi, Sloane & Fisch, P.C., 1301 K Street, N.W., Suite
700 East, Washington, D.C. 20005 Attention: Lloyd H. Spencer, Esq.).
12. Parties. The Agreement herein set forth is made solely for the
benefit of the Underwriter and the Offerors and, to the extent expressed,
directors, trustees and officers of the Offerors, partners, directors, officers,
employees and agents of the Underwriter, any person controlling the Offerors or
the Underwriter, and their respective successors and assigns. 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, in his or her status
as such purchaser, from the Underwriter of the Designated Preferred Securities.
- 39 -
<PAGE>
The Company on behalf of itself and its Subsidiaries (including,
without limitation, the Trust), hereby irrevocably submits to the jurisdiction
of the federal and New York State courts located in the City of New York in
connection with any suit, action or proceeding related to this agreement or any
of the matters contemplated hereby, irrevocably waives any defense of lack of
personal jurisdiction and irrevocably agrees that all claims in respect of any
suit, action or proceeding may be heard and determined in any such court. The
Company, on behalf of itself and the Subsidiaries (including, without
limitation, the Trust), irrevocably waives, to the fullest extent it may
effectively do so under applicable law, any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought it any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
13. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without giving effect to the choice of law or conflicts of
law principles thereof.
14. Counterparts. This Agreement may be executed in one or more
counterparts, and when a counterpart has been executed by each party hereto all
such counterparts taken together shall constitute one and the same Agreement.
[Remainder of page intentionally left blank]
- 40 -
<PAGE>
If the foregoing is in accordance with the your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
shall become a binding agreement between the Company, the Trust and you in
accordance with its terms.
Very truly yours,
YARDVILLE NATIONAL BANCORP.
By:
----------------------------
Name:
Title:
YARDVILLE CAPITAL TRUST
By:
----------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of ____________, 1997.
BY: SANDLER O'NEILL & PARTNERS, L.P.
by Sandler O'Neill & Partners Corp.,
the sole general partner
By:
--------------------------------
Name:
Title:
- 41 -
<PAGE>
EXHIBIT A
LIST OF SUBSIDIARIES
Subsidiaries of the Company
The Yardville National Bank
Yardville Capital Trust
Subsidiaries of the Bank
Yardville National Investment Corporation, a New Jersey corporation.
Brendan, Inc., a New Jersey corporation.
Nancy Beth, Inc., a New Jersey corporation.
Jim Mary, Inc., a New Jersey corporation.
YNB Real Estate Holdings Co., Inc., a New Jersey corporation.
- 42 -
<PAGE>
================================================================================
YARDVILLE NATIONAL BANCORP
AND
WILMINGTON TRUST COMPANY
AS TRUSTEE
INDENTURE
_____% SUBORDINATED DEBENTURES DUE 2027
DATED AS OF ____________, 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I Definitions...................................................................................2
Section 1.1. Definitions of Terms......................................................................2
ARTICLE II Issue, Description, Terms, Conditions Registration and Exchange of the Debentures....................9
Section 2.1 Designation and Principal Amount...........................................................9
Section 2.2. Maturity..................................................................................9
Section 2.3. Form and Payment.........................................................................10
Section 2.4. Global Security..........................................................................11
Section 2.5. Interest.................................................................................12
Section 2.6. Execution and Authentications............................................................12
Section 2.7. Registration of Transfer and Exchange....................................................13
Section 2.8. Temporary Debentures.....................................................................14
Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures..........................................15
Section 2.10. Cancellation............................................................................16
Section 2.11. Benefit of Indenture....................................................................16
Section 2.12. Authentication Agent....................................................................16
ARTICLE III Redemption of Debentures...........................................................................17
Section 3.1. Redemption...............................................................................17
Section 3.2. Special Event Redemption.................................................................17
Section 3.3. Optional Redemption by Company...........................................................17
Section 3.4. Notice of Redemption.....................................................................18
Section 3.5. Payment Upon Redemption..................................................................18
Section 3.6. No Sinking Fund..........................................................................19
ARTICLE IV Extension of Interest Payment Period................................................................19
Section 4.1. Extension of Interest Payment Period.....................................................19
Section 4.2. Notice of Extension......................................................................19
Section 4.3. Limitation on Transactions...............................................................20
ARTICLE V Particular Covenants of the Company..................................................................20
Section 5.1. Payment of Principal and Interest........................................................20
Section 5.2. Maintenance of Agency....................................................................20
Section 5.3. Paying Agents............................................................................21
Section 5.4. Appointment To Fill Vacancy in Office of Trustee.........................................22
Section 5.5. Compliance with Consolidation Provisions.................................................22
Section 5.6. Limitation on Transactions...............................................................22
Section 5.7. Covenants as to the Trust................................................................22
Section 5.8. Covenants as to Purchases................................................................23
ARTICLE VI Debentureholders' Lists and Reports by the Company and the Trustee..................................23
Section 6.1. Company To Furnish Trustee Names and Addresses of Debentureholders.......................23
Section 6.2. Preservation of Information Communications with Debentureholders.........................23
Section 6.3. Reports by the Company...................................................................23
Section 6.4. Reports by the Trustee...................................................................24
i
<PAGE>
ARTICLE VII Remedies of the Trustee and Debentureholders on Event of Default...................................24
Section 7.1. Events of Default........................................................................24
Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee..........................26
Section 7.3. Application of Moneys Collected..........................................................27
Section 7.4. Limitation on Suits......................................................................27
Section 7.5. Rights and Remedies Cumulative; Delay or Omission Not Waiver.............................28
Section 7.6. Control by Debentureholders..............................................................28
Section 7.7. Undertaking To Pay Costs.................................................................29
ARTICLE VIII Form of Debenture and Original Issue..............................................................29
Section 8.1. Form of Debenture........................................................................29
Section 8.2. Original Issue of Debentures.............................................................29
Section 8.3. Additional Provisions Required in Global Security........................................30
Section 8.4. Form of Trustee's Certificate of Authorization...........................................30
ARTICLE IX. Concerning the Trustee.............................................................................31
Section 9.1. Certain Duties and Responsibilities of Trustee...........................................31
Section 9.2. Notice of Defaults.......................................................................32
Section 9.3. Certain Rights of Trustee................................................................32
Section 9.4. Trustee Not Responsible for Recitals, Etc................................................33
Section 9.5. May Hold Debentures......................................................................33
Section 9.6. Moneys Held in Trust.....................................................................33
Section 9.7. Compensation and Reimbursement...........................................................34
Section 9.8. Reliance on Officers' Certificate........................................................34
Section 9.9. Disqualification; Conflicting Interests..................................................34
Section 9.10. Corporate Trustee Required; Eligibility.................................................34
Section 9.11. Resignation and Removal; Appointment of Successor.......................................35
Section 9.12. Acceptance of Appointment by Successor..................................................36
Section 9.13. Merger, Conversion, Consolidation or Succession to Business.............................36
Section 9.14. Preferential Collection of Claims Against the Company...................................37
ARTICLE X. Concerning the Debentureholders.....................................................................37
Section 10.1. Evidence of Action by Holders...........................................................37
Section 10.2. Proof of Execution by Debentureholders..................................................37
Section 10.3. Who May Be Deemed Owners................................................................38
Section 10.4. Certain Debentures Owned by Company Disregarded.........................................38
Section 10.5. Actions Binding on Future Debentureholders..............................................38
ARTICLE XI. Supplemental Indentures............................................................................38
Section 11.1. Supplemental Indentures Without the Consent of Debentureholders.........................38
Section 11.2. Supplemental Indentures with Consent of Debentureholders................................39
Section 11.3. Effect of Supplemental Indentures.......................................................40
Section 11.4. Debentures Affected by Supplemental Indentures..........................................40
Section 11.5. Execution of Supplemental Indentures....................................................40
ARTICLE XII. Successor Corporation.............................................................................41
Section 12.1. Company May Consolidate, Etc............................................................41
Section 12.2. Successor Corporation Substituted.......................................................41
Section 12.3. Evidence of Consolidation, Etc. to Trustee..............................................42
ii
<PAGE>
ARTICLE XIII. Satisfaction and Discharge.......................................................................42
Section 13.1. Satisfaction and Discharge of Indenture.................................................42
Section 13.2. Discharge of Obligations................................................................42
Section 13.3. Deposited Moneys To Be Held in Trust....................................................43
Section 13.4. Payment of Monies Held by Paying Agents.................................................43
Section 13.5. Repayment to Company....................................................................43
ARTICLE XIV. Immunity of Incorporators, Stockholders, Officers and Directors...................................43
Section 14.1. No Recourse.............................................................................43
ARTICLE XV. Miscellaneous Provisions...........................................................................44
Section 15.1. Effect on Successors and Assigns........................................................44
Section 15.2. Actions by Successor....................................................................44
Section 15.3. Surrender of Company Powers.............................................................44
Section 15.4. Notices.................................................................................44
Section 15.5. Governing Law...........................................................................44
Section 15.6. Treatment of Debentures as Debt.........................................................44
Section 15.7. Compliance Certificates and Opinions....................................................44
Section 15.8. Payments on Business Days...............................................................45
Section 15.9. Conflict with Trust Indenture Act.......................................................45
Section 15.10. Counterparts...........................................................................45
Section 15.11. Separability...........................................................................45
Section 15.12. Assignment.............................................................................45
Section 15.13. Acknowledgment of Rights; Right of Setoff..............................................46
ARTICLE XVI. Subordination of Debentures.......................................................................46
Section 16.1. Agreement to Subordinate................................................................46
Section 16.2. Default on Senior Debt, Subordinated Debt or Additional
Senior Obligations..................................................................................46
Section 16.3. Liquidation; Dissolution; Bankruptcy....................................................47
Section 16.4. Subrogation.............................................................................48
Section 16.5. Trustee To Effectuate Subordination.....................................................48
Section 16.6. Notice by the Company...................................................................49
Section 16.7. Rights of the Trustee; Holders of Senior Indebtedness...................................49
Section 16.8. Subordination May Not Be Impaired.......................................................50
Exhibit A - Form of Debenture Certificate
</TABLE>
iii
<PAGE>
CROSS-REFERENCE TABLE
Section of Trust Indenture Act Section of
of 1939, as amended Indenture
- ------------------- ---------
310(a)...............................................................9.10
310(b)..........................................................9.9, 9.11
310(c).....................................................Not Applicable
311(a)...............................................................9.14
311(b)...............................................................9.14
311(c).....................................................Not Applicable
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).....................................................Not Applicable
314(c)...............................................................15.7
314(d).....................................................Not Applicable
314(e)...............................................................15.7
314(f).....................................................Not Applicable
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
Note: This Cross-Reference Table does not constitute part of this Indenture and
shall not affect the interpretation of any of its terms or provisions.
iv
<PAGE>
INDENTURE
INDENTURE, dated as of __________, 1997, between YARDVILLE NATIONAL BANCORP, a
New Jersey corporation (the "Company"), and WILMINGTON TRUST COMPANY, a banking
corporation duly organized and existing under the laws of the State of Delaware,
as property trustee (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 securities to be known as its _____% Subordinated 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;
WHEREAS, Yardville Capital Trust, a Delaware statutory business trust
(the "Trust"), has offered to the public up to $13,800,000 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 up to $427,000 aggregate liquidation amount
of its Common Securities (as defined herein), in $14,227,000 aggregate principal
amount of the Debentures;
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture;
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;
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 amended. All accounting terms used herein and not expressly defined shall
have the meanings assigned to such terms in accordance with Generally Accepted
Accounting Principles.
"Accelerated Maturity Date" means if the Company elects to accelerate
the Maturity Date in accordance with Section 2.2(c), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is after
____________, 2002.
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations does not include claims in
respect of Senior Debt or Subordinated Debt or obligations which, by their
terms, are expressly stated to be not superior in right of payment to the
Debentures or to rank pari passu in right of payment with the Debentures. For
purposes of this definition, "claim" shall have the meaning assigned thereto in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended.
"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 officer, director or general partner.
"Agent Member" means any member of, or participant in, the Depositary.
