<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21,
1999
REGISTRATION NO.
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
PROSPERITY BANCSHARES, INC. PROSPERITY CAPITAL TRUST I
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C> <C> <C> <C>
TEXAS 6712 74-2331986 DELAWARE 6712 51-6514258
(State or other (Primary Standard (I.R.S. Employer (State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.) jurisdiction of Industrial Identification No.)
incorporation or Classification Code incorporation or Classification Code
organization) Number) organization) Number)
</TABLE>
<TABLE>
<S> <C>
3040 POST OAK BLVD. 3040 POST OAK BLVD.
HOUSTON, TEXAS 77056 HOUSTON, TEXAS 77056
(713) 993-0002 (713) 993-0002
(Address, including zip code, and telephone number, (Address, including zip code, and telephone number,
including including
area code, of registrant's principal executive offices) area code, of registrant's principal executive offices)
</TABLE>
TRACY T. RUDOLPH
CHAIRMAN OF THE BOARD
3040 POST OAK BLVD.
HOUSTON, TEXAS 77056
(713) 993-0002
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
WILLIAM T. LUEDKE IV, ESQ. JOHN E. FREECHACK, ESQ.
BRACEWELL & PATTERSON, L.L.P. KRISTA A. ENDRES, ESQ.
2900 SOUTH TOWER PENNZOIL PLACE BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
HOUSTON, TEXAS 77002-2781 333 W. WACKER DRIVE, SUITE 2700
(713) 223-2900 CHICAGO, ILLINOIS 60606
(312) 984-3100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of,
check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
% Trust Preferred Securities of Prosperity
Capital Trust I................................ 1,200,000 $10.00 $12,000,000 $3,336
% Junior Subordinated Debentures of Prosperity
Bancshares, Inc. .............................. (2)
Guarantee of Trust Preferred Securities.......... (3)
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</TABLE>
(1) The registration fee is calculated in accordance with Rule 457(a), (i) and
(n).
(2) The Debentures will be purchased by Prosperity Capital Trust I with the
proceeds from the sale of the Trust Preferred Securities. Such securities
may later be distributed for no additional consideration to the holders of
the Trust Preferred Securities of Prosperity Capital Trust I upon its
dissolution.
(3) This Registration Statement is deemed to cover the Debentures of Prosperity
Bancshares, Inc., the rights of holders of Debentures of Prosperity
Bancshares, Inc. under the Indenture, and the rights of holders of the Trust
Preferred Securities under the Trust Agreement, the Guarantee and the
Expense Agreement entered into by Prosperity Bancshares, Inc.
---------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED OCTOBER 21, 1999.
1,200,000 TRUST PREFERRED SECURITIES
PROSPERITY CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER TRUST PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED BY
PROSPERITY BANCSHARES, INC.
The trust preferred securities represent undivided beneficial interests in
the assets of Prosperity Capital Trust I. The trust will invest the proceeds of
this offering of trust preferred securities in the % junior subordinated
debentures of Prosperity Bancshares, Inc.
For each of the trust preferred securities that you own, you are entitled
to receive cumulative cash distributions at an annual rate of % on March 31,
June 30, September 30 and December 31 of each year, beginning March 31, 2000,
from payments on the debentures. Payment of distributions may be deferred at any
time for up to 20 consecutive quarters. The trust preferred securities are
effectively subordinated to all senior and subordinated indebtedness of
Prosperity Bancshares, Inc. and its subsidiaries. The debentures mature and the
trust preferred securities must be redeemed on , 2029. The trust may
redeem the trust preferred securities, at a redemption price of $10 per trust
preferred security plus accumulated and unpaid distributions, at any time on or
after , 2004, or earlier under certain circumstances.
The trust preferred securities will be listed on the Nasdaq National Market
under the trading symbol "PRSPP."
WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
8, WHERE WE DESCRIBE SPECIFIC RISKS RELATED TO AN INVESTMENT IN THE TRUST
PREFERRED SECURITIES AND RISKS RELATING TO PROSPERITY BANCSHARES, INC., ALONG
WITH THE REMAINDER OF THIS PROSPECTUS, BEFORE YOU MAKE YOUR INVESTMENT DECISION.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OBLIGATIONS OF ANY
BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
PER TRUST
PREFERRED
SECURITY TOTAL
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<S> <C> <C>
Public offering price....................................... $10.00 $12,000,000
Underwriting fees to be paid by Prosperity Bancshares,
Inc....................................................... $ $
Proceeds to the trust....................................... $10.00 $12,000,000
</TABLE>
The underwriters have entered into a firm commitment underwriting agreement
with Prosperity Bancshares, Inc. and Prosperity Capital Trust I, which means
that all of the trust preferred securities will be purchased by the
underwriters, if any are.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HOWE BARNES INVESTMENTS, INC.
, 1999
<PAGE> 3
[Insert Map of banking center locations]
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary................................... 1
Summary Consolidated Financial Data....... 6
Risk Factors.............................. 8
Forward-Looking Information............... 15
Use of Proceeds........................... 16
Accounting Treatment...................... 16
Capitalization............................ 17
Pro Forma Combined Financial Statements... 18
Selected Consolidated Financial Data...... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 24
Business.................................. 53
Management................................ 58
Interests of Management and Others in
Certain Transactions.................... 62
Beneficial Ownership of Common Stock by
Management and Principal Shareholders... 63
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Supervision and Regulation................ 64
Description of the Trust.................. 71
Description of the Trust Preferred
Securities.............................. 72
Description of the Debentures............. 83
Book-Entry Issuance....................... 91
Description of the Guarantee.............. 93
Relationship Among the Trust Preferred
Securities, the Debentures and the
Guarantee............................... 95
Federal Income Tax Consequences........... 97
ERISA Considerations...................... 100
Underwriting.............................. 101
Legal Matters............................. 102
Experts................................... 102
Where You Can Find Information............ 102
Index to Financial Statements............. F-1
</TABLE>
You should rely on the information contained in this prospectus. We have
not, and our underwriters have not, authorized any person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and our underwriters are
not, making an offer to sell these securities in any jurisdictions where the
offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus only.
i
<PAGE> 5
SUMMARY
The items in the following summary are described in more detail later in
this prospectus. Therefore, you should also read the more detailed information
set forth in this prospectus and in our financial statements. Unless otherwise
indicated, all share and per share information has been adjusted to give effect
to a four-for-one common stock split effective as of September 10, 1998.
PROSPERITY BANCSHARES, INC.
We are a bank holding company headquartered in Houston, Texas. We conduct
business through our subsidiary First Prosperity Bank. As a result of our
October 1, 1999 acquisition of South Texas Bancshares, Inc., we have 15
full-service banking centers located throughout the greater Houston metropolitan
area and nine contiguous counties situated south and southwest of Houston.
On November 12, 1998, we became a publicly traded company when we issued
1,182,517 shares of our common stock in an initial public offering in which we
raised $12.8 million. Our common stock is listed on the Nasdaq National Market
under the symbol "PRSP".
We operate under a community banking philosophy. We seek to develop broad
customer relationships based on service and convenience while maintaining our
conservative approach to lending and strong asset quality. We offer our
customers, primarily consumers and small and medium-sized businesses, a variety
of traditional loan and deposit products, which we tailor to the specific needs
of customers in a given market. As a result of our most recent acquisition, we
can now provide trust services to our customers, and we intend to offer these
services in the future at all of our banking centers.
We began operations in 1983 as a vehicle to acquire the former Allied Bank
in Edna, which was chartered in 1949, and have grown through a combination of
internal growth, the acquisition of existing community banks and branches and
the opening of new banking centers. As a result of these additions and internal
growth, our assets have increased from $79.4 million at the end of 1989 to
$442.8 million at June 30, 1999 and our deposits have increased from $70.3
million to $398.4 million in that same period.
Along with steady asset growth, our financial performance has been
characterized by consistent core earnings and strong asset quality. Our low cost
of funds and stringent cost controls have enabled our net income to grow at a
compound annual rate of 45.1% since 1989. At the same time, we have maintained
high asset quality as characterized by our 0.07% ratio of nonperforming assets
to total loans and other real estate owned at June 30, 1999.