"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 2.12.
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"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.
"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, 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, rendered by a law firm experienced in such matters to the effect
that, as a result of any amendment to or any change (including any announced
prospective change) in the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which proposed change, 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 of impairment of the Company's ability to treat
the aggregate Liquidation Amount of the Preferred Securities (or any substantial
portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then
applicable to the Company, provided, however, that the inability of the Company
to treat all or any portion of the Liquidation Amount of the Preferred
Securities as Tier 1 Capital shall not constitute the basis for a Capital
Treatment Event if such inability results from the Company having cumulative
preferred capital in excess of the amount which may qualify for treatment as
Tier 1 Capital under applicable capital adequacy guidelines of the Federal
Reserve.
"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.
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"Company" means Yardville National Bancorp, a corporation duly
organized and existing under the laws of the State of New Jersey, 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.
"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 Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"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
2.7(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; and (vi) and every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Depositary" means, with respect to the Securities issuable or issued
in whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to Section 2.4 (or any
successor thereto).
"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, after satisfaction of liabilities to creditors of the Trust as
required by applicable law, to the holders of the Trust Securities issued by the
Trust pro rata in accordance with the Trust Agreement.
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"Distribution" shall have the meaning set forth in the Trust Agreement.
"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, and any
statute successor thereto, in each case as amended from time to time.
"Extended Maturity Date" means if the Company elects to extend the
Maturity Date in accordance with Section 2.2(b), the date selected by the
Company which is after the Scheduled Maturity Date but before ____________,
2036.
"Extension 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 Security in the form prescribed in Section
8.3 evidencing all or part of the Securities, issued to the Depositary or its
nominee, and registered in the name of such Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Interest Payment Date" shall have the meaning set forth in Section
2.5.
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"Investment Company Act," means the Investment Company Act of 1940, and
any statute successor thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Trust of an Opinion
of Counsel, rendered by a law firm experienced in such matters, 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 will 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.
"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 that is delivered to the Trustee in accordance with the terms
hereof. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Indenture shall include;
(a) a statement by each officer signing the Officers' Certificate
that such officer has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of such officer,
such condition or covenant has been complied with;
provided, however, that the Officers' Certificate delivered pursuant to the
provisions of Section 6.3(d) hereof shall comply with the provisions of Section
314 of the Trust Indenture Act.
"Opinion of Counsel" means an opinion in writing of legal counsel, who
may be an employee of or counsel for the Company, that is delivered to the
Trustee in accordance with the terms hereof. Each such opinion shall include the
statements provided for in Section 15.7, if and to the extent required by the
provisions thereof.
"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
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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; and (c)
Debentures in lieu of or in substitution for which other Debentures shall have
been authenticated and delivered pursuant to the terms of Section 2.7.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.3.
"Person" means any individual, corporation, partnership, limited
liability company, joint-venture, joint-stock company, unincorporated
organization or government or any agency or political subdivision thereof.
"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 2.9 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 (i)
Distributions, and (ii) payments upon liquidation, redemption and otherwise, are
subordinated to the rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means any guarantee that the Company
may enter into with the Trustee or other Persons that operate directly or
indirectly for the benefit of holders of Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Responsible Officer" when used with respect to the Trustee means the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Treasurer, any trust officer, 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.
"Restricted Security" means each Security required pursuant to Section
2.7(e) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially
in the form set forth in Exhibit A.
"Restricted Securities Legend" means a legend substantially in the form
of the legend required in the form of Security set forth in Section 8.1 to be
placed upon a Restricted Security.
"Scheduled Maturity Date" means ____________, 2027.
"Securities" or "Security" means any debt securities or debt security,
as the case may be, authenticated and delivered under this Indenture.
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"Securities Act," means the Securities Act of 1933, and any statute
successor thereto, 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; (iii) Debt to any
employee of the Company; (iv) Debt which by its terms is subordinated to trade
accounts payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such Debt by the
holders of the Debentures as a result of the subordination provisions of this
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such trade
accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject;
and (v) Debt which constitutes Subordinated Debt.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
"Special Event" means a Tax Event, a Capital Treatment Event or an
Investment Company 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).
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture, trust or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries; and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel,
rendered by a law firm experienced in such matters, to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after 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 will be within 90 days after the
date of such Opinion of Counsel, subject to United States federal income tax
with respect to income received or accrued on the Debentures; (ii) interest
payable by the Company on the Debentures is not, or within 90 days after the
date of such Opinion of Counsel,
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will not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes; or (iii) the Trust is, or will be within 90 days
after the date of 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 Yardville Capital Trust, a Delaware statutory business
trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of ____________, 1997, of the Trust.
"Trustee" means Wilmington Trust Company and, subject to the provisions
of Article IX, shall also include its successors and assigns, and, if at any
time there is more than one Person acting in such capacity hereunder, "Trustee"
shall mean each such Person.
"Trust Indenture Act," means the Trust Indenture Act of 1939, as
amended, subject to the provisions of Sections 11.1, 11.2, and 12.1. and any
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 "______%
Subordinated Debentures due 2027," limited in aggregate principal amount up to
$14,227,000, which amount shall be as set forth in any written order of the
Company for the authentication and delivery of Debentures pursuant to Section
2.6.
Section 2.2. Maturity.
(a) The Maturity Date shall be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to extend the Maturity Date beyond the
Scheduled Maturity Date in accordance with Section 2.2(b), the Extended Maturity
Date; or
(iii) if the Company elects to accelerate the Maturity Date to be a
date prior to the Scheduled Maturity Date in accordance with Section 2.2(c), the
Accelerated Maturity Date.
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(b) The Company may at any time before the day which is 90 days before
the Scheduled Maturity Date, elect to extend the Maturity Date to the Extended
Maturity Date, provided that the Company has received the prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve and further provided that the following conditions in
this Section 2.2(b) are satisfied both at the date the Company gives notice in
accordance with Section 2.2(d) of its election to extend the Maturity Date and
at the Scheduled Maturity Date:
(i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation;
(ii) the Company is not in default in the payment of interest or
principal on the Debentures;
(iii) the Trust is not in arrears on payments of Distributions on
the Trust Securities issued by it and no deferred Distributions are accumulated;
and
(iv) the Company has a rating on its Senior Debt of investment
grade.
(c) The Company may, on one occasion, at any time before the day which
is 90 days before the Scheduled Maturity Date and after ____________, 2002,
elect to shorten the Maturity Date to the Accelerated Maturity Date provided
that the Company has received the prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve.
(d) If the Company elects to extend the Maturity Date in accordance
with Section 2.2(b), the Company shall give notice to the registered holders of
the Debentures, the Property Trustee and the Trust of the extension of the
Maturity Date and the Extended Maturity Date at least 90 days and no more than
180 days before the Scheduled Maturity Date.
(e) If the Company elects to accelerate the Maturity Date in accordance
with Section 2.2(c), the Company shall give notice to the registered holders of
the Debentures, the Property Trustee and the Trust of the acceleration of the
Maturity Date and the Accelerated Maturity Date at least 90 days and no more
than 180 days before the Accelerated Maturity Date.
Section 2.3. Form and Payment.
Except as provided in Section 2.4, the Debentures shall be issued in
fully registered certificated form without interest coupons. Principal of 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 with
respect to Debentures (other than a Global Security) 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 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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Section 2.4. Global Security.
(a) Securities shall be issuable in whole or in part in the form of one
or more Global Securities and, in such case, the Depositary for such Global
Securities shall be The Depository Trust Company. Each Global Security issued
under this Indenture shall be registered in the name of the Depositary
designated by the Company for such Global Security or a nominee thereof and
delivered to such Depositary or a nominee thereof or custodian therefor, and
each such Global Security shall constitute a single Security for all purposes of
this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in writing that such
Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor, (ii) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depositary, or (iii) there shall
have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Securities Registrar for exchange or cancellation as provided
in this Article II. If any Global Security is to be exchanged for other
Securities or cancelled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article 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 other Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Debenture
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depositary, accompanied by registration
instructions, the Trustee shall, subject to Section 2.7(e) and as otherwise
provided in this Article II, authenticate and deliver any Securities issuable in
exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depositary. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article II, Section 3.5(b) or 11.4 or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or agent. Neither the
Trustee nor the Debenture Registrar shall have any liability in respect of any
transfers effected by the Depositary.
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(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 2.5. Interest.
(a) Each Debenture shall bear interest at the rate of ______% per annum
(the "Coupon Rate") from the original date of issuance until the principal
thereof becomes due and payable, and on any overdue principal and (to the extent
that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the Coupon Rate, compounded quarterly,
payable (subject to the provisions of Article IV) quarterly in arrears on March
31, June 30, September 30, and December 31 of each year (each, an "Interest
Payment Date"), commencing on ____________, 1997, 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, which shall
be the fifteenth day of the last month of the calendar quarter.
(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. 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 number of days elapsed in a
360-day year of twelve 30-day months. 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) 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 government charges been imposed.
Section 2.6. Execution and Authentications.
(a) The Debentures shall be signed on behalf of the Company by its
President and Chief Executive Officer, Chief Financial Officer 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 President and Chief Executive Officer, Chief Financial
Officer or Vice President thereof, or of any Person who shall have been a
Secretary or Assistant Secretary thereof, notwithstanding the fact that at the
time the Debentures shall be authenticated and delivered or disposed of such
Person shall have ceased to be the President and Chief Executive Officer, Chief
Financial Officer 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 manually authenticated by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
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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 President and
Chief Executive Officer, Chief Financial Officer or any Vice President and its
Treasurer or any Assistant Treasurer, and the Trustee in accordance with such
written order shall authenticate and deliver 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 2.7. 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 in the City of New York, or
at the office of the Debenture Registrar, 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
2.7. 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 Debentureholder 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 in the City of New York, or at the office of
the Debenture Registrar, 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 prescribe, the Company shall
register the Debentures and the transfers of Debentures as provided in this
Article II 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 initially be the Trustee and thereafter as
may be appointed by the Company 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 deliver
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 2.7, 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 2.8, Section 3.5(b) and Section 11.4 not involving any
transfer.
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(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) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture, transfers and exchanges of Securities and
beneficial interests in a Global Security shall be made only in accordance with
this Section 2.7(e).
(i) Restricted Non-Global Security to Global Security. If the
Holder of a Restricted Security (other than a Global Security) wishes at any
time to transfer all or any portion of such Security to a Person who wishes to
take delivery thereof in the form of a beneficial interest in a Global Security,
such transfer may be effected only in accordance with the provisions of this
clause (e)(i) and subject to the Applicable Procedures. Upon receipt by the
Debenture Registrar of (A) such Security as provided in Section 2.7(b) and
instructions satisfactory to the Debenture Registrar directing that a beneficial
interest in the Global Security in a specified principal amount not greater than
the principal amount of such Security be credited to a specified Agent Member's
account and (B) a Restricted Securities Certificate duly executed by such Holder
or such Holder's attorney duly authorized in writing, then the Debenture
Registrar shall cancel such Security (and issue a new Security in respect of any
untransferred portion thereof) so provided in Section 2.7(b) and increase and
aggregate principal amount of the Global Security by the specified principal
amount as provided in Section 2.4(c).
(ii) Non-Global Security to Non-Global Security. A Security that
is not a Global Security may be transferred, in whole or in part, to a Person
who takes delivery in the form of another Security that is not a Global Security
as provided in Section 2.7(b), provided that if the Security to be transferred
in whole or in part is a Restricted Security, the Debenture Registrar shall have
received a Restricted Securities Certificate duly executed by the transferor
Holder or such Holder's attorney duly authorized in writing.
(iii) Exchanges Between Global Security and Non-Global Security.
A beneficial interest in a Global Security may be exchanged for a Security that
is not a Global Security as provided in Section 2.4.
(iv) Certain Initial Transfers of Non-Global Securities. In the
case of Securities initially issued other than in global form, an initial
transfer or exchange of such Securities that does not involve any change in
beneficial ownership may be made to an Institutional Accredited Investor or
Investors as if such transfer or exchange were not an initial transfer or
exchange; provided that written certification shall be provided by the
transferee and transferor of such Securities to the Debenture Registrar that
such transfer or exchange does not involve a change in beneficial ownership.