Our primary market area consists of the communities served by our three
locations in the greater Houston metropolitan area and 12 locations in nine
contiguous counties extending to the south and southwest of Houston. Texas
Highway 59 (scheduled to become Interstate Highway 69), which serves as the
primary "NAFTA Highway" linking the interior United States and Mexico, runs
directly through the center of our market area. The increased traffic along this
NAFTA Highway has enhanced economic activity in our market area and created
opportunities for growth. The diverse nature of the local economies provides us
with a varied customer base and allows us to spread our lending risks throughout
a number of different industries.
Management believes that, as one of the few publicly traded mid-sized
financial institutions that combines responsive community banking with the
variety of products and services of a regional bank holding company, we have a
competitive advantage in our market area and excellent growth opportunities
through acquisitions, new branch locations and additional business development.
Our executive offices are located at 3400 Post Oak Boulevard, Houston,
Texas 77056 and our telephone number is (713) 993-0002.
1
<PAGE> 6
BUSINESS STRATEGY
Our business strategy primarily focuses on the following:
- Continue community banking emphasis
- Expand market share through internal growth and a disciplined acquisition
strategy
- Increase loan volume and diversify loan portfolio
- Enhance cross-selling through the use of incentives and technology
- Continue strict focus on efficiency
- Maintain strong asset quality
RECENT DEVELOPMENTS
On October 1, 1999, we acquired all of the outstanding shares of South
Texas Bancshares. In connection with the acquisition, The Commercial National
Bank of Beeville, a wholly-owned subsidiary of South Texas Bancshares, was
merged into the bank. This acquisition provides us with a presence in South
Texas through the addition of banking centers in the towns of Beeville, Mathis
and Goliad. We believe that this acquisition will not only expand our market
presence and market share in South Texas, but also enable us to achieve certain
cost efficiencies and savings and provide trust services to our customers. At
June 30, 1999, South Texas Bancshares had total assets of $135.8 million, total
deposits of $119.0 million and total loans (net of unearned discount and
allowance for loan losses) of $34.5 million.
Total loans at September 30, 1999 were $197.5 million compared with total
loans of $147.7 million at September 30, 1998, an increase of $49.8 million or
33.7%. Total assets were $444.4 million at September 30, 1999 compared with
$336.4 million at September 30, 1998, an increase of $107.9 million or 32.1%.
The allowance for credit losses at September 30, 1999 was $2.1 million or 1.05%
of total loans compared with $1.2 million or 0.79% of total loans at September
30, 1998. The $900,000 increase was primarily due to a $660,000 allowance for
credit losses acquired in connection with our acquisition of Union State Bank in
East Bernard, Texas in October of 1998 and our monthly provision for credit
losses, made in accordance with our methodology of evaluating estimated losses
in the loan portfolio. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition -- Allowance for
Credit Losses." Shareholders' equity increased from $27.8 million at September
30, 1998 to $42.9 million at September 30, 1999, an increase of $15.1 million or
54.4%, primarily due to the $12.8 million raised in our initial public offering.
We had no nonperforming loans at September 30, 1999 or 1998.
Net income for the three months ended September 30, 1999 was $1.6 million
compared with $1.1 million for the three months ended September 30, 1998, an
increase of $505,000 or 46.8%. Diluted earnings per share increased $0.03 or
11.5% to $0.29 for the three months ended September 30, 1999 compared with $0.26
for the three months ended September 30, 1998. Return on average assets for the
three months ended September 30, 1999 was 1.42% compared with 1.28% for the
three months ended September 30, 1998, while return on average equity was 14.79%
for the three months ended September 30, 1999 compared with 15.77% for the same
period in 1998.
Net income for the nine months ended September 30, 1999 was $4.5 million
compared with $3.1 million for the first nine months of 1998, an increase of
$1.4 million or 44.1%. Diluted earnings per share increased $0.07 or 9.1% to
$0.84 for the nine months ended September 30, 1999 compared with $0.77 for the
same period in 1998. The increase in net income for both the three month and
nine month periods ended September 30, 1999 was primarily the result of an
increase in net interest income resulting in growth from loans. Return on
average assets for the nine months ended September 30, 1999 and 1998 was 1.34%
and 1.26%, respectively, while the return on average equity for the same periods
was 14.30% and 15.87%, respectively. The decrease in return on average equity
was expected and is due to the
2
<PAGE> 7
$12.8 million increase in equity in the fourth quarter of 1998 from the proceeds
of our initial public offering.
PROSPERITY CAPITAL TRUST I
The trust, which is the issuer of the trust preferred securities, is a
Delaware business trust. Upon issuance of the trust preferred securities offered
by this prospectus, the purchasers in this offering will own all of the issued
and outstanding trust preferred securities of the trust. In exchange for our
capital contribution to the trust, we will own all of the common securities of
the trust. The trust exists for the sole purposes of:
- issuing the trust preferred securities to the public for cash;
- issuing the common securities to us;
- investing the proceeds from the sale of the trust preferred and common
securities in an equivalent amount of % junior subordinated debentures
due , 2029 issued by us; and
- engaging in other activities that are incidental to those listed above.
The trust's address is 3040 Post Oak Boulevard, Houston, Texas 77056 and
its telephone number is (713) 993-0002.
THE OFFERING
Trust preferred securities
issuer..................... Prosperity Capital Trust I
Securities that are being
offered.................... The trust is offering 1,200,000 trust preferred
securities, which represent undivided beneficial
interests in the assets of the trust. Those assets
will consist solely of the debentures and interest
paid on the debentures.
The trust will sell the trust preferred securities
to the public for cash. The trust will use that
cash to buy debentures from us.
Offering price............. $10 per trust preferred security.
Payment of distributions... If you purchase the trust preferred securities, you
are entitled to receive cumulative cash
distributions at a % annual rate. Distributions
will accumulate from the date the trust issues the
trust preferred securities and will be paid
quarterly on March 31, June 30, September 30 and
December 31 of each year beginning March 31, 2000.
The record date for distributions on the trust
preferred securities will be the business day prior
to the distribution date. Please note that the
trust may defer the payment of cash distributions,
as more fully described below.
We have the option to defer
the interest payments...... The trust will rely solely on payments made by us
on the debentures to pay distributions on the trust
preferred securities. So long as no event of
default under the indenture has occurred and is
continuing, we may, at one or more times, defer
interest payments on the debentures for up to 20
consecutive quarters, but not beyond ,
2029. If we defer interest payments on the
debentures:
- the trust will also defer distributions on the
trust preferred securities;
3
<PAGE> 8
- distributions you are entitled to will
accumulate; and
- these accumulated distributions will accumulate
additional distributions at an annual rate of %
compounded quarterly.
At the end of any deferral period, we will pay to
the trust all accrued and unpaid amounts on the
debentures. The trust will then pay all accumulated
and unpaid distributions to you.
You will still be taxed if
distributions on the
trust preferred
securities are
deferred................. If a deferral of payment occurs, you will still be
required to recognize the deferred amounts as
income for United States federal income tax
purposes in advance of receiving these amounts for
as long as the debentures remain outstanding, even
if you are a cash basis taxpayer.
Maturity................... The debentures will mature and the trust preferred
securities must be redeemed on , 2029. We
have the option, however, to shorten the maturity
date to a date not earlier than , 2004.
We will not shorten the maturity date unless we
have received the prior approval of the Board of
Governors of the Federal Reserve System, if
required.
Redemption of the trust
preferred securities is
possible................. The trust must redeem the trust preferred
securities when the debentures are paid at maturity
or upon any earlier redemption of the debentures.
We may redeem all or part of the debentures on or
after , 2004. In addition, we may
redeem, at any time, all of the debentures if:
- the interest we pay on the debentures is no
longer deductible by us for federal tax purposes
or the trust becomes subject to federal income
tax;
- there is a change in the Investment Company Act
of 1940 that requires the trust to register under
that law; or
- there is a change in the capital adequacy
guidelines of the Federal Reserve that results in
the trust preferred securities not being counted
as Tier 1 capital.
Redemption of the debentures prior to maturity will
be subject to the prior approval of the Federal
Reserve, if required. If the trust preferred
securities are redeemed by the trust, you will
receive the liquidation amount of $10 per trust
preferred security plus any accumulated and unpaid
distributions to the date of redemption.