Section 2.8. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may
execute, and the Trustee shall authenticate and deliver, temporary Debentures
(printed, lithographed, or typewritten). Such temporary Debentures shall be
substantially in the form of the definitive Debentures in lieu of which they are
issued, but with such omissions, insertions and variations as may be appropriate
for temporary Debentures, all as may be determined by the Company. Every
temporary Debenture shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Debentures. Without unnecessary delay the 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 the purpose
in the City of New York, and the Trustee shall authenticate and such office or
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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 2.9. 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 deliver, 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 deliver the same
upon the written request or authorization of the Chairman, President, Chief
Financial Officer or any Vice President and the Treasurer or any Assistant
Treasurer 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
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 2.9 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.
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Section 2.10. 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 and deliver a certificate of disposition
to the Company. 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 2.11. 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 2.12. 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 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.
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ARTICLE III
REDEMPTION OF DEBENTURES
Section 3.1. Redemption.
Subject to the Company having received prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, 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 the prior approval of the
Federal Reserve, if then required under the applicable capital guidelines or
policies of the Federal Reserve, if a Special Event has occurred and is
continuing, then, notwithstanding Section 3.3(a), 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 3.3. Optional Redemption by Company.
(a) Subject to the provisions of Section 3.3(b), 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(a) 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.
(b) If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities issued by the Trust from The Nasdaq Stock
Market's National Market or any national securities exchange or other
organization on which the Preferred Securities are then listed, the Company
shall not be permitted to effect such partial redemption and may only redeem the
Debentures in whole.
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Section 3.4. Notice of Redemption.
(a) In case the Company shall desire to exercise such right to redeem
all or, as the case may be, 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 (which notice shall, in the
event of a partial redemption, include a representation to the effect that such
partial redemption shall not result in the delisting of the Preferred Securities
as described in Section 3.3(b) above), 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 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 in the City of New York or at the Corporate Trust Office, upon
presentation and surrender of such Debentures, that interest accrued to the date
fixed for redemption shall be paid as specified in said notice and that from and
after said date interest shall cease to accrue. If less than all the Debentures
are to be redeemed, the notice to the holders of the Debentures shall specify
the particular Debentures to be redeemed. If the Debentures are to be redeemed
in part only, the notice shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the redemption date, upon
surrender of such Debenture, a new Debenture or Debentures in principal amount
equal to the unredeemed portion thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the 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 or its
own name as the Trustee or such paying agent may deem advisable. In any case in
which notice of redemption is to be given by the Trustee or any such paying
agent, the 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
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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 2.5).
(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 deliver 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.
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 "Extension Period"), during which Extension Period no interest
shall be due and payable; provided that no Extension Period may extend beyond
the Maturity Date. Interest, the payment of 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 Coupon Rate compounded quarterly for each quarter
of the Extension Period ("Compounded Interest"). At the end of the Extension
Period, the Company shall calculate (and deliver such calculation to the
Trustee) and pay all interest accrued and unpaid on the Debentures, including
any Additional Interest and Compounded Interest (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 Extension Period. Before the termination of any Extension
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 Extension Period and upon the payment of all Deferred
Interest then due, the Company may commence a new Extension Period, subject to
the foregoing requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extension 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 Extension Period, the Company
shall give written notice to the Administrative Trustees, the Property Trustee
and the Trustee of its selection of such Extension Period two Business Days
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 or 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 Extension Period, the Company shall give the
holders of the Debentures and the Trustee written notice of its selection of
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such Extension Period at least two Business Days before the earlier of (i) the
next succeeding Interest Payment Date; or (ii) the date the Company is required
to give notice of the record or payment date of such interest payment to 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 maximum Extension 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; or (ii) there shall have occurred any Event
of Default, then (a) the Company shall not 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; (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 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.
So long as any of the Debentures remain Outstanding, the Company shall
maintain an office or agency in the City of New York, and at such other location
or locations as may be designated as provided in this Section 5.2, where (i)
Debentures may be presented for payment; (ii) Debentures may be presented as
hereinabove authorized for registration of transfer and exchange; and (iii)
notices 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 and Chief Executive Officer, by its Chief Financial Officer 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 outside of the City of New York,
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 City of New York, for the purposes above mentioned. The Company shall give
the Trustee prompt written notice of any such designation or rescission thereof.
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Section 5.3. Paying Agents.
(a) The Property Trustee shall act as the Paying Agent. If the Company
shall appoint one or more paying agents for the Debentures, other than the
Property 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 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.
(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.
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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 sell or convey all or
substantially all of its property to any other 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 continuing, then
(a) the Company shall not 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; (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 the 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 dissolve the Trust, except upon prior
approval of the Federal Reserve if then so required under applicable capital
guidelines or policies of the Federal Reserve 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.
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Section 5.8. Covenants as to Purchases.
Except upon the exercise by the Company of its right to redeem the
Debentures pursuant to Section 3.2 upon the occurrence and continuation of a
Special Event, the Company shall not purchase any Debentures, in whole or in
part, from the Trust prior to ____________, 2002.
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 6.1. Company To Furnish Trustee Names and Addresses of
Debentureholders.
The Company shall furnish or cause to be furnished to the Trustee (a)
on a quarterly basis on each regular record date (as described in Section 2.5) 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 (in the event the
Company fails to provide such list on a monthly basis, the Trustee shall be
entitled to rely on the most recent list provided 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 Debenture 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 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
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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 overnight 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 as may be required by rules and regulations prescribed from time to time by
the Commission.
(d) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate covering the preceding calendar year, stating whether or
not to the best knowledge of the signers thereof of the Company is in default in
the performance, observance or fulfillment of or compliance with any of the
terms, provisions, covenants and conditions of this Indenture, and if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge. For the purpose of this Section
6.3(d), compliance shall be determined without regard to any grace period or
requirement of notice provided pursuant to the terms of this Indenture.
Section 6.4. Reports by the Trustee.
(a) On or before July 15 in each year in which any of the Debentures
are Outstanding, the Trustee shall transmit by mail, first class postage
prepaid, to the Debentureholders, as their names and addresses appear upon the
Debenture Register, a brief report dated as of the preceding May 15, if and to
the extent required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the
Trust Indenture Act.
(c) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with the Company, with each stock
exchange upon which any Debentures are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when any Debentures become
listed on any stock exchange.
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
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
(as such date may be shortened), upon redemption, by declaration or otherwise;
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provided, however, that a valid extension of the maturity of such Debentures in
accordance with the terms of this Indenture shall not constitute a default in
the payment of principal;
(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 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 or 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 90 days; or
(vi) the Trust shall have voluntarily or involuntarily dissolved,
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 Event of Default, 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 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 9.7; and (ii) any
and all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms, shall
have been remedied or waived as provided in Section 7.6. No such rescission and
annulment shall extend to or shall affect any subsequent default or impair any
right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored respectively to
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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 (i) in case it shall default in the
payment of any installment of interest on any of the Debentures, and such
default shall have continued for a period of 30 days; or (ii) 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 (as
such date may be shortened) 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 upon
overdue installments of interest at the rate per annum expressed in the
Debentures; 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 under Section 9.7.
(b) If the Company shall fail to pay such amounts set forth in Section
7.2(a) 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 thereof, 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 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.
(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 relative thereto, and any
such suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, 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,
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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 of the payment, if only partially paid, and upon surrender
thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the 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.
Section 7.4. Limitation on Suits.
(a) Except as provided in Section 15.13 hereof, no holder of any
Debenture shall have any right by virtue or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless (i) such holder previously
shall have given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debentures specifying such Event of
Default, as hereinbefore provided; (ii) the holders of not less than 25% in
aggregate principal amount of the Debentures then Outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby; 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 aggregate
principal amount of the Debentures do not give the Trustee a direction
inconsistent with such written 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
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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 2.9, all powers and
remedies given by this Article VII to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 7.4, every power and remedy
given by this Article VII or by law to the Trustee or the Debentureholders may
be exercised from time to time, and as often as shall be deemed expedient, by
the Trustee or by the Debentureholders.
Section 7.6. Control by Debentureholders.
The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding, determined in accordance with Section 10.4,
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee; provided, however, that such direction shall not
be in conflict with any rule of law or with this Indenture. Subject to the
provisions of Section 9.1, the Trustee shall have the right to decline to follow
any such direction if the Trustee in good faith shall, by a Responsible Officer
or Officers of the Trustee, determine that the proceeding so directed would
involve the Trustee in personal liability. The holders of a majority in
aggregate principal amount of the Debentures at the time Outstanding affected
thereby, determined in accordance with Section 10.4, may on behalf of the
holders of all of the Debentures waive any past default in the performance of
any of the covenants contained herein and its consequences, except (i) a default
in the payment of the principal of or interest on, any of the Debentures as and
when the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal 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.
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Section 7.7. Undertaking To Pay Costs.
All parties to this Indenture agree, and each holder of any Debentures
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.7 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders holding more than 10% in aggregate principal amount of the
Outstanding Debentures, or to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on the Debentures, on
or after the respective due dates expressed in such Debenture or established
pursuant to this Indenture.
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 $12,371,500 may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication. If the Underwriters exercise their Option and there
is an Option Closing Date (as such terms are defined in that certain
Underwriting Agreement, dated ____________, 1997, by and among the Company, the
Trust, and Sandler O'Neill & Partners, L.P., for itself and as representative of
the Underwriters named therein) then, on such Option Closing Date, Debentures in
the additional aggregate principal amount of $1,855,500 may be executed by the
Company and delivered to the Trustee for authentication. In either such event,
the Trustee shall thereupon authenticate and deliver said Debentures to or upon
the written order of the Company, signed by its Chairman, its Vice Chairman, its
President, its Chief Financial Officer, or any Vice President and its Treasurer
or an Assistant Treasurer, without any further action by the Company.
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Section 8.3. Additional Provisions Required in Global Security.
Unless otherwise specified as contemplated by Section 2.4, any Global
Security issued hereunder shall, in addition to the provisions contained in
Exhibit A, bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING
OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY,
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Section 8.4. Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially
the following form:
This is one of the Debentures referred to in the within-mentioned
Indenture.
Dated: _________________ WILMINGTON TRUST COMPANY,
as Trustee
By:
-------------------------
Authorized Signatory
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ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.1. Certain Duties and Responsibilities of Trustee.
(a) The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Debentures such duties and only such
duties as are specifically set forth in this Indenture, and no implied covenants
shall be read into this Indenture against the Trustee. In case an Event of
Default has occurred that has not been cured or waived, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(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 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 a default in the payment of the principal or
interest (including any Additional Interest) 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 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 Chief Financial Officer 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 written 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 and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted hereunder in
good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an Event
of Default (that has not been cured or waived) to exercise with respect to the
Debentures such of the rights and powers vested in it by this Indenture, and to
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
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(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, unless requested in writing so to do by the holders
of not less than a majority in principal amount of the Outstanding Debentures
(determined as provided in Section 10.4); provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such costs, expenses or liabilities as a condition
to so proceeding. The reasonable expense of every such examination shall be paid
by the Company or, if paid by the Trustee, shall be repaid by the Company upon
demand; 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 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 Debenture Registrar for the
Debentures, in its individual or any other capacity, may become the owner or
pledgee of Debentures with the same rights it would have if it were not Trustee,
Paying Agent or Debenture Registrar.
Section 9.6. Moneys 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 with the Company to pay thereon.
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Section 9.7. Compensation and Reimbursement.
(a) The Company covenants and agrees to pay to the Trustee, and the
Trustee shall be entitled to, such reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust), as the Company and the Trustee may from time to time agree in
writing, for all services rendered by it in the execution of the trusts hereby
created and in the exercise and performance of any of the powers and duties
hereunder of the Trustee, and, except as otherwise expressly provided herein,
the Company shall pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith. The Company also
covenants to indemnify the Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on the part of the Trustee and arising
out of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim of
liability in the premises.
(b) The obligations of the Company under this Section 9.7 to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
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
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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 appointment within 30 days after the mailing of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee with respect to
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 and prescribe,
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 a 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.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 9.12.
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(e) Any successor trustee appointed pursuant to this Section 9.11 may
be appointed with respect to the Debentures, and at any time there shall be only
one Trustee with respect to the Debentures.
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 the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified under the provisions of Section 9.9 and eligible under the provisions
of Section 9.10, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding. In case any Debentures shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Debentures so authenticated with the same effect as if such
successor Trustee had itself authenticated such Debentures.
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Section 9.14. Preferential Collection of Claims Against the Company.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be subject
to Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS
Section 10.1. Evidence of Action by Holders.
(a) Whenever in this Indenture it is provided that the holders of a
majority or specified percentage in aggregate principal amount of the Debentures
may take any action (including the making of any demand or request, the giving
of any notice, consent or waiver or the taking of any other action), the fact
that at the time of taking any such action the holders of such majority or
specified percentage have joined therein may be evidenced by any instrument or
any number of instruments of similar tenor executed by such holders of
Debentures in Person or by agent or proxy appointed in writing.
(b) If the 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 deemed to be Debentureholders for the purposes of determining whether
Debentureholders of the requisite proportion of Outstanding Debentures have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Debentureholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
Section 10.2. Proof of Execution by Debentureholders.
Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization) or
his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture
Register of such Debentures or by a certificate of the Debenture Registrar
thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section 10.2 as it shall deem necessary.
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Section 10.3. Who May Be Deemed Owners.
Prior to the due presentment for registration of transfer of any
Debenture, the 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 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 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
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hereto (which shall conform to the provisions of the Trust Indenture Act as then
in effect), without the consent of the Debentureholders, for one or more of the
following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, or in
the Debentures;
(b) to comply with Article X;
(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 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;
(f) to make any change that does not adversely affect the rights
of any Debentureholder in any material respect;
(g) 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;
(h) to qualify or maintain the qualification of this Indenture
under the Trust Indenture Act; or
(i) to evidence a consolidation or merger involving the Company as
permitted under Section 12.1.
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 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, without
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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 aggregate 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.
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 its 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 Sections 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
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register. Any failure of the Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
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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, that
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, an 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 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, 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.
(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).
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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 2.9) 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 a 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, 2.7, 2.9, 5.1, 5.2, 5.3, 9.7 and 9.10, which shall survive until the date
of maturity or redemption date, as the case may be, and Sections 9.6 and 13.5,
which 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 Obligations
sufficient in the opinion of a nationally recognized certified public accounting
firm 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, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6,
9.10 and 13.5 hereof, which shall survive until such Debentures shall mature and
be paid. Thereafter, Sections 9.6 and 13.5 shall survive.
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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.
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 moneys 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.
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.
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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.
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 letterbox addressed (until another address is filed in writing by
the Company with the Trustee), as follows: c/o Yardville National Bancorp, 3111
Quakerbridge Road, Trenton, New Jersey 08619, Attention: Chief Executive
Officer. 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.
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
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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 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 2.5) 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 thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties thereto.
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Section 15.13. Acknowledgment of Rights; Right of Setoff.
(a) 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, and notwithstanding the provisions of Section 7.4(a) hereof, 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 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.
(b) Notwithstanding anything to the contrary contained in this
Indenture, the Company shall have the right to setoff any payment it is
otherwise required to make hereunder in respect of any Trust Securities to the
extent that the Company has previously made, or is concurrently making, a
payment to the holder of such Trust Securities under the Preferred Securities
Guarantee or in connection with a proceeding for enforcement of payment of the
principal of or interest on the Debentures directly brought by holders of any
Trust Securities.
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, Subordinated Debt and Additional Senior Obligations
(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, Subordinated Debt or Additional Senior
Obligations.
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 such Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that the holders of the
Senior
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Indebtedness (or their representative or representatives or a trustee) notify
the Trustee in writing within 90 days of such payment of the amounts then due
and owing on 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 dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, 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
dissolution or winding-up or liquidation or reorganization, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the 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.
(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
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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, as the case may be, nor shall anything herein or therein prevent
the Trustee or the holder of any Debenture from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XVI of the holders of such Senior
Indebtedness in respect of cash, property or securities of the 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.
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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 provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the 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 be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.6 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary that
may be received by it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the 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 the 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 owe 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 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.
49
<PAGE>
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 Section 16.8(a), 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 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.
[The remainder of this page has been left blank intentionally]
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
YARDVILLE NATIONAL BANCORP
By
-------------------------------------
Patrick M. Ryan
President and Chief Executive Officer
Attest:
- --------------------------
WILMINGTON TRUST COMPANY,
as Trustee
By
------------------------------------
Vice-President
Attest:
- --------------------------
<PAGE>
EXHIBIT A
(FORM OF FACE OF DEBENTURE)
No. _____________________________ $_____________
CUSIP No. _______________________
YARDVILLE NATIONAL BANCORP
_____% SUBORDINATED DEBENTURE
DUE __________, 2027
[if restricted security, THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (I) TO A
PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,(II) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), AND, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND
OTHER JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES
THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. SECURITIES OWNED BY AN
INITIAL INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN
GLOBAL FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE INDENTURE REFERRED
TO BELOW. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE SECURITIES]
Yardville National Bancorp, a New Jersey corporation (the "Company,"
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Wilmington Trust
Company as Property Trustee for Yardville Capital Trust, or registered assigns,
the principal sum of ____________ Dollars ($_________) 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 31, June
30, September 30 and December 31 of each year commencing ______________, 1997,
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 same rate 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. The amount of interest 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. In the event that any date on which
interest is payable on this Debenture is not a business day, then payment of
interest payable on such date shall be made on the next succeeding day that is a
business day (and without any interest or other payment in respect of any such
delay) 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
<PAGE>
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 fifteenth day
of the month in which the Interest Payment Date occurs 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 Stated Maturity may be shortened at any time by the Company to any
date not earlier than ____________, 2002, subject to the Company having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. Such date may also be extended at
any time at the election of the Company for one or more periods, but in no event
to a date later than ____________, 2036, subject to certain limitations
described in the Indenture.
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.
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.
Dated: ____________, 1997
YARDVILLE NATIONAL BANCORP
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
By:
--------------------------
Name:
------------------------
Title:
-----------------------
This is one of the Debentures referred to in the within-mentioned
Indenture.
Dated: ____________, 1997 WILMINGTON TRUST COMPANY,
at Trustee
By:
-----------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF DEBENTURE]
_____% SUBORDINATED DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company
(herein sometimes referred to as the "Debentures"), 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 Wilmington
Trust Company, as Trustee (the "Trustee"), to which Indenture reference is
hereby made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the holders of
the Debentures. The Debentures are limited in aggregate principal amount as
specified in the Indenture.
In certain circumstances because of the occurrence and continuation of
a Special Event, this Debenture may become due and payable prior to its stated
maturity at the principal amount together with any interest accrued thereon (the
"Redemption Price"). 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. The Company shall have the right to redeem this Debenture at the
option of the Company, without premium or penalty, in whole or in part at any
time on or after ____________, 2002 (an "Optional Redemption"), or at any time
in certain circumstances upon the occurrence of a Special Event, at a Redemption
Price equal to 100% of the principal amount plus any accrued but unpaid
interest, to the date of such redemption. 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 pursuant to an Optional Redemption, 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 thereof, or
reduce the rate or extend the time of payment of interest thereon, 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
<PAGE>
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 herefor or in place hereof
(whether by registration of transfer or in place hereof, irrespective of whether
or not 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.
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 "Extension 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); provided, however, that no Extension Period shall extend beyond the Stated
Maturity of the principal of this Debenture, as then in effect. Before the
termination of any such Extension Period, the Company may further extend such
Extension Period, provided that such Extension Period together with all such
further extensions thereof shall not exceed 20 consecutive quarters. At the
termination of any such Extension Period and upon the payment of all accrued and
unpaid interest and any additional amounts then due, the Company may commence a
new Extension 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 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 hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
<PAGE>
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.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
THIS SECURITY IS A DIRECT AND UNSECURED OBLIGATION OF THE COMPANY, DOES
NOT EVIDENCE DEPOSITS AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
<PAGE>
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
YARDVILLE NATIONAL BANCORP, AS DEPOSITOR
WILMINGTON TRUST COMPANY, AS PROPERTY TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF __________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I DEFINED TERMS
Section 101. Definitions............................................................................2
ARTICLE II ESTABLISHMENT OF THE TRUST............................................................11
Section 201. Name..................................................................................11
Section 202. Office of the Property Trustee; Principal Place of Business...........................11
Section 203. Initial Contribution of Trust Property; Organizational Expenses.......................11
Section 204. Issuance of the Preferred Securities..................................................11
Section 205. Issuance of the Common Securities; Subscription and
Purchase of Debentures................................................................12
Section 206. Declaration of Trust..................................................................12
Section 207. Authorization To Enter into Certain Transactions......................................13
Section 208. Assets of Trust.......................................................................16
Section 209. Title to Trust Property...............................................................16
ARTICLE III PAYMENT ACCOUNT.......................................................................17
Section 301. Payment Account.......................................................................17
ARTICLE IV DISTRIBUTIONS; REDEMPTION......................................................................17
Section 401. Distributions.........................................................................17
Section 402. Redemption............................................................................18
Section 403. Subordination of Common Securities....................................................20
Section 404. Payment Procedures....................................................................21
Section 405. Tax Returns and Reports...............................................................21
Section 406. Payment of Taxes, Duties, Etc. of the Trust...........................................21
Section 407. Payments Under Indenture..............................................................21
ARTICLE V TRUST SECURITIES CERTIFICATES..................................................................22
Section 501. Initial Ownership.....................................................................22
Section 502. The Trust Securities Certificates.....................................................22
Section 503. Global Preferred Security.............................................................22
Section 504. Execution, Authentication and Delivery of Trust
Securities Certificates...............................................................24
Section 505. Registration of Transfer and Exchange of Preferred Securities
Certificates..........................................................................24
Section 506. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates....................26
Section 507. Persons Deemed Securityholders........................................................26
Section 508. Access to List of Securityholders' Names and Addresses................................27
Section 509. Maintenance of Office or Agency.......................................................27
Section 510. Appointment of Paying Agent...........................................................27
Section 511. Ownership of Common Securities by Depositor;
Common Securities Certificate.........................................................28
Section 512. Preferred Securities Certificates.....................................................28
Section 513. Notices to Clearing Agency............................................................29
Section 514. [Intentionally Omitted]...............................................................29
Section 515. Rights of Securityholders.............................................................29
<PAGE>
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING......................................................30
Section 601. Limitations on Voting Rights..........................................................30
Section 602. Notice of Meetings....................................................................31
Section 603. Meetings Of Preferred Securityholders.................................................31
Section 604. Voting Rights.........................................................................31
Section 605. Proxies, Etc..........................................................................32
Section 606. Securityholder Action by Written Consent..............................................32
Section 607. Record Date for Voting and Other Purposes.............................................32
Section 608. Acts of Securityholders...............................................................32
Section 609. Inspection of Records.................................................................33
ARTICLE VII REPRESENTATIONS AND WARRANTIES........................................................34
Section 701. Representations and Warranties of the Bank and the Property Trustee...................34
Section 702. Representations and Warranties of Depositor...........................................35
ARTICLE VIII TRUSTEES..............................................................................35
Section 801. Certain Duties and Responsibilities...................................................35
Section 802. Certain Notices.......................................................................37
Section 803. Certain Rights of Property Trustee....................................................37
Section 804. Not Responsible for Recitals or Use of Proceeds.......................................39
Section 805. May Hold Securities...................................................................40
Section 806. Compensation; Indemnity; Fees.........................................................40
Section 807. Corporate Property Trustee Required; Eligibility of Trustees..........................40
Section 808. Conflicting Interests.................................................................41
Section 809. Co-Trustees and Separate Trustee......................................................41
Section 810. Resignation and Removal; Appointment of Successor.....................................43
Section 811. Acceptance of Appointment by Successor................................................44
Section 812. Merger, Conversion, Consolidation or Succession to Business...........................45
Section 813. Preferential Collection of Claims Against Depositor or Trust..........................45
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...................................................................46
Section 819. Voting................................................................................47
ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER............................................................47
Section 901. Dissolution upon Expiration Date......................................................47
Section 902. Early Termination.....................................................................47
Section 903. Dissolution...........................................................................48
Section 904. Liquidation...........................................................................48
Section 905. Mergers, Consolidations, Amalgamations or Replacements of
the Trust.............................................................................50
<PAGE>
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......................................................53
Section 1006. Successors............................................................................53
Section 1007. Headings; Counterparts................................................................53
Section 1008. Reports, Notices and Demands..........................................................53
Section 1009. Agreement Not To Petition.............................................................54
Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act................................54
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.............................................................................55
Exhibit A Certificate of Trust
Exhibit B Certificate Depositary Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Preferred Securities Certificate
</TABLE>
<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)..........................................................................................................508
312(b)..........................................................................................................508
312(c)..........................................................................................................508
313(a).......................................................................................................814(a)
313(b).............................................................................................................