How the securities will
rank in right of payment... Our obligations under the trust preferred
securities, debentures and guarantee are unsecured
and will rank as follows with regard to right of
payment:
- the trust preferred securities will rank equally
with the common securities of the trust. The
trust will pay distributions on the trust
preferred securities and the common securities
pro rata. However, if we default with respect to
the debentures, then no distributions on
4
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the common securities will be paid until all
accumulated and unpaid distributions on the trust
preferred securities have been paid;
- our obligations under the debentures and the
guarantee will rank junior in priority to our
existing and future senior and other subordinated
indebtedness; and
- because we are a holding company, the debentures
and the guarantee will effectively be
subordinated to all existing and future
liabilities of our subsidiaries.
We may distribute the
debentures directly to
you...................... We may, at any time, dissolve the trust and
distribute the debentures to you in exchange for
your trust preferred securities, subject to the
prior approval of the Federal Reserve, if required.
If we distribute the debentures, we will use our
best efforts to list them on a national securities
exchange or comparable automated quotation system.
Our guarantee of payment... We guarantee that the trust will use its assets to
pay the distributions on the trust preferred
securities. However, the guarantee does not apply
when the trust does not have sufficient funds to
make the payments. In this event, your remedy is to
initiate a legal proceeding directly against us for
enforcement of payments under the debentures.
Voting rights of the trust
preferred securities..... Except in limited circumstances, holders of the
trust preferred securities will have no voting
rights.
Nasdaq National Market
symbol................... "PRSPP"
Book-entry................. The trust preferred securities will be represented
by a global security that will be deposited with
and registered in the name of The Depository Trust
Company, New York, New York or its nominee. This
means that you will not receive a certificate for
the trust preferred securities.
Use of proceeds............ We plan to use the net proceeds from the sale of
the trust preferred securities for general
corporate purposes, including investments in and
extensions of credit to the bank, possible new
branch openings and possible acquisitions of
financial institutions or branches of financial
institutions.
RISK FACTORS
Before purchasing the trust preferred securities offered by this
prospectus, you should carefully consider the "Risk Factors" beginning on page
8.
5
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
We are providing the following financial information to aid you in your
financial analysis of us and our ability to pay the principal and interest on
the debentures. This information is only a summary and you should read it in
conjunction with our consolidated financial statements and notes thereto,
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................... $ 14,553 $ 10,836 $ 23,422 $ 19,970 $ 16,841 $ 14,738 $ 12,644
Interest expense.......................... 6,130 4,716 10,128 9,060 7,923 6,904 5,363
-------- -------- -------- -------- -------- -------- --------
Net interest income..................... 8,423 6,120 13,294 10,910 8,918 7,834 7,281
Provision for credit losses............... 130 145 239 190 230 175 188
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
credit losses......................... 8,293 5,975 13,055 10,720 8,688 7,659 7,093
Noninterest income........................ 1,446 1,273 2,492 2,264 1,897 1,489 1,500
Noninterest expense....................... 5,435 4,252 9,058 7,836 6,634 6,046 6,021
-------- -------- -------- -------- -------- -------- --------
Income before taxes..................... 4,304 2,996 6,489 5,148 3,951 3,102 2,572
Provision for income taxes................ 1,367 939 2,029 1,586 1,240 781 609
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 2,937 $ 2,057 $ 4,460 $ 3,562 $ 2,711 $ 2,321 $ 1,963
======== ======== ======== ======== ======== ======== ========
COMMON SHARE DATA(1):
Basic earnings per share.................. $ 0.57 $ 0.52 $ 1.08 $ 0.94 $ 0.77 $ 0.66 $ 0.56
Diluted earnings per share................ 0.55 0.50 1.04 0.92 0.76 0.66 0.56
Book value per share...................... 8.13 6.64 8.01 6.22 5.36 4.68 3.81
Tangible book value per share(2).......... 6.33 5.22 6.14 4.81 4.21 3.95 3.02
Cash dividends declared per share......... 0.10 0.10 0.20 0.15 0.10 0.10 0.07
Dividend payout ratio..................... 17.67% 19.40% 23.70% 16.11% 12.95% 15.12% 13.42%
Weighted average shares outstanding
(basic) (in thousands).................. 5,177 3,990 4,116 3,778 3,513 3,514 3,514
Weighted average shares outstanding
(diluted) (in thousands)................ 5,377 4,080 4,309 3,864 3,560 3,523 3,514
Shares outstanding at end of period (in
thousands).............................. 5,195 3,990 5,173 3,990 3,510 3,514 3,514
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................. $442,774 $335,422 $436,312 $320,143 $293,988 $233,492 $224,022
Securities................................ 221,681 158,685 227,744 167,868 147,564 117,505 121,912
Loans..................................... 188,034 141,080 170,478 120,578 113,382 88,797 76,543
Allowance for credit losses............... 2,013 1,114 1,850 1,016 923 753 588
Total deposits............................ 398,379 307,815 390,659 291,516 270,866 214,534 207,543
Borrowings and notes payable.............. 570 -- 2,437 2,800 3,267 1,517 2,275
Total shareholders' equity................ 42,228 26,478 41,435 24,818 18,833 16,458 13,374
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios and Other Data:
Return on average assets.................. 1.29% 1.25% 1.26% 1.17% 1.05% 1.03% 0.92%
Return on average equity.................. 13.94 15.99 15.97 16.32 15.36 15.56 14.97
Net interest margin(3).................... 4.09 4.14 4.13 4.02 3.91 3.96 3.91
Efficiency ratio(4)....................... 55.07 57.53 57.38 59.48 61.34 64.85 68.56
Number of banking centers................. 12 11 12 11 10 9 9
</TABLE>
(Table continued on next page)
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<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Quality Ratios(5):
Nonperforming assets to total loans and
other real estate....................... 0.07% 0.00% 0.08% 0.00% 0.00% 0.00% 0.02%
Net loan (recoveries) charge-offs to
average loans........................... (0.02) 0.04 0.05 0.08 0.06 0.01 0.48
Allowance for credit losses to total
loans................................... 1.07 0.79 1.09 0.84 0.81 0.85 0.77
Allowance for credit losses to
nonperforming loans(6).................. -- -- -- -- -- -- --
Ratio of Earnings to Fixed Charges(7):
Excluding deposit interest................ 102.67x 30.66x 33.55x 20.38x 16.02x 15.43x 12.25x
Including deposit interest................ 1.70 1.63 1.64 1.56 1.49 1.45 1.47
Capital Ratios(8):
Leverage ratio............................ 7.69% 6.25% 7.58% 6.30% 5.45% 6.05% 5.39%
Average shareholders' equity to average
total assets............................ 9.23 7.79 7.87 7.18 6.86 6.64 6.12
Tier 1 risk-based capital ratio........... 18.09 14.32 18.02 14.94 13.11 14.99 13.75
Total risk-based capital ratio............ 19.16 15.08 19.08 15.73 13.89 15.79 14.37
</TABLE>
- ---------------------
(1) Adjusted for a four-for-one stock split effective September 10, 1998.
(2) Calculated by dividing total assets, less total liabilities and goodwill, by
shares outstanding at end of period.
(3) Calculated on a tax-equivalent basis using a 34% federal income tax rate.
(4) Calculated by dividing total noninterest expense, excluding securities
losses, by net interest income plus noninterest income.
(5) At period end, except for net loan charge-offs to average loans, which is
for periods ended at such dates.
(6) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and restructured loans. We had no significant
nonperforming loans at any of the dates indicated.
(7) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus interest and one-third of
rental expense. Fixed charges, excluding interest on deposits, consist of
interest on indebtedness and one-third of rental expense (which is deemed
representative of the interest factor). Fixed charges, including interest on
deposits, consists of the foregoing items plus interest on deposits.
(8) At period end, except for average shareholders' equity to average total
assets, which is for periods ended at such dates.
7
<PAGE> 12
RISK FACTORS
An investment in the trust preferred securities involves a number of risks.
You should carefully read and consider the following factors in evaluating us,
our business and the trust, in addition to the other information in this
prospectus, before you purchase the trust preferred securities offered by this
prospectus.