313(c).........................................................................................................1008
313(d).......................................................................................................814(b)
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)..........................................................................................................510
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>
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ______, 1997, among
(i) YARDVILLE NATIONAL BANCORP, a New Jersey corporation (including any
successors or assigns, the "Depositor"), (ii) WILMINGTON TRUST COMPANY, a
banking corporation duly organized and existing under the laws of the State of
Delaware, as property trustee (the "Property Trustee," the "Delaware Trustee,"
and, in its separate corporate capacity and not in its capacity as Property
Trustee or Delaware Trustee, the "Bank"), (iii) _____________, an individual,
_____________, an individual, and ___________, an individual, each of whose
address is c/o Yardville National Bancorp, 3111 Quakerbridge Road, Trenton, New
Jersey 08619 (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 (iv)
the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and Jay G.
Destribats, Patrick M. Ryan and Stephen F. Carman, each as an Administrative
Trustee, have heretofore duly declared and established a business trust pursuant
to the Delaware Business Trust Act (as hereinafter defined) by the entering into
of that certain Trust Agreement, dated as of August 28, 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 August 28, 1997, the
form of which is attached as Exhibit A; and
WHEREAS, the Depositor, the Delaware Trustee, the Property
Trustee and the Administrative 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); (iii) the acquisition by the Trust
from the Depositor of all of the right, title and interest in the Debentures (as
defined herein); and (iv) the appointment of the Trustees;
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, intending to be legally bound, as follows:
- 1 -
<PAGE>
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;
(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; and
(e) all accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles as in effect at the time of computation.
"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 Jay G. Destribats, Patrick M.
Ryan and Stephen F. Carman, solely in his or her capacity as Administrative
Trustee of the Trust formed and continued hereunder and not in his or her
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, 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; (b) any Person directly
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or indirectly controlling, controlled by, or under common control with the
specified Person; (c) a partnership in which the specified Person is a general
partner; (d) any officer or director of the specified Person; and (e) if the
specified Person is an individual, any entity of which the specified Person is
an officer, director or general partner.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Preferred Security or beneficial interest
therein, the rules and procedures of the Depositary for such Preferred Security,
in each case to the extent applicable to such transaction and as in effect from
time to time.
"Authenticating Agent" means an authenticating agent with respect to
the Preferred Securities appointed by the Property Trustee pursuant to Section
503.
"Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises adjudging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking liquidation or reorganization of or in respect
of such Person under the United States Bankruptcy Code of 1978, as amended, or
any other similar applicable federal or state law, and the continuance of any
such decree or order unvacated and unstayed for a period of 90 days; or the
commencement of an involuntary case under the United States Bankruptcy Code of
1978, as amended, in respect of such Person, which shall continue undismissed
for a period of 90 days or entry of an order for relief in such case; or the
entry of a decree or order of a court having jurisdiction in the premises for
the appointment on the ground of insolvency or bankruptcy of a receiver,
custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such
Person or of its property, or for the winding up or liquidation of its affairs,
and such decree or order shall have remained in force unvacated and unstayed for
a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the United States 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
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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 and a day
other than one on which banking institutions in the Borough of Manhattan, the
City of New York, New York 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.
"Certificate Depositary Agreement" means the agreement among the Trust,
the Depositor and the Depository Trust Company ("DTC"), as the initial Clearing
Agency, dated as of the Closing Date, substantially in the form attached as
Exhibit B, as the same may be amended and supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act. 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, a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, 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 Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means the office at which, at any particular
time, the corporate trust business of the Property Trustee or the Debenture
Trustee, as the case may be,
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shall be principally administered, which office at the date hereof, in each such
case, is located at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, Attention: Corporate Trust Administration.
"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 Trustee" means Wilmington Trust Company, a banking
corporation organized under the laws of the State of Delaware and any successor
thereto, as trustee under the Indenture.
"Debentures" means the $_________ aggregate principal amount of the
Depositor's ____% Subordinated Debentures due 2027, issued pursuant to the
Indenture.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. 3801 et seq. as it may be amended from time to time.
"Delaware Trustee" means the commercial bank or trust company
identified as the "Delaware Trustee" in the Preamble to this Trust Agreement
solely in its capacity as Delaware Trustee of the Trust formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Depositary" means the Depository Trust Company or any successor
thereto.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 401.
"DTC" means the Depository Trust Company.
"Early Termination Event" has the meaning specified in Section 902.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
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(a) the occurrence of a Debenture Event of Default; or
(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 Amount of the Outstanding
Preferred Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor statute, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extension 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 transfer of which shall be made through book entry by a Clearing Agency as
described in Section 503.
"Guarantee" means the Preferred Securities Guarantee Agreement executed
and delivered by the Depositor and Wilmington Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the holders of the Preferred Securities, as amended from time to
time.
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"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 pertaining to the Debentures of the Depositor.
"Investment Company Act," means the Investment Company Act of 1940, or
any successor statute, in each case as amended from time to time.
"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 dissolution or liquidation of
the Trust, Debentures having a principal amount equal to the Liquidation Amount
of the Trust Securities of the Holder to whom such Debentures are distributed.
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 Debenture.
"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 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 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;
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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 legal counsel, who
may be counsel for the Trust, the Property Trustee, the Delaware 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 503, 505, 506 and 515; 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 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 the Pledgee is not
the Depositor or any other Obligor upon the Preferred Securities or a Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Depositor or any Affiliate of the Depositor.
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"Owner" means each Person who is the beneficial owner of Global
Preferred Securities as reflected in the records of the Clearing Agency or, if a
Clearing Agency Participant is not the Owner, then as reflected in the records
of a Person maintaining an account with such Clearing Agency, directly or
indirectly, in accordance with the rules of such Clearing Agency.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Securityholders in which all amounts paid in
respect of the Debentures 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 commercial bank or trust company
identified as the "Property Trustee," in the Preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore formed and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as herein
provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each 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.
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"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Securities is registered in the Securities Register; any such Person
is a beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means the Delaware business trust created and continued hereby
and identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including 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, or any
successor statute, in each case as amended from time to time.
"Trust Property" means (a) the Debentures; (b) the rights of the
Property Trustee under the Guarantee; (c) any cash on deposit in, or owing to,
the Payment Account; and (d) 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 provisions 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, among the Trust, the Depositor and the Underwriters named
therein.
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ARTICLE II
ESTABLISHMENT OF THE TRUST
Section 201. Name.
The Trust created and continued hereby shall be known as "Yardville
Capital Trust," as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 202. Office of the Property Trustee; Principal Place of Business.
The address of the Property Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or
such other address in the State of Delaware as the Property Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal executive office of the Trust is c/o Yardville National Bancorp, 3111
Quakerbridge Road, Trenton, New Jersey 08619, Attention: Chief Executive
Officer.
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
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
Section 204. Issuance of the Preferred Securities.
On _______, 1997, the Depositor and an Administrative Trustee, 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 504 and deliver in accordance
with the Underwriting Agreement, Preferred Securities Certificates, registered
in the name of the Persons entitled thereto, in an aggregate amount of 1,000,000
Preferred Securities having an aggregate Liquidation Amount of $10,000,000
against receipt of the aggregate purchase price of such Preferred Securities of
$10,000,000 which amount such Administrative Trustee shall promptly deliver to
the Property Trustee. If the underwriters exercise their 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 504 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 up to 150,000 Preferred
Securities having an aggregate Liquidation Amount
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of up to $1,500,000 against receipt of the aggregate purchase price of such
Preferred Securities of $1,500,000 which amount such Administrative Trustee
shall promptly deliver to the Property Trustee.
Section 205. Issuance of the Common Securities; Subscription and Purchase
of Debentures.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
30,930 Common Securities having an aggregate Liquidation Amount of $309,300
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, Debentures, registered in the name of the Property Trustee
on behalf of the Trust, and having an aggregate principal amount equal to
$10,309,300, 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 $10,309,300.
(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 deliver to the Depositor, Common
Securities Certificates, registered in the name of the Depositor, in an
aggregate amount of 4,640 Common Securities having an aggregate Liquidation
Amount of up to $46,400 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, Debentures, registered in
the name of the Trust and having an aggregate principal amount of up to
$1,546,400 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.
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.
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Section 207. Authorization To Enter into Certain Transactions.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section 207 and Article VIII, and in accordance with the
following provisions (i) and (ii), the Administrative Trustees shall have the
authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority, express
or implied, otherwise granted to the Administrative Trustees under this Trust
Agreement, and to perform all acts in furtherance thereof, including without
limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting
singly or jointly, 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
and such other agreements or documents as may be necessary or
desirable in connection with the purposes and function of the
Trust;
(C) assisting in the registration of the Preferred
Securities under the Securities Act of 1933, as amended, and
under state securities or blue sky laws, and the qualification of
this Trust Agreement as a trust indenture under the Trust
Indenture Act;
(D) assisting in the listing of the Preferred Securities
upon the Nasdaq 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
dissolution and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
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(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; and
(I) the taking of any action incidental to the foregoing as
the Administrative Trustees may from time to time determine is
necessary or advisable to give effect to the terms of this Trust
Agreement for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect
to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Debentures in the Payment
Account;
(D) the distribution of amounts owed to the Securityholders
in respect of the Trust Securities in accordance with the terms
of this Trust Agreement;
(E) the exercise of all of the rights, powers and privileges
of a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
dissolution and liquidation of the Trust;
(I) after an Event of Default, the taking of any action
incidental to the foregoing as the Property Trustee may from time
to time
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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, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein; (iii) take any action that would cause the
Trust to fail or cease to qualify as a "grantor trust" for United States federal
income tax purposes; (iv) incur any indebtedness for borrowed money or issue any
other debt; or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The Administrative Trustees
shall defend all claims and demands of all Persons at any time claiming any Lien
on any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the 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;
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(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 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.
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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 thereof, 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.
(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 Extension Period with respect to the Debentures, shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on ___________, 1997. If any date on which a
Distribution is otherwise payable on the Trust Securities is not a Business Day,
then the payment of such Distribution shall be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) with the same force and effect as if made on such date (each
date on which distributions are payable in accordance with this Section 401(a),
a "Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in
the Trust Property. 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 Extension Period
with respect to the Debentures, Distributions on the Preferred Securities
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shall be deferred for a period equal to the Extension 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 at the close of business on the
relevant record date, which shall be the 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 by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Securities Register. The Property
Trustee shall have no responsibility for the accuracy of any CUSIP number
contained in such notice. All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of
the particular Trust Securities to be redeemed; and
(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.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has immediately
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available funds then on hand and available in the Payment Account for the
payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Preferred Securities, then, by 12:00 noon, New York time, on the Redemption
Date, subject to Section 402(c), the Property Trustee will, with respect to
Preferred Securities held in global form, irrevocably deposit with the Clearing
Agency for such 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 of the Preferred
Securities. With respect to Preferred Securities that are not held in global
form, the Property Trustee shall deposit with the Paying Agent funds sufficient
to pay the applicable Redemption Price and shall give the Paying Agent
irrevocable instructions and authority to pay the Redemption Price to the
Holders thereof upon surrender of their Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption shall cease,
except the right of such Securityholders to receive the Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest,
and such Trust 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) 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 the date 15
days prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the Outstanding Preferred Securities
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not previously called for redemption, by such method (including, without
limitation, by lot) as the Property Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal to $10 or
an integral multiple of $10 in excess thereof) of the Liquidation Amount of
Preferred Securities of a denomination larger than $10. The Property Trustee
shall promptly notify the Securities Registrar in writing of the Preferred
Securities selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of this Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Preferred Securities shall relate,
in the case of any Preferred Securities redeemed or to be redeemed only in part,
to the portion of the Liquidation Amount of Preferred Securities which has been
or is to be redeemed.