Because the trust will rely on the payments it receives on the debentures
to fund all payments on the trust preferred securities, and because the trust
may distribute the debentures in exchange for the trust preferred securities,
you are making an investment decision that relates to the debentures as well as
the trust preferred securities. You should carefully review the information in
this prospectus about the trust preferred securities, the debentures and the
guarantee.
RISKS RELATED TO AN INVESTMENT IN THESE TRUST PREFERRED SECURITIES
IF WE DO NOT MAKE INTEREST PAYMENTS ON THE DEBENTURES, THE TRUST WILL BE UNABLE
TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS AND THE GUARANTEE WILL NOT APPLY
The trust will depend solely on our payments on the debentures to pay
distributions and the liquidation amount on the trust preferred securities. If
we default on our obligation to pay the principal or interest on the debentures,
the trust will not have sufficient funds to pay distributions or the liquidation
amount on the trust preferred securities. In that case, you will not be able to
rely on the guarantee for payment of these amounts because the guarantee only
applies if the trust has sufficient funds to make distributions on or to pay the
liquidation amount of the trust preferred securities. Instead, you or the
property trustee will have to initiate a direct action against us to enforce the
property trustee's rights under the indenture relating to the debentures. See
"Description of the Guarantee."
IF THE BANK IS UNABLE TO PAY SUFFICIENT DIVIDENDS TO US, THEN WE LIKELY WILL BE
UNABLE TO MAKE PAYMENTS ON THE DEBENTURES, THEREBY LEAVING INSUFFICIENT FUNDS
FOR THE TRUST TO MAKE PAYMENTS TO YOU ON THE TRUST PREFERRED SECURITIES
We are a holding company and substantially all of our assets are held by
our subsidiary bank. Our ability to make payments on the debentures when due
will depend primarily on available cash resources at the holding company and
dividends from the bank. Dividend payments from the bank are subject to
regulatory limitations, generally based on capital levels and current and
retained earnings, imposed by the various regulatory agencies with authority
over the bank. The ability of the bank to pay dividends is also subject to its
profitability, financial condition and capital expenditures and other cash flow
requirements. We cannot assure you that the bank will be able to pay dividends
in the future.
THE DEBENTURES AND THE GUARANTEE RANK LOWER THAN OUR OTHER INDEBTEDNESS, AND OUR
HOLDING COMPANY STRUCTURE EFFECTIVELY SUBORDINATES ANY CLAIMS AGAINST US TO
THOSE OF THE BANK
Our obligations under the debentures and the guarantee are unsecured and
will rank junior in priority of payment to our existing and future senior and
subordinated indebtedness and senior to our capital stock. At June 30, 1999, we
had approximately $570,000 of senior and subordinated indebtedness. However, we
may incur additional indebtedness in the future. The issuance of the debentures
and the trust preferred securities does not limit our ability to incur
additional indebtedness, including indebtedness that ranks senior or equal in
priority of payment to the debentures or the guarantee.
Because we are a holding company, the creditors of the bank will also have
priority over you in any distribution of assets in liquidation, reorganization
or otherwise. Accordingly, the debentures and the guarantee will be effectively
subordinated to all existing and future liabilities of the bank, and you should
look only to our assets for payments on the trust preferred securities and the
debentures. See "Description of the Debentures -- Subordination."
8
<PAGE> 13
WE HAVE THE OPTION TO DEFER INTEREST PAYMENTS ON THE DEBENTURES FOR SUBSTANTIAL
PERIODS, WHICH WOULD CAUSE DISTRIBUTIONS ON THE TRUST PREFERRED SECURITIES TO BE
DEFERRED ALTHOUGH YOU WOULD STILL HAVE TO DECLARE THESE AMOUNTS AS INCOME FOR
TAX PURPOSES
We may, at one or more times, defer interest payments on the debentures for
up to 20 consecutive quarters. If we defer interest payments on the debentures,
the trust will defer distributions on the trust preferred securities during any
deferral period. During a deferral period, you will be required to recognize as
income for federal income tax purposes the amount approximately equal to the
interest that accrues on your proportionate share of the debentures held by the
trust in the tax year in which that interest accrues, even though you will not
receive these amounts until a later date.
You will also not receive the cash related to any accrued and unpaid
interest from the trust if you sell the trust preferred securities before the
end of any deferral period. During a deferral period, accumulated but unpaid
distributions will increase your tax basis in the trust preferred securities. If
you sell the trust preferred securities during a deferral period, your increased
tax basis will decrease the amount of any capital gain or increase the amount of
any capital loss that you may have otherwise realized on the sale. A capital
loss, except in certain limited circumstances, cannot be applied to offset
ordinary income. As a result, deferral of distributions could result in ordinary
income, and a related tax liability for the holder, and a capital loss that may
only be used to offset a capital gain.
We do not currently intend to exercise our right to defer interest payments
on the debentures. However, if we exercise our right in the future, the market
price of the trust preferred securities is likely to fall. The trust preferred
securities may trade at a price that does not fully reflect the value of accrued
but unpaid interest on the debentures. If you sell the trust preferred
securities during an interest deferral period, you may not receive the same
return on investment as someone who continues to hold the trust preferred
securities. Due to our right to defer interest payments, the market price of the
trust preferred securities may be more volatile than the market prices of other
securities without the deferral feature. See "Description of the Trust Preferred
Securities -- Distributions -- Extension Period."
WE MAY REDEEM THE DEBENTURES BEFORE , 2029
Under the following circumstances, and subject to Federal Reserve approval,
if required, we may redeem the debentures before their stated maturity:
- in whole or in part, at any time on or after , 2004; or
- in whole, but not in part, within 90 days after certain occurrences at
any time during the life of the trust. These occurrences include adverse
tax, Investment Company Act or bank regulatory developments.
You should assume that we will exercise our redemption option if we are
able to obtain capital at a lower cost than we must pay on the debentures or if
it is otherwise in our interest to redeem the debentures. If the debentures are
redeemed, the trust must redeem trust preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of debentures
redeemed, and you may be required to reinvest your principal at a time when you
may not be able to earn a return that is as high as you were earning on the
trust preferred securities. See "Description of the Trust Preferred
Securities -- Redemption or Exchange."
YOU ARE ALSO MAKING AN INVESTMENT DECISION CONCERNING THE DEBENTURES
Subject to the terms of the trust agreement, the trustees may distribute
the debentures to the trust preferred securities holders in exchange for their
trust preferred securities. Because you may receive debentures, you are also, in
effect, making an investment decision with regard to the debentures. You should
carefully review all of the information regarding the debentures contained in
this prospectus.
We cannot predict the market prices for the debentures that may be
distributed. Accordingly, the debentures that you receive upon a distribution,
or the trust preferred securities you hold pending such a
9
<PAGE> 14
distribution, may trade at a discount to the price that you paid to purchase the
trust preferred securities. Although we have agreed to use our best efforts to
list the debentures on a national securities exchange or comparable automated
quotation system if this occurs, there can be no assurance that the debentures
will be approved for listing or that a liquid trading market will exist for the
debentures. This could also have a negative impact on their trading price. See
"Description of the Trust Preferred Securities -- Liquidation Distribution Upon
Termination."
Under current federal income tax law and interpretations, a distribution of
the debentures should not be a taxable event to holders of the trust preferred
securities. If there is a change in law or in legal interpretation, the
distribution could be a taxable event to holders of the trust preferred
securities. See "Federal Income Tax Consequences."
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT
The indenture governing the debentures and the trust agreement governing
the trust do not require us to maintain any financial ratios or specified levels
of net worth, revenues, income, cash flow or liquidity, and therefore, do not
protect holders of the debentures or the trust preferred securities in the event
we experience significant adverse changes in our financial condition or results
of operations. In addition, neither the indenture nor the trust agreement limits
our ability or the ability of our subsidiaries to incur additional indebtedness.
Therefore, you should not consider the provisions of these documents as a
significant factor in evaluating whether we will be able to comply with our
obligations under the debenture or the guarantee.
THERE IS NO CURRENT PUBLIC MARKET FOR THE TRUST PREFERRED SECURITIES, AND THEIR
MARKET PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS
There is currently no public market for the trust preferred securities.
Although we have applied to list the trust preferred securities on the National
Market System of The Nasdaq Stock Market, Inc., there is no guarantee that an
active or liquid trading market will develop or that such listing will continue.