Section 403. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 402(f), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price, the full amount of such Redemption Price on all Outstanding
Preferred Securities then called for redemption, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions (including
Additional Amounts, if applicable) on, or the Redemption Price of, Preferred
Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from a Debenture Event of Default, the Holder of Common Securities shall be
deemed to have waived any right to act with respect to any such Event of Default
under this Trust Agreement until the effect of all such 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.
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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 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 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 has
directly received under the Indenture pursuant to Section 515(b) or (c) hereof.
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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 or facsimile
signature of at least one Administrative Trustee. Trust Securities Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefits of this Trust
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Sections 504 and
511.
(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. Global Preferred Security.
(a) Any Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the nominee of the Clearing Agency and
delivered to such
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custodian therefor, and such Global Preferred Security shall constitute a single
Preferred Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a
Global Preferred Security may not be exchanged in whole or in part for Preferred
Securities registered, and no transfer of the Global Preferred Security in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Preferred Security, or its nominee thereof unless (i)
such Clearing Agency advises the Property Trustee in writing that such Clearing
Agency is no longer willing or able to properly discharge its responsibilities
as Clearing Agency with respect to such Global Preferred Security, and the
Depositor is unable to locate a qualified successor, (ii) the Trust at its
option advises the Depositary in writing that it elects to terminate the
book-entry system through the Clearing Agency, or (iii) there shall have
occurred and be continuing an Event of Default.
(c) If a Preferred Security is to be exchanged in whole or in part for
a beneficial interest in a Global Preferred Security, then either (i) such
Global Preferred Security shall be so surrendered for exchange or cancellation
as provided in this Article V or (ii) the Liquidation Amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the Liquidation Amount of such other
Preferred Security to be so exchanged for a beneficial interest therein, as the
case may be, by means of an appropriate adjustment made on the records of the
Security Registrar, whereupon the Property Trustee, in accordance with the
Applicable Procedures, shall instruct the Clearing Agency or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Preferred Security by the Clearing Agency,
accompanied by registration instructions, the Administrative Trustees shall
execute and the Property Trustee shall, subject to Section 503(b) and as
otherwise provided in this Article V, countersign, register and deliver any
Preferred Securities issuable in exchange for such Global Preferred Security (or
any portion thereof) in accordance with the instructions of the Clearing Agency.
The Property Trustee shall not be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be fully protected in
relying on, such instructions.
(d) Every Preferred Security countersigned, registered and delivered
upon registration of transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article V or
Article IV or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Preferred Security, unless such Global Preferred Security
is registered in the name of a Person other than the Clearing Agency for such
Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a
Global Preferred Security, shall be considered the Holder of the Preferred
Securities represented by such Global Preferred Security for all purposes under
this Trust Agreement and the Preferred Securities, and owners of beneficial
interests in such Global Preferred Security shall hold
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such interests pursuant to the Applicable Procedures and, except as otherwise
provided herein, shall not be entitled to receive physical delivery of any such
Preferred Securities in definitive form and shall not be considered the Holders
thereof under this Trust Agreement. Accordingly, any such owner's beneficial
interest in the Global Preferred Security shall be shown only on, and the
transfer of such interest shall be effected only through, records maintained by
the Clearing Agency or its nominee. Neither the Property Trustee, the Securities
Registrar nor the Depositor shall have any liability in respect of any transfers
effected by the Clearing Agency.
(f) The rights of owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such owners and the
Clearing Agency.
Section 504. Execution, Authentication and Delivery of Trust Securities
Certificates.
(a) On the Closing Date and on the date on which the Underwriter
exercises the Option, 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
on behalf of the Trust by at least one of the Administrative Trustees and
delivered to or upon the written order of the Depositor, signed by its Chief
Executive Officer, President, any Vice President, the Treasurer or any Assistant
Treasurer without further corporate action by the Depositor, in authorized
denominations.
(b) A Preferred Securities Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the Property
Trustee. The signature shall be conclusive evidence that the Preferred
Securities Certificate has been authenticated under this Trust Agreement. Each
Preferred Security Certificate shall be dated the date of its authentication.
(c) Upon the written order of the Trust signed by the Administrative
Trustee, the Property Trustee shall authenticate and make available for delivery
the Preferred Securities Certificates.
(d) The Property Trustee may appoint an Authenticating Agent acceptable
to the Trust to authenticate the Preferred Securities. An Authenticating Agent
may authenticate the Preferred Securities whenever the Property Trustee may do
so. Each reference in this Trust Agreement to authentication by the Property
Trustee includes authentication by such agent. An Authenticating Agent has the
same rights as the Property Trustee to deal with the Depositor or the Trust.
Section 505. Registration of Transfer and Exchange of Preferred Securities
Certificates.
(a) (i) The Property Trustee shall keep or cause to be kept, at its
Corporate Trust Office, a register or registers for the purpose of registering
Trust Securities Certificates
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and transfers and exchanges of Preferred Securities Certificates (herein
referred to as the "Securities Register") in which the registrar designated by
the Property Trustee (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
511 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.
(ii) Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to Section
509, the Administrative Trustees or any one of them shall execute and deliver,
in the name of the designated transferee or transferees, one or more new
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 509.
(iii) 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 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.
(iv) 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) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. Any transfer or purported transfer of any
Trust Security not made in accordance with this Trust Agreement shall be null
and void.
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(i) Non Global Security to Non Global Security. A Trust Security
that is not a Global Preferred Security may be transferred, in whole
or in part, to a Person who takes delivery in the form of another
Trust Security that is not a Global Security as provided in Section
505(a).
(ii) Free Transferability. Subject to this Section 505, Preferred
Securities shall be freely transferable.
(iii) Exchanges Between Global Preferred Security and Non-Global
Preferred Security. A beneficial interest in a Global Preferred
Security may be exchanged for a Preferred Security that is not a
Global Preferred Security as provided in Section 503.
Section 506. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate; and (b) there shall be delivered to the Securities
Registrar, the Property Trustee and the Administrative Trustees such security or
indemnity as may be required by them to save each of them harmless, then in the
absence of notice that such Trust Securities Certificate shall have been
acquired by a bona fide purchaser, the Administrative Trustees, or any one of
them, on behalf of the Trust shall execute and make available for delivery, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust
Securities Certificate, a new Trust Securities Certificate of like class, tenor
and denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section 506, 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 506
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 507. Persons Deemed Securityholders.
The Trustees, the Paying Agent and the Securities Registrar shall treat
the Person in whose name any Trust Securities Certificate shall be registered in
the Securities Register as the owner of such Trust Securities Certificate for
the purpose of receiving Distributions and for all other purposes whatsoever,
and neither the Trustees nor the Securities Registrar shall be bound by any
notice to the contrary.
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Section 508. Access to List of Securityholders' Names and Addresses.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall furnish
or cause to be furnished to the Property Trustee (a) semi-annually on or before
January 15 and July 15 in each year, a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the
Securityholders as of the most recent record date; and (b) promptly after
receipt by any Administrative Trustee or the Depositor of a request therefor
from the Property Trustee 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, by receiving and holding a
Trust Securities Certificate, and each owner shall be deemed to have agreed not
to hold the Depositor, the Property Trustee or the Administrative Trustees
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
Section 509. Maintenance of Office or Agency.
The Administrative Trustees shall maintain in a location or locations
designated by the Administrative Trustees, 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
Administrative Trustees initially designate the Corporate Trust Office of the
Property Trustee, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, as the principal corporate trust office for such purposes.
The Administrative Trustees shall give prompt written notice to the Depositor
and to the Securityholders of any change in the location of the Securities
Register or any such office or agency.
Section 510. Appointment of Paying Agent.
The Paying Agent shall initially be the Property Trustee, and any
co-paying agent chosen by the Property Trustee must be acceptable to the
Administrative Trustees and the Depositor. The Paying Agent shall make
Distributions to Securityholders from the Payment Account and shall report the
amounts of such Distributions to the Property Trustee and the Administrative
Trustees. Any Paying Agent shall have the revocable power to withdraw funds from
the Payment Account for the purpose of making the Distributions referred to
above. The Administrative Trustees may revoke such power and remove the Paying
Agent if such Trustees determine in their sole discretion that the Paying Agent
shall have failed to perform its obligations under this Trust Agreement in any
material respect.
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Any Person acting as Paying Agent shall be permitted to resign as Paying Agent
upon 30 days' written notice to the Administrative Trustees, the Property
Trustee and the Depositor. In the event that the Property Trustee shall no
longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Administrative Trustees shall appoint a
successor that is acceptable to the Property Trustee and the Depositor to act as
Paying Agent (which shall be a bank or trust company). The Administrative
Trustees shall cause such successor Paying Agent or any additional Paying Agent
appointed by the Administrative Trustees to execute and deliver to the Trustees
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Trustees that as Paying Agent, such successor Paying Agent
or additional Paying Agent 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 511. Ownership of Common Securities by Depositor; Common Securities
Certificate.
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
in connection with a merger or consolidation of the Depositor into another
corporation pursuant to Section 12.1 of the Indenture) shall be void. A single
Common Securities Certificate representing the Common Securities shall be issued
to the Depositor in the form of a definitive Common Securities Certificate. The
Administrative Trustees shall cause such Common Securities Certificate issued to
the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE".
Section 512. Preferred Securities Certificates.
Each owner shall receive a Preferred Securities Certificate
representing such owner's interest in such Preferred Securities. Upon the
issuance of Preferred Securities Certificates, the Trustees shall recognize the
record holders of the Preferred Securities Certificates as Securityholders. The
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.
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Section 513. 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 Administrative
Trustees and the Issuer Trustees shall give all such notices and communications
specified herein to be given to the Clearing Agency, and shall have no
obligations to the Owners.
Section 514. [Intentionally Omitted]
Section 515. 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 Preferred Securities against payment of the purchase price therefor, the
Preferred Securities shall be fully paid and nonassessable interests in the
Trust. The Holders of the Preferred 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 by a notice in writing to the
Depositor and the Debenture Trustee; and upon any such declaration such
principal amount of and the accrued interest on all of the Debentures shall
become immediately due and payable, provided that the payment of principal and
interest on such Debentures shall remain subordinated to the extent provided in
the Indenture.
(c) For so long as any Preferred Securities remain outstanding, upon a
Debenture Event of Default arising from the failure to pay interest or principal
on the Debentures, the Holders of any Preferred Securities then Outstanding
shall, to the fullest extent permitted by law, have the right to directly
institute proceedings for enforcement of payment to such Holders of interest on
or principal of (as applicable) Debentures having a principal amount equal to
the Liquidation Amount of the Preferred Securities of such Holders.
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ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
Section 601. Limitations on Voting Rights.
(a) Except as provided in this Section 601, in Sections 514, 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 the 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 Trustees shall, at
the expense of the Depositor, obtain an Opinion of Counsel experienced in such
matters to the effect that the Trust shall continue to be classified as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes on account of such action.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise; or (ii) the dissolution 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
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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 proxy, shall constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding a
majority of the Preferred Securities (based upon their aggregate Liquidation
Amount) held by the Preferred Securityholders of record present, either in
person or by proxy, at such meeting shall constitute the action of the
Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
Section 604. Voting Rights.
Securityholders shall be entitled to one vote for each $10 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
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Section 605. Proxies, Etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy, shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
When Trust Securities are held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Trust Securities,
but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Trust Securities.