If an active trading market does not develop, the market price and liquidity of
the trust preferred securities will be adversely affected. Even if an active
public market does develop, there is no guarantee that the market price for the
trust preferred securities will equal or exceed the price you pay for the trust
preferred securities.
Future trading prices of the trust preferred securities may be subject to
significant fluctuations in response to prevailing interest rates, our future
financial condition and results of operations, the market for similar securities
and general economic and market conditions. The initial public offering price of
the trust preferred securities has been set at the liquidation amount of the
trust preferred securities and may be greater than the market price following
the offering.
The market price for the trust preferred securities, or the debentures that
you may receive in a distribution, is also likely to decline during any period
in which we defer interest payments on the debentures. If this were the case,
the trust preferred securities or the debentures would not trade at a price that
accurately reflects the value of accrued but unpaid interest on the debentures.
YOU MUST RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR RIGHTS IF THERE IS AN
EVENT OF DEFAULT UNDER THE INDENTURE
You may not be able to directly enforce your rights against us if an event
of default under the indenture occurs. If an event of default under the
indenture occurs and is continuing, this event will also be an event of default
under the trust agreement. In that case, you must rely on the enforcement by the
property trustee of its rights as holder of the debentures against us. The
holders of a majority in liquidation amount of the trust preferred securities
will have the right to direct the property trustee to enforce its rights. If the
property trustee does not enforce its rights following an event of default and a
request by the record holders to do so, any record holder may, to the extent
permitted by applicable law, take action directly against us to enforce the
property trustee's rights. If an event of default occurs under the trust
10
<PAGE> 15
agreement that is attributable to our failure to pay interest or principal on
the debentures, or if we default under the guarantee, you may proceed directly
against us. You will not be able to exercise directly any other remedies
available to the holders of the debentures unless the property trustee fails to
do so.
AS A HOLDER OF TRUST PREFERRED SECURITIES YOU HAVE LIMITED VOTING RIGHTS
Holders of trust preferred securities have limited voting rights. Your
voting rights pertain primarily to amendments to the trust agreement. In
general, only we can replace or remove any of the trustees. However, if an event
of default under the trust agreement occurs and is continuing, the holders of at
least a majority in aggregate liquidation amount of the trust preferred
securities may replace the property trustee and the Delaware trustee.
THE TRUST PREFERRED SECURITIES ARE NOT FDIC INSURED
Neither the Federal Deposit Insurance Corporation nor any other
governmental agency has insured the trust preferred securities.
RISKS RELATED TO AN INVESTMENT IN PROSPERITY
WE MAY BE UNABLE TO MANAGE OUR GROWTH DUE TO ACQUISITIONS, WHICH COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS
As part of our general strategy, we may acquire financial institutions and
branches of financial institutions that we believe provide a strategic fit with
our business, such as our recent acquisition of South Texas Bancshares. To the
extent that we grow through acquisitions, we cannot assure you that we will be
able to adequately and profitably manage such growth. Our ability to
successfully integrate acquired financial institutions and branches of financial
institutions into our operations depends on our ability to:
- monitor operations;
- control costs;
- maintain positive customer relations;
- maintain regulatory compliance; and
- attract, assimilate and retain qualified personnel.
If we fail to successfully integrate an acquired financial institution's or
branch's operations with our operations, we may experience interruptions in our
business which may have a material adverse impact on our business, financial
condition or results of operations, as well as affect our ability to operate the
bank consistent with safe and sound banking practices. Successful integration of
these operations could be more expensive than anticipated.
Some of the other risks involved with acquisitions in general, including
the acquisition of South Texas Bancshares, include
- changes in results of operations or cash flows;
- unforseen liabilities related to the acquired company or arising from the
acquisition;
- exposure to potential asset quality issues of the acquired company;
- adverse personnel relations;
- diversion of management time and attention;
- loss of customers; and
- deterioration in local economic conditions.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
Our earnings are significantly dependent on our net interest income. Net
interest income is the difference between the interest income we earn on loans,
investments and other interest-earning assets and the interest expense we pay on
deposits and other interest-bearing liabilities. Therefore, any change in
11
<PAGE> 16
general market interest rates, such as a change in the monetary policy of the
Federal Reserve or otherwise, can have a significant effect on our net interest
income. Our assets and liabilities may react differently to changes in overall
market rates or conditions because there may be mismatches between the repricing
or maturity characteristics of the assets and liabilities. As a result, an
increase or decrease in market interest rates could have an adverse impact on
our net interest margin and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Interest Rate Sensitivity and Liquidity."
LOSS OF OUR EXECUTIVE OFFICERS OR OTHER KEY EMPLOYEES COULD ADVERSELY AFFECT OUR
BUSINESS
Our success is dependent upon the continued service and skills of Tracy T.
Rudolph, our Chairman and President, and David Zalman, the President of the
bank, and other senior officers, such as our banking center presidents. The loss
of services of any of these key personnel could have a negative impact on our
business because of their skills, years of industry experience and the
difficulty of promptly finding qualified replacement personnel. Although we
currently have employment agreements with Messrs. Rudolph and Zalman, there can
be no assurance that they will continue to be employed with us in the future.
See "Management."
WE OPERATE IN A HIGHLY COMPETITIVE MARKET
There is significant competition in Southeast Texas and elsewhere in the
United States for banking customers and our profit depends primarily upon our
ability to compete in our market areas. We experience competition from
commercial banks, savings banks, savings and loans associations, credit unions,
finance companies, mutual funds, investment banking firms and certain other
nonfinancial entities, including retail stores which have their own credit
programs and governmental organizations which may offer more favorable financing
than we can. Many of our competitors have greater financial strength, marketing
capability and name recognition than we do, and operate on a statewide or
nationwide basis. In addition, recent developments in technology and mass
marketing have permitted larger companies to market loans and other products and
services more aggressively to our small business customers. Such advantages may
enable our competitors to realize greater economies of scale and operating
efficiencies than we can. Further, some of our nonbank competitors are not
subject to the same extensive regulations that govern us and the bank.
Federal legislation enacted in August 1998 eased membership limits on
credit unions, which previously were permitted to serve only members that shared
a single, common bond. We expect that this legislation will increase the ability
of credit unions to compete with community banks, such as the bank, for both
deposits and loans. We can provide no assurance that we will be able to compete
effectively against such competition.
OUR BUSINESS IS CONCENTRATED IN SOUTHEAST TEXAS, AND A DOWNTURN IN THE TEXAS
ECONOMY MAY ADVERSELY AFFECT OUR BUSINESS
Substantially all of our business is located in Southeast Texas, and as a
result, our financial condition, results of operations and cash flows are
subject to changes in the economic condition of that area. Since the late 1980s,
the Southeast Texas economy has diversified from the energy industry into
non-energy related industries. As a result, a downturn in the energy industry is
not expected to have the same impact that it did in the 1980s. Nevertheless, a
prolonged period of economic recession or other adverse economic conditions in
Texas or Southeast Texas could result in an increase in nonpayment of loans and
a decrease in collateral value, causing operating losses, impairing liquidity
and eroding capital. Conditions in the Texas and Southeast Texas economies could
deteriorate in the future, and such a deterioration could have a material
adverse effect on our financial condition or results of operations.
12
<PAGE> 17
IF OUR ALLOWANCE FOR CREDIT LOSSES IS NOT ADEQUATE TO COVER ACTUAL LOSSES, OUR
EARNINGS COULD DECREASE
We believe that our allowance for credit losses is maintained at a level
adequate to absorb any inherent losses in our loan portfolio. Management's
estimates used in determining the allowance are based on our historical loan
loss experience, industry diversification of the commercial loan portfolio, the
amount of nonperforming loans and related collateral, volume, growth and
composition of the loan portfolio, current economic conditions that may affect
the borrower's ability to pay and the value of collateral, the evaluation of our
loan portfolio through our internal loan review process and other relevant
factors. These estimates are inherently subjective and their accuracy depends on
the outcome of future events. Ultimate losses may differ from current estimates.
Depending on changes in economic, operating and other conditions, including
changes in interest rates, that are generally beyond our control, our actual
credit losses could increase significantly. As a result, such losses could
exceed our current allowance estimates. We can provide no assurance that our
allowance is sufficient to cover actual credit losses should such losses be
realized.
In addition, federal and state regulators, as an integral part of their
respective supervisory functions, periodically review our allowance for credit
losses. Such regulatory agencies may require us to increase our provision for
credit losses or to recognize further loan charge-offs, based upon judgments
different from those of management. Any increase in our allowance required by
these regulatory agencies could have a negative effective on us. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Allowance for Credit Losses."
OUR CURRENT CONCENTRATION IN 1-4 FAMILY RESIDENTIAL LOANS COULD PROVIDE LOWER
YIELDS AND PROFITABILITY, AND DIVERSIFICATION AWAY FROM THIS TYPE OF LOAN MAY
INCREASE OUR CREDIT RISK
At June 30, 1999, 1-4 family residential mortgage loans comprised $86.9
million, or 46.2%, of our loan portfolio. These loans are secured primarily by
properties located in our market area. Because 1-4 family residential mortgage
loans typically have an interest rate that is lower than other loans, our
concentration in these loans results in lower yields and profitability for us.
Further, these loans are generally made on the basis of the borrower's ability
to repay and the value of the property securing the loan. A downturn in the
Southeast Texas economy could have an adverse effect on the ability of borrowers
to repay these loans and the value of the property securing such loans.
In addition, one of our business strategies is to diversify our loan
portfolio. This diversification may result in a gradual increase in our
consolidated credit risk, which means that there would be a greater risk that
borrowers will be unable to repay their loans from us. Such defaults which could
result in losses in excess of our allowance for credit losses may have a
material adverse effect on our business, financial condition or results of
operation.
WE HAVE A CONTINUING NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our future
success will depend in part upon our ability to address the needs of our
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as create additional efficiencies in
our operations. Many of our competitors have substantially greater resources to
invest in technological improvements. There can be no assurance that we will be
able to effectively implement new technology-driven products and services or be
successful in marketing such products and services to our customers.
YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR INFORMATION TECHNOLOGY SYSTEMS
The Year 2000 issue is a computer programming concern that may adversely
affect our information technology systems and software, such as our item and
data processing applications, as well as so-called embedded technology, such as
microprocessors that control various functions, such as our security systems
13
<PAGE> 18
and telecommunication equipment. The phrase "Year 2000 issue" refers to the
concern that certain computer applications will not be able to distinguish dates
in the twentieth and twenty-first centuries. We have developed a plan to
identify and remedy the material Year 2000 issues that directly affect our
systems and products. This plan also includes procedures to evaluate the
preparedness of our key vendors and significant customers in addressing the Year
2000 issue. Nevertheless, our operational and financial systems, or those of our
vendors and customers, could be adversely affected by Year 2000 issues which
could in turn adversely affect our business. In particular, it will be difficult
for us to implement viable contingency plans for any adverse effect of the Year
2000 issue on local or national telecommunications systems or on our local
electric utility. Furthermore, Year 2000 problems may exist in portions of
important computer programs not now suspected, and we could be adversely
affected by issues we have yet to identify. If we fail to adequately address the
Year 2000 issue pertaining to our internal operations or those of our customers
and vendors, that failure could adversely affect our business.
In addition, bank regulatory agencies, as part of their supervisory
function, are assessing and will continue to assess Year 2000 readiness. The
failure of a financial institution to take appropriate steps to address
deficiencies in its Year 2000 project management process may result in one or
more regulatory enforcement actions which could have a material adverse effect
on such institution. These actions may include the imposition of fines, or
result in the delay or denial of regulatory applications, such as an application
for a merger. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition -- Year 2000 Compliance".
WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT
We and the bank operate in a highly regulated environment and are subject
to supervision and examination by various federal and state regulatory agencies.
As a bank holding company, we are subject to regulation and supervision by the
Federal Reserve. The bank, as a Texas banking association, is subject to
regulation and supervision by the Texas Department of Banking and, as a result
of the insurance it has on its deposits, by the FDIC.
Federal and Texas laws and regulations govern numerous matters, including:
- adequate capital and financial condition;
- permissible types, amounts and terms of extensions of credit and
investments;
- permissible nonbanking activities; and
- restrictions on dividend payments.
The federal and state regulators have extensive discretion and power to
prevent or remedy unsafe or unsound practices or violations of law by banks and
bank holding companies. We and the bank undergo periodic examinations by one or
more regulatory agencies. Following such examinations, we may be required, among
other things, to change our asset valuations or the amounts of required loss
allowances or to restrict our operations. Such actions would result from the
regulators' judgments based on information available to them at the time of
their examination. In addition, we are required to serve as a source of
financial strength to the bank, which could result in a decrease of available
funds for dividends to our shareholders and cash flow to securities ranking
senior to our common stock. The bank's operations are also subject to a wide
variety of state and federal consumer protection and similar statutes and
regulations. Such federal and state regulatory restrictions limit the manner in
which we and the bank may conduct business and obtain financing. Those laws and
regulations can and do change significantly from time to time, and any such
change could adversely affect our business. See "Supervision and Regulation."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS FOR
GENERAL CORPORATE PURPOSES WHICH MAY NOT RESULT IN THE MAXIMUM RETURN OR BE IN
YOUR BEST INTERESTS
We will receive approximately $ in net proceeds from the sale of
debentures, after deducting estimated underwriting commissions and offering
expenses. Our management will have broad discretion to
14
<PAGE> 19
allocate the net proceeds to uses it believes are appropriate, which may include
uses in the best interests of our common shareholders, such as dividends on
shares of common stock and expansion opportunities. The amount and timing of any
allocation will depend on a number of factors, including our capital
requirements and those of the bank and available expansion opportunities. Such
uses could have a direct effect on our ability to make payments on the
debentures. See "Use of Proceeds."
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis contained in this
prospectus that are not historical facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements describe our future plans,
strategies and expectations, are based on assumptions and involve a number of
risks and uncertainties, many of which are beyond our control. The important
factors that could cause actual results to differ materially from the
forward-looking statements include, without limitation:
- changes in interest rates and market prices, which could reduce our net
interest margins, asset valuations and expense expectations;
- changes in the levels of loan prepayments and the resulting effects on
the value of our loan portfolio;
- changes in local economic and business conditions which adversely affect
our customers and their ability to transact profitable business with us,
including the ability of our borrowers to repay their loans according to
their terms or a change in the value of the related collateral;
- increased competition for deposits and loans adversely affecting rates
and terms;
- our ability to identify suitable future acquisition candidates;
- the timing, impact and other uncertainties of our future acquisitions,
including our success or failure in the integration of their operations,
and our ability to enter new markets successfully and capitalize on
growth opportunities;
- increased credit risk in our assets and increased operating risk caused
by a material change in commercial, consumer and/or real estate loans as
a percentage of the total loan portfolio;
- the failure of assumptions underlying the establishment of and provisions
made to the allowance for credit losses;
- changes in the availability of funds resulting in increased costs or
reduced liquidity;
- increased asset levels and changes in the composition of assets and the
resulting impact on our capital levels and regulatory capital ratios;
- our ability to acquire, operate and maintain cost effective and efficient
systems without incurring unexpectedly difficult or expensive but
necessary technological changes (including changes to address Year 2000
data systems issues);
- our ability to complete our project to assess and resolve any Year 2000
problems on time;
- the loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
- changes in statutes and government regulations or their interpretations
applicable to bank holding companies and our present and future banking
and other subsidiaries, including changes in tax requirements and tax
rates; and
- other factors discussed in the "Risk Factors" section of this prospectus.
15
<PAGE> 20
We undertake no obligation to publicly update or otherwise revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
events discussed in any forward-looking statements in this prospectus might not
occur.
USE OF PROCEEDS
The trust will invest all the proceeds from the sale of the trust preferred
securities in the debentures. We will use the net proceeds we receive from the
sale of the debentures, which we estimate to be approximately $ , for
general corporate purposes, including, among other things, investments in and
extensions of credit to the bank, possible new branch openings and possible
acquisitions of financial institutions or branches of financial institutions.
ACCOUNTING TREATMENT
The trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of the trust will be included in our
consolidated financial statements. The trust preferred securities will be
presented as a separate line item in our consolidated balance sheet under the
caption "Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures," and appropriate
disclosures about the trust preferred securities, the guarantee and the
debentures will be included in the notes to consolidated financial statements.
For financial reporting purposes, we will record distributions payable on the
trust preferred securities as interest expense in our Consolidated Statements of
Income.
Our future reports filed under the Securities Exchange Act of 1934, as
amended, will include a footnote to the consolidated financial statements
stating that:
- the trust is wholly-owned;
- the sole assets of the trust are the debentures and specifying the
debentures' principal amount, interest rate and maturity date; and
- our obligations described in this prospectus, in the aggregate,
constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by us of the obligations of the trust under the trust
preferred securities.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth our indebtedness and capitalization as of
June 30, 1999, on a historical basis and as adjusted to give effect to (i) the
South Texas Bancshares acquisition and (ii) the offering and the application of
the estimated net proceeds. This data should be read in conjunction with the
"Selected Consolidated Financial Data" and the consolidated financial statements
and notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------------
AS ADJUSTED
FOR THE
AS ADJUSTED SOUTH TEXAS
FOR THE BANCSHARES
SOUTH TEXAS ACQUISITION
BANCSHARES AND THE
ACTUAL ACQUISITION OFFERING
------- ------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INDEBTEDNESS:
Short-term borrowings............................... $ -- $ -- $ --
Federal Home Loan Bank advances..................... 570 570 570
Other borrowings.................................... -- -- --
------- ------- -------
Total indebtedness........................ $ 570 $ 570 $ 570
======= ======= =======
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures........................... $ -- $ -- $12,000
======= ======= =======
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value; 20,000,000 shares
authorized; none issued and outstanding........... $ -- $ -- $ --
Common Stock, $1.00 par value; 50,000,000 shares
authorized; 5,195,325 shares issued and
outstanding....................................... 5,199 5,199 5,199
Capital surplus..................................... 16,441 16,441 16,441
Retained earnings................................... 21,870 21,870 21,285
Accumulated other comprehensive income.............. (1,264) (1,264) (1,264)
Treasury stock...................................... (18) (18) (18)
------- ------- -------
Total shareholders' equity................ $42,228 $42,228 $41,643
======= ======= =======
CAPITAL(1):
Dollar basis:
Total risk-based capital....................... $36,140 $37,838
Tier 1 risk-based capital...................... 34,127 31,057
Leverage capital............................... 34,127 31,057
Percentage basis:
Total risk-based capital....................... 19.16% 15.95%
Tier 1 risk-based capital...................... 18.09 13.09
Leverage capital............................... 7.69 5.44
</TABLE>
- ---------------
(1) Federal Reserve guidelines for calculation of Tier 1 capital limit the
aggregate amount of trust preferred securities, including securities similar
to the trust preferred securities, which can be included in Tier 1 capital
to 25% of total Tier 1 capital. As of June 30, 1999, after giving effect to
the South Texas Bancshares Acquisition, which occurred on October 1, 1999,
$7.8 million of the aggregate amount of trust preferred securities would
have qualified as Tier 1 capital, and the remaining amount would have
qualified as Tier 2 capital. Any future increases in other elements of our
Tier 1 capital, including retained earnings, will allow us to include
greater portions of the trust preferred securities in Tier 1 capital.
17
<PAGE> 22
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following pro forma combined balance sheet as of June 30, 1999 and pro
forma combined statements of income for the six months ended June 30, 1999 and
the year ended December 31, 1998 combine our historical consolidated financial
statements with the historical consolidated financial statements of South Texas
Bancshares and are intended to give you a better picture of what the companies
might have looked like as a combined entity. The pro forma balance sheet assumes
that the South Texas Bancshares acquisition was consummated on the balance sheet
date. The pro forma income statements assume that the South Texas Bancshares
acquisition was consummated at the beginning of the period indicated. The
companies may have performed differently if they had been combined.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only. You should not rely on the pro forma information as
being indicative of the consolidated financial position or results of future
operations of the combined entity or of the actual results that would have been
achieved had the acquisition been consummated as of the dates indicated above.
18
<PAGE> 23
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SOUTH TEXAS ------------------ PRO FORMA
PROSPERITY BANCSHARES DEBITS CREDITS COMBINED
---------- ----------- ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 12,511 $ 9,036 $11,650(a) $ 9,897
Federal funds sold............................. -- 11,700 11,700(a) --
-------- -------- ------- --------
Total cash and cash equivalents....... 12,511 20,736 23,350 9,897
Interest-bearing deposits in financial
institutions................................. -- -- --
Securities:
Available-for-sale securities at fair
value...................................... 138,170 72,477 $ 579(b) 504(b) 210,722
Held-to-maturity at cost..................... 83,511 83,511
-------- -------- ------- ------- --------
Total securities...................... 221,681 72,477 579 504 294,233
Loans:
Total loans, net of unearned discount........ 188,034 35,076 223,110
Allowance for credit losses.................. (2,013) (532) (2,545)
-------- -------- --------
Net loans............................. 186,021 34,544 220,565
Goodwill....................................... 9,366 3,378 10,249(b) 3,378(b) 19,615
Premises and equipment......................... 6,054 2,848 1,300(b) 10,202
Other real estate owned........................ 128 -- 128
Other assets................................... 7,013 1,809 171(b) 197(b) 8,796
-------- -------- ------- ------- --------
Total assets.......................... $442,774 $135,792 $12,299 $27,429 $563,436
======== ======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits..................................... $398,379 $119,005 $517,384
Other borrowings............................. 570 -- 570
Other liabilities............................ 1,597 1,215 $ 442(b) 3,254
-------- -------- ------- --------
Total liabilities..................... 400,546 120,220 442 521,208
Shareholders' equity:
Common stock................................. 5,199 121 $ 121(c) 5,199
Additional paid-in capital................... 16,441 3,228 3,228(c) 16,441
Retained earnings............................ 21,870 12,605 12,605(c) 21,870
Treasury stock................................. (18) -- (18)
Net unrealized gain (loss) on
available-for-sale securities................ (1,264) (382) 382(b) (1,264)
-------- -------- ------- ------- --------
Total shareholders' equity............ 42,228 15,572 15,954 382 42,228
-------- -------- ------- ------- --------
Total liabilities and shareholders'
equity.............................. $442,774 $135,792 $15,954 $ 824 $563,436
======== ======== ======= ======= ========
</TABLE>
- ---------------
(a) This adjustment represents the purchase of 100% of the outstanding shares
of stock of South Texas Bancshares for $23.4 million.
(b) This adjustment represents the purchase price adjustments to mark South
Texas Bancshares' assets and liabilities to fair value upon consummation of
the acquisition and results in recording $10.2 million in goodwill.
(c) This adjustment represents the elimination of the capital of South Texas
Bancshares against the investment in subsidiary of Prosperity.
19
<PAGE> 24
PRO FORMA COMBINED STATEMENT OF INCOME
SIX-MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SOUTH TEXAS ------------------ PRO FORMA
PROSPERITY BANCSHARES DEBITS CREDITS COMBINED
---------- ----------- ------ ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.............. $7,456 $1,724 $ 9,180
Interest on securities.................. 6,675 2,220 $ 84(a) 8,979
Interest on federal funds sold.......... 422 323 745
------ ------ ---- -------
Total interest income........... 14,553 4,267 84 18,904
Interest expense:
Interest on deposits.................... 6,123 1,848 7,971
Interests on other borrowings........... 7 -- 7
------ ------ -------
Total interest expense.......... 6,130 1,848 7,978
Net interest income....................... 8,423 2,419 84 10,926
Provision for credit losses............. 130 -- 130
------ ------ ---- -------
Net interest income after provision for
credit losses........................... 8,293 2,419 84 10,796
------ ------ ---- -------
Noninterest income:
Customer service fees................... 1,241 598 1,839
Other noninterest income................ 205 183 388
------ ------ -------
Total noninterest income........ 1,446 781 2,227
Noninterest expense:
Salaries and employee benefits.......... 2,820 1,111 3,931
Net occupancy expense................... 437 191 $ 22(b) 650
Other noninterest expense............... 2,178 959 205(c) 75(d) 3,267
------ ------ ----- ---- -------
Total noninterest expense....... 5,435 2,261 227 75 7,848
------ ------ ----- ---- -------
Income before federal income taxes........ 4,304 939 (227) 159 5,175
Provision for federal income taxes...... 1,367 301 29(e) 7(e) 1,690
------ ------ ----- ---- -------
Net income...................... $2,937 $ 638 $(255) $166 $ 3,486
====== ====== ===== ==== =======
Basic earnings per share:
Net income per share.................... $ 0.57 $ 2.65 $ 0.67
Average shares outstanding (in
thousands)........................... 5,177 241 5,177
Diluted earnings per share:
Net income per share.................... $ 0.55 $ 2.57 $ 0.65
Average shares outstanding (in
thousands)........................... 5,377 248 5,377
</TABLE>
- ---------------
(a) This adjustment represents additional accretion on the market value of the
acquired securities portfolio.
(b) This adjustment represents additional depreciation expense on the acquired
buildings.
(c) This adjustment represents the amortization on $10.2 million in goodwill
over 25 years.
(d) This adjustment represents the elimination of the goodwill expense of the
acquired company.
(e) This adjustment represents the federal income tax effect of the above
adjustments.
20
<PAGE> 25
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SOUTH TEXAS ------------------ PRO FORMA
PROSPERITY BANCSHARES DEBITS CREDITS COMBINED
---------- ----------- ------ ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.............. $12,282 $3,706 $15,988
Interest on securities.................. 10,841 4,806 $168(a) 15,815
Interest on federal funds sold.......... 299 612 911
------- ------ ---- -------
Total interest income........... 23,422 9,124 168 32,714
Interest expense:
Interest on deposits.................... 9,993 4,108 14,101
Interests on other borrowings........... 135 -- 135
------- ------ -------
Total interest expense.......... 10,128 4,108 14,236
Net interest income....................... 13,294 5,016 168 18,478
Provision for credit losses............. 239 (100) 139
------- ------ ---- -------
Net interest income after provision for
credit losses........................... 13,055 5,116 168 18,339
------- ------ ---- -------
Noninterest income:
Customer service fees................... 2,173 1,236 3,409
Other noninterest income................ 319 385 704
------- ------ -------
Total noninterest income........ 2,492 1,621 4,113
Noninterest expense:
Salaries and employee benefits.......... 4,541 2,148 6,689
Net occupancy expense................... 768 395 $ 43(b) 1,206
Other noninterest expense............... 3,749 2,044 410(c) 150(d) 6,053
------- ------ ----- ---- -------
Total noninterest expense....... 9,058 4,587 453 150 13,948
------- ------ ----- ---- -------
Income before federal income taxes........ 6,489 2,150 (453) 318 8,504
Provision for federal income taxes...... 2,029 705 57(e) 14(e) 2,777
------- ------ ----- ---- -------
Net income...................... $ 4,460 $1,445 $(510) $332 $ 5,727
======= ====== ===== ==== =======
Basic earnings per share:
Net income per share.................... $ 1.08 $ 6.02 $ 1.39
Average shares outstanding (in
thousands)........................... 4,116 240 4,116
Diluted earnings per share:
Net income per share.................... $ 1.04 $ 5.87 $ 1.33
Average shares outstanding (in
thousands)........................... 4,309 246 4,309
</TABLE>
- ---------------
(a) This adjustment represents additional accretion on the market value of the
acquired securities portfolio.
(b) This adjustment represents additional depreciation expense on the acquired
buildings.
(c) This adjustment represents the amortization on $10.2 million in goodwill
over 25 years.
(d) This adjustment represents the elimination of the goodwill expense of the
acquired company.
(e) This adjustment represents the federal income tax effect of the above
adjustments.
21
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for, and as of the end
of, each of the years in the five-year period ended December 31, 1998 are
derived from our consolidated financial statements. The consolidated financial
statements as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, and the report thereon of Deloitte &
Touche L.L.P., are included elsewhere in this prospectus. The consolidated
financial data as of and for each of the six months ended June 30, 1999 and 1998
are derived from unaudited consolidated financial statements included elsewhere
in this prospectus, and, in the opinion of management, contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
our financial position and results of operations as of such dates and for such
periods. The results of operations for past periods and for the six months ended
June 30, 1999 are not necessarily indicative of the results of operations that
may be expected for the year ended December 31, 1999, or for any future periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS)IN THOUSANDS, EXCEPT PER SHARE
DATA
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income........................... $ 14,553 $ 10,836 $ 23,422 $ 19,970 $ 16,841 $ 14,738 $ 12,644
Interest expense.......................... 6,130 4,716 10,128 9,060 7,923 6,904 5,363
-------- -------- -------- -------- -------- -------- --------
Net interest income..................... 8,423 6,120 13,294 10,910 8,918 7,834 7,281
Provision for credit losses............... 130 145 239 190 230 175 188
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
credit losses......................... 8,293 5,975 13,055 10,720 8,688 7,659 7,093
Noninterest income........................ 1,446 1,273 2,492 2,264 1,897 1,489 1,500
Noninterest expense....................... 5,435 4,252 9,058 7,836 6,634 6,046 6,021
-------- -------- -------- -------- -------- -------- --------
Income before taxes..................... 4,304 2,996 6,489 5,148 3,951 3,102 2,572
Provision for income taxes................ 1,367 939 2,029 1,586 1,240 781 609
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 2,937 $ 2,057 $ 4,460 $ 3,562 $ 2,711 $ 2,321 $ 1,963
======== ======== ======== ======== ======== ======== ========
COMMON SHARE DATA(1):
Basic earnings per share.................. $ 0.57 $ 0.52 $ 1.08 $ 0.94 $ 0.77 $ 0.66 $ 0.56
Diluted earnings per share................ 0.55 0.50 1.04 0.92 0.76 0.66 0.56
Book value per share...................... 8.13 6.64 8.01 6.22 5.36 4.68 3.81
Tangible book value per share(2).......... 6.33 5.22 6.14 4.81 4.21 3.95 3.02
Cash dividends declared per share......... 0.10 0.10 0.20 0.15 0.10 0.10 0.07
Dividend payout ratio..................... 17.67% 19.40% 23.70% 16.11% 12.95% 15.12% 13.42%
Weighted average shares outstanding
(basic) (in thousands).................. 5,177 3,990 4,116 3,778 3,513 3,514 3,514
Weighted average shares outstanding
(diluted) (in thousands)................ 5,377 4,080 4,309 3,864 3,560 3,523 3,514
Shares outstanding at end of period (in
thousands).............................. 5,195 3,990 5,173 3,990 3,510 3,514 3,514
BALANCE SHEET DATA (AT PERIOD END):
Total assets.............................. $442,774 $335,422 $436,312 $320,143 $293,988 $233,492 $224,022
Securities................................ 221,681 158,685 227,744 167,868 147,564 117,505 121,912
Loans..................................... 188,034 141,080 170,478 120,578 113,382 88,797 76,543
Allowance for credit losses............... 2,013 1,114 1,850 1,016 923 753 588
Total deposits............................ 398,379 307,815 390,659 291,516 270,866 214,534 207,543
Borrowings and notes payable.............. 570 -- 2,437 2,800 3,267 1,517 2,275
Total shareholders' equity................ 42,228 26,478 41,435 24,818 18,833 16,458 13,374
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios and Other Data:
Return on average assets.................. 1.29% 1.25% 1.26% 1.17% 1.05% 1.03% 0.92%
Return on average equity.................. 13.94 15.99 15.97 16.32 15.36 15.56 14.97
Net interest margin(3).................... 4.09 4.14 4.13 4.02 3.91 3.96 3.91
Efficiency ratio(4)....................... 55.07 57.53 57.38 59.48 61.34 64.85 68.56
Number of banking centers................. 12 11 12 11 10 9 9
</TABLE>
(Table continued on next page)
22
<PAGE> 27
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS)IN THOUSANDS, EXCEPT PER SHARE
DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Quality Ratios(5):
Nonperforming assets to total loans and
other real estate....................... 0.07% 0.00% 0.08% 0.00% 0.00% 0.00% 0.02%
Net loan (recoveries) charge-offs to
average loans........................... (0.02) 