A proxy purporting to be executed by or on behalf of a Securityholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. No proxy shall be valid more
than three years after its date of execution.
Section 606. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding a majority of all Outstanding
Trust Securities (based upon their aggregate Liquidation Amount) entitled to
vote in respect of such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall consent to the
action in writing.
Section 607. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees may from time to time fix a date, not
more than 90 days prior to the date of any meeting of Securityholders or the
payment of Distribution or other action, as the case may be, as a record date
for the determination of the identity of the Securityholders of record for such
purposes.
Section 608. Acts of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Trust Agreement to be
given, made or taken by Securityholders may be embodied in and evidenced by one
or more instruments of substantially similar tenor signed by such
Securityholders in person or by an agent duly appointed in writing; and, except
as otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders
signing such
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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 proven by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind every
future Securityholder of the same Trust Security and the Securityholder of every
Trust Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled hereunder
to take any action hereunder with regard to any particular Trust Security may do
so with regard to all or any part of the Liquidation Amount of such Trust
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any part of such Liquidation
Amount.
(f) A Securityholder may institute a legal proceeding directly against
the Depositor under the Guarantee to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee (as
defined in the Guarantee), the Trust or any Person.
Section 609. Inspection of Records.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by any
Securityholder and its 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 Bank and the
Property Trustee.
The Bank and the Property Trustee, each severally on behalf of and as
to itself, as of the date hereof, and each successor Property Trustee at the
time of the successor Property Trustee's acceptance of its appointment as
Property Trustee hereunder (the term "Bank" being used to refer to such
successor Property Trustee in its separate corporate capacity) hereby represents
and warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Bank is a banking corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) the Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and constitutes the valid and legally binding
agreement of the Property Trustee enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Property Trustee of
this Trust Agreement has been duly authorized by all necessary corporate or
other action on the part of the Property Trustee and does not require any
approval of stockholders of the Bank and such execution, delivery and
performance will not (i) violate the Bank's charter or by-laws; (ii) violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of, any Lien on any properties
included in the Trust Property pursuant to the provisions of, any indenture,
mortgage, credit agreement, license or other agreement or instrument to which
the Bank or the Property Trustee is a party or by which it is bound; or (iii)
violate any law, governmental rule or regulation of the United States or the
State of Delaware, as the case may be, governing the banking or trust powers of
the Bank or the Property Trustee (as appropriate in context) or any order,
judgment or decree applicable to the Bank or the Property Trustee;
(e) neither the authorization, execution or delivery by the Property
Trustee of this Trust Agreement nor the consummation of any of the transactions
by the Property Trustee contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing federal law governing the banking or
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trust powers of the Bank or the Property Trustee, as the case may be, under the
laws of the United States or the State of Delaware; and
(f) there are no proceedings pending or, to the best of the Property
Trustee's knowledge, threatened against or affecting the Bank or the Property
Trustee in any court or before any governmental authority, agency or arbitration
board or tribunal which, individually or in the aggregate, would materially and
adversely affect the Trust or would question the right, power and authority of
the Property Trustee to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
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, will be, as of such date or dates, if applicable, 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 or dates, if
applicable, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the Property Trustee or the
Delaware Trustee, as the case may be, of 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
them. No Administrative Trustee nor the Delaware Trustee shall be liable for its
act or omissions hereunder except as a result of its own gross negligence or
willful misconduct. The Property 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
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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, the Delaware Trustee or an Administrative Trustee has duties (including
fiduciary duties) and liabilities relating thereto to the Trust or to the
Securityholders, the Delaware Trustee or 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
Delaware Trustee or 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 Delaware Trustee and the Administrative
Trustees, as the case may be.
(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 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
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liability afforded to the Property Trustee under this Trust Agreement
and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree with the
Depositor and money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the
Payment Account maintained by the Property Trustee pursuant to Section
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 5 Business 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. For purposes of
this Section 802 the term "Event of Default" means any event that is, or after
notice or lapse of time or both would become, an Event of Default.
(b) The Administrative Trustees shall transmit, to the Securityholders
in the manner and to the extent provided in Section 1008, notice of the
Depositor's election to begin or further extend an Extension Period on the
Debentures (unless such election shall have been revoked) within the time
specified for transmitting such notice to the holders of the Debentures pursuant
to the Indenture as originally executed.
Section 803. Certain Rights of Property Trustee.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action; or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or
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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 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 Officer's
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, any filing under tax or securities laws or any filing
under tax or securities laws) or any rerecording, 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, such counsel may be
counsel to the Depositor or any of its Affiliates, and may include any of its
employees; 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
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offered to the Property Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible for
its own negligence or recklessness with respect to selection of any agent or
attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action; (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received; and (iii) shall
be protected in acting in accordance with such instructions; and
(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 Use of Proceeds.
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.
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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 reasonable compensation
for all services rendered by them hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to such Trustee's negligence, bad faith or
willful misconduct (or, in the case of the Administrative Trustees or the
Delaware Trustee, 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 loss, damage, claims, liability,
penalty or expense incurred without negligence or bad faith 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 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 or the Delaware
Trustee, any such expense, disbursement or advance as may be attributable to
its, his or her gross negligence, bad faith or willful misconduct).
No Trustee may claim any Lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 806.
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
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$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 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 Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
Section 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 all instruments and agreements necessary or proper to appoint,
one or more Persons approved by the Property Trustee either to act as
co-trustee, jointly with the Property Trustee, of all or any part of such Trust
Property, or to the extent required by law to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section 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
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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.
(ii) The rights, powers, duties and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Property Trustee or by the Property
Trustee and such co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or separate
trustee, except to the extent that under any law of any jurisdiction
in which any particular act is to be performed, the Property Trustee
shall be incompetent or unqualified to perform such act, in which
event such rights, powers, duties and obligations shall be exercised
and performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor,
may accept the resignation of or remove any co-trustee or separate
trustee appointed under this Section 809, and, in case a Debenture
Event of Default has occurred and is continuing, the Property Trustee
shall have the power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the
Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution,
delivery and performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to
any co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property
Trustee or any other trustee hereunder.
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(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) Except as otherwise provided herein, 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.
(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 effective immediately.
(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 shall resign, be removed or become
incapable of continuing to act as the Property Trustee or the Delaware Trustee,
as the case may be, at a time when a Debenture Event of Default shall have
occurred and 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
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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 Relevant Trustee with respect to the Trust
Securities.
(e) The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 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.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of 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 set 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 to, and confirm and
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 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.
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(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, the Delaware Trustee or any
Administrative Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Relevant Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Relevant Trustee, shall be the successor of such Relevant Trustee
hereunder, provided such Person shall be otherwise qualified and eligible under
this Article VIII, without the execution or filing of any paper or any further
act on the part of any of the parties hereto.
Section 813. Preferential Collection of Claims Against Depositor or Trust.
If and when the Property Trustee or the Delaware 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 or the Delaware
Trustee, as the case may be, 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, its actions under this Trust Agreement and the
property and funds in its possession as Property Trustee as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(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 and the
Depositor.
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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.
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.
Section 817. Number of Trustees.
(a) The number of Trustees shall be five, 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 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
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(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
________, 2028 (the "Expiration Date") and the Trust Property shall be
distributed in accordance with Section 904.
Section 902. Early Termination.
The first to occur of any of the following events is an "Early
Termination Event:"
(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) the entrance of an order for dissolution of the Trust by a court of
competent jurisdiction.
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Section 903. Dissolution.
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 Trustee 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 (including, without limitation, after paying or
making reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3803(e) of the Delaware Business Act), to each
Securityholder a Like Amount of Debentures, subject to Section 904(d). Notice of
liquidation shall be given by the Property Trustee by first-class mail, postage
prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation
Date to each Holder of Trust Securities at such Holder's address appearing in
the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed
to represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for
Debentures, or, if Section 904(d) applies, receive a Liquidation
Distribution, as the Administrative Trustees or the Property Trustee
shall deem appropriate.
(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
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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) the Clearing Agency for the Preferred Securities or its
nominee, as the registered holder of the Global Preferred Securities
Certificate, shall receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution with respect
to Preferred Securities held by the Clearing Agency or its nominee; (iii) the
Depositor shall use its reasonable efforts to have the Debentures listed on the
Nasdaq Stock Market's National 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 held by the Clearing Agency 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 Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the dissolution of the Trust,
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 (including, without
limitation, after paying or making reasonable provision to pay all claims and
obligations of the Trust in accordance with Section 3803(e) of the Delaware
Business Act), an amount equal to the Liquidation Amount per Trust Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If, upon any such dissolution, 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 dissolution, pro rata
(determined as aforesaid) with Holders of Preferred Securities, except that, if
a Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities.
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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 corporation or other Person, except pursuant
to this Section 905. 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 to a trust
organized as such under the laws of any State; provided, that (i) such successor
entity either (A) expressly assumes all of the obligations of the Trust with
respect to the Preferred Securities; or (B) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise; (ii) the
Depositor expressly appoints a trustee of such successor entity possessing
substantially the same powers and duties as the Property Trustee as the holder
of the Debentures; (iii) the Successor Securities are listed or traded, or any
Successor Securities shall be listed or traded upon notification of issuance, on
any national securities exchange or other organization on which the Preferred
Securities are then listed, if any; (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect; (v)
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 (vi) the Depositor
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, the Debentures, the Indenture, this Trust
Agreement and the Expense Agreement. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States federal
income tax purposes.
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ARTICLE X
MISCELLANEOUS PROVISIONS
Section 1001. Limitation of Rights of Securityholders.
The death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding-up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
Section 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. Any 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 States federal income tax purposes or the Trust's
exemption from status as 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
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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 to cease to qualify for the exemption
from status as 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) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
Section 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 THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR
ANY OTHER JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE.
- 52 -
<PAGE>
Section 1005. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day which is a Business Day, 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 in connection with a
consolidation, merger or sale involving the Depositor that is permitted under
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; Counterparts.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement. This Trust Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument.
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 to or
served 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 Yardville National
Bancorp, 3111 Quakerbridge Road, Trenton, New Jersey 08619, Attention: Chief
Executive Officer, facsimile no.: (609) 586-9582. Any notice to Preferred
Securityholders shall also be given to such owners as have, within two years
preceding the giving of such notice, filed their names and addresses with the
Property Trustee for that purpose. Such notice, demand or other communication to
or upon a Securityholder shall be deemed to have been sufficiently given or
made, for all purposes, upon hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee or the Administrative Trustees shall be given in
writing addressed (until
- 53 -
<PAGE>
another address is published by the Trust) as follows: (a) with respect to the
Property Trustee and the Delaware Trustee, to Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration; and (b) with respect to the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of Yardville Capital
Trust." Such notice, demand or other communication to or upon the Trust or the
Property Trustee shall be deemed to have been sufficiently given or made only
upon actual receipt of the writing by the Trust or the Property Trustee.
Section 1009. Agreement Not To Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and 1 day after the Trust has been
terminated in accordance with Article IX, they shall not file, or join in the
filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or
otherwise join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor takes action in violation of this
Section 1009, the Property Trustee agrees, for the benefit of Securityholders,
that at the expense of the Depositor (which expense shall be paid prior to the
filing), it shall file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor against the Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be estopped and precluded
therefrom. The provisions of this Section 1009 shall survive the termination of
this Trust Agreement.
Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
(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.
- 54 -
<PAGE>
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
[The remainder of this page has been left blank intentionally]
- 55 -
<PAGE>
IN WITNESS WHEREOF, this Trust Agreement has been executed as of the
date first written above.
YARDVILLE NATIONAL BANCORP
By:
--------------------------------------
Patrick M. Ryan
President and Chief Executive Officer
WILMINGTON TRUST COMPANY
as Property Trustee
By:
--------------------------------------
Vice President
----------------------------------------
Jay G. Destribats, as Administrative
Trustee
----------------------------------------
Patrick M. Ryan, as Administrative
Trustee
----------------------------------------
Stephen F. Carman, as Administrative
Trustee
<PAGE>
This Preferred Securities Certificate is a Global Preferred Securities
Certificate within the meaning of the Trust Agreement hereinafter referred to
and is registered in the name of a Depositary or a nominee of a Depositary. This
Preferred Security Certificate is exchangeable for Preferred Securities
Certificates registered in the name of a person other than the Depositary or its
nominee only in the limited circumstances described in the Trust Agreement and
may not be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary, except in the limited circumstances described in the
Trust Agreement.
Unless this Preferred Security Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to Yardville Capital Trust or its agent for registration of
transfer, exchange or payment, and any Preferred Security Certificate issued is
registered in the name of such nominee as is requested by an authorized
representative of DTC (and any payment is made to such entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the registered
owner hereof, has an interest herein.
<PAGE>
Certificate Number Number of Preferred Securities
P-1
CUSIP NO.
Certificate Evidencing Preferred Securities
of
Yardville Capital Trust
__________% Preferred Securities
(Liquidation Amount $10 per Preferred Security)
Yardville Capital Trust, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that
_________________ (the "Holder") is the registered owner of
________________________ preferred securities of the Trust representing
undivided beneficial interests in the assets of the Trust and designated the
__________% 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 505 of the Trust Agreement. The designations, rights,
privileges, restrictions, preferences, and other terms and provisions of the
Preferred Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
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
Preferred Securities as set forth therein. The Holder is entitled to the
benefits of the Preferred Securities Guarantee Agreement entered into by
Yardville National Bancorp, a New Jersey corporation, and Wilmington Trust
Company, as guarantee trustee, dated as of __________ ____, 1997 (the
"Guarantee"), to the extent provided therein. The Trust shall furnish a copy of
the Trust Agreement and the Guarantee to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this _____day of __________, 1997.
YARDVILLE CAPITAL TRUST
By:
-------------------------------
Name:
-----------------------------
Title: Administrative Trustee
-----------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the __________% Preferred Securities described in the
within-mentioned Amended and Restated Trust Agreement.
Dated:
WILMINGTON TRUST COMPANY YARDVILLE CAPITAL TRUST
as Authentication Agent and Registrar
By:_______________________________ By:______________________________
Authorized Signatory Administrative Trustee
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
(Insert assignee's social security or tax
identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date:
-----------------
Signature:
-------------------------------------------
(Sign exactly as your name appears on
the other side of this Preferred Security
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
MSSF DRAFT 08/18/97
================================================================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
YARDVILLE NATIONAL BANCORP
AND
WILMINGTON TRUST COMPANY
___________ , 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I Definitions and Interpretation.........................................................................
1.1. Definitions and Interpretation....................................................................
ARTICLE II Trust Indenture Act...................................................................................
2.1. Trust Indenture Act; Application..................................................................
2.2. Lists of Holders of Securities....................................................................
2.3. Reports by the Preferred Guarantee Trustee........................................................
2.4. Periodic Reports to Preferred Guarantee Trustee...................................................
2.5. Evidence of Compliance with Conditions Precedent..................................................
2.6. Events of Default; Waiver.........................................................................
2.7. Event of Default; Notice..........................................................................
2.8. Conflicting Interests.............................................................................
ARTICLE III Powers, Duties and Rights of Preferred Guarantee Trustee.............................................
3.1. Powers and Duties of the Preferred Guarantee Trustee..............................................
3.2. Certain Rights of Preferred Guarantee Trustee.....................................................
3.3. Not Responsible for Recitals or Issuance of Guarantee.............................................
ARTICLE IV Preferred Guarantee Trustee...........................................................................
4.1. Preferred Guarantee Trustee; Eligibility..........................................................
4.2. Appointment, Removal and Resignation of Preferred Guarantee Trustee...............................
ARTICLE V Guarantee..............................................................................................
5.1. Guarantee.........................................................................................
5.2. Waiver of Notice and Demand.......................................................................
5.3. Obligations Not Affected..........................................................................
5.4. Rights of Holders.................................................................................
5.5. Guarantee of Payment..............................................................................
5.6. Subrogation.......................................................................................
5.7. Independent Obligations...........................................................................
ARTICLE VI Limitation Of Transactions; Subordination.............................................................
6.1. Limitation on Transactions........................................................................
6.2. Ranking...........................................................................................
ARTICLE VII Termination..........................................................................................
7.1. Termination.......................................................................................
ARTICLE VIII Indemnification.....................................................................................
8.1. Exculpation.......................................................................................
8.2. Indemnification...................................................................................
i
<PAGE>
ARTICLE IX Miscellaneous.........................................................................................
9.1. Successors and Assigns............................................................................
9.2. Amendments; Counterparts..........................................................................
9.3. Notices...........................................................................................
9.4. Benefit...........................................................................................
9.5. Governing Law.....................................................................................
</TABLE>
ii
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Indenture
- ------------------- ---------
<S> <C>
310(a)..................................................................................4.1(a)
310(b).............................................................................4.1(c), 2.8
310(c)..........................................................................Not Applicable
311(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
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.
iii
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred
Securities Guarantee"), dated as of ____________, 1997, is executed and
delivered by YARDVILLE NATIONAL BANCORP, a New Jersey corporation (the
"Guarantor"), and WILMINGTON TRUST COMPANY, a trust company organized and
existing under the laws of the State of Delaware, 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 Yardville
Capital Trust, 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 therein, 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 up to 1,380,000 preferred securities, having an
aggregate liquidation amount of up to $13,800,000, designated the _____%
Cumulative Trust Preferred Securities (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions and Interpretation.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution of
this Preferred Securities Guarantee have the same meaning when used in this
Preferred Securities Guarantee;
(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
1
<PAGE>
(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 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 Preferred Securities Guarantee is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the ______% Subordinated Debentures due
____________, 2027, of the Debenture Issuer held by the Property Trustee of the
Trust.
"Debenture Issuer" means the Guarantor.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.
"Guarantor" means Yardville National Bancorp, a New Jersey 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 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 of the Trust (other than in connection with the
distribution of Debentures to the Holders in exchange for Preferred Securities
as provided in the Trust Agreement), 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.
2
<PAGE>
"Indenture" means the Indenture dated as of ____________, 1997, among
the Debenture Issuer and Wilmington Trust Company, as trustee, and any indenture
supplemental thereto pursuant to which the Debentures of the Debenture Issuer
are to be issued to the Property Trustee of the Trust.
"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 definition 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 Wilmington Trust Company, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-president,
any assistant secretary, the treasurer, any assistant treasurer or other officer
of the Corporate Trust Office of the Preferred Guarantee Trustee 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 officer's
knowledge of and familiarity with the particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
3
<PAGE>
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date 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.
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) In the event the Preferred Guarantee Trustee is not also the
Securities Registrar, 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 (the "List of Holders") as of such date, (i) within 1 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.
Section 2.3. Reports by the Preferred Guarantee Trustee.
On or before July 15 of each year, 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 of the Trust
Indenture Act (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
4
<PAGE>
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)(1) may be given in
the form of an Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of 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, except in the case of a default in the payment of a Guarantee
Payment, the Preferred Guarantee Trustee shall be protected in withholding such
notice if and so long as a Responsible Officer of the Preferred Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interests 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
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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.
(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
therein, 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 direction of the Holders of not less than a Majority in
Liquidation Amount of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee, or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the repayment
of such funds or liability is not reasonably assured to it under the terms of
this Preferred
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Securities Guarantee or indemnity, reasonably satisfactory to the Preferred
Guarantee Trustee, against such risk or liability is not reasonably assured to
it.
Section 3.2. Certain Rights of Preferred Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an Officers'
Certificate;
(iii) whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting any action
hereunder, the Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see to
any recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel, and
the written 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 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;
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(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 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 instructions are received, and (iii) shall be protected
in conclusively relying on or acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed
to impose any duty or obligation on the Preferred Guarantee Trustee to perform
any act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
Section 3.3. Not Responsible for Recitals or Issuance of Guarantee.
The Recitals contained in this Preferred Securities 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
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permitted by the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to above, then, for the
purposes of this Section 4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
Section 4.2. Appointment, Removal and Resignation of Preferred Guarantee
Trustee.
(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 Section 4.2(a) 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 to the Guarantor 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.
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
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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 Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(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
approval of the Board of Governors of the Federal Reserve System required for
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
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obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
Section 5.4. Rights of Holders.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
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) or upon the distribution of Debentures to
Holders as provided in the Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1. Limitation on 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
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 and (b) the Guarantor shall not make any payment of interest
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or principal on or repay, repurchase or redeem any debt securities issued by the
Guarantor which rank pari passu with or junior to the Debentures other than
payments under this Preferred Securities Guarantee 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 liabilities of the Guarantor, (ii) pari passu with the most
senior preferred securities or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect of 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 Debentures to the
Holders of the Preferred Securities. Notwithstanding the foregoing, this
Preferred Securities Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
Section 8.2. Indemnification.
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability or expense
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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.
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 Guarantor's obligations hereunder, the Guarantor shall
not assign its obligations hereunder, and any purported assignment that is not
in accordance with these provisions shall be void.
Section 9.2. Amendments; Counterparts.
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. This Preferred Securities Guarantee may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which shall constitute but one and the same instrument.
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 registered or certified 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):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
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Yardville National Bancorp
3111 Quakerbridge Road
Trenton, New Jersey 08619
Attention: Chief Executive Officer
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
Section 9.4. Benefit.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
Section 9.5. Governing Law.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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This Preferred Securities Guarantee is executed as of the day and year first
above written.
YARDVILLE NATIONAL BANCORP
as Guarantor
By
--------------------------------------
Patrick M. Ryan
President and Chief Executive Officer
WILMINGTON TRUST COMPANY,
as Preferred Guarantee Trustee
By
--------------------------------------
Vice President
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AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of
__________ ____, 1997, between YARDVILLE NATIONAL BANCORP, a New Jersey
corporation (the "Company"), and YARDVILLE CAPITAL TRUST, a Delaware business
trust (the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive Debentures from, the Company and to issue and sell
up to 1,150,000 ___% Trust Preferred Securities (the "Preferred Securities")
with such powers, preferences and special rights and restrictions as 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 Company shall directly or indirectly own all of the Common
Securities of the Trust and shall issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges shall be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust, hereby agree as
follows:
ARTICLE I
SECTION 1.1. Guarantee By the Company
Subject to the terms and conditions hereof, the Company, including in
its capacity as holder of the Common Securities, 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.
D-1
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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 or any Beneficiary must restore payment
of any sums paid under the Preferred Securities, under any Obligation, under the
Preferred Securities Guarantee Agreement dated the date hereof by the Company
and Wilmington Trust Company as guarantee trustee, or under this Agreement for
any reason whatsoever. This Agreement is continuing, irrevocable, unconditional
and absolute.
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SECTION 1.3. Waiver Of Notice
The Company hereby waives notice of acceptance of this Agreement and of
any obligation to which it applies or may apply, and the Company 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 Company 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 Company with respect to the happening of any of the
foregoing.
SECTION 1.5. Enforcement
A Beneficiary may enforce this Agreement directly against the Company,
and the Company 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
Company.
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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 Company
and shall inure to the benefit of the Beneficiaries.
SECTION 2.2. Amendment
So long as there remains any Beneficiary or any Preferred Securities of
any series 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 by facsimile
transmission (confirmed by mail), telex, or by registered or certified mail,
addressed as follows (and if so given, shall be deemed given when mailed or upon
receipt of an answer back, if sent by telex):
Yardville Capital Trust c/o Yardville National Bancorp, 3111
Quakerbridge Road, Trenton, New Jersey 08619. Facsimile No.: (609) 586-9582.
Attention: Chief Financial Officer.
Yardville National Bancorp, 3111 Quakerbridge Road, Trenton, New Jersey
08619. Facsimile No.: (609) 586-9582. Attention: Chief Financial Officer.
SECTION 2.4
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
laws principles).
THIS AGREEMENT is executed as of the day and year first above written.
YARDVILLE NATIONAL BANCORP
By:
--------------------------------
Name:
Title:
YARDVILLE CAPITAL TRUST
By:
--------------------------------
Name:
Title: Administrative Trustee
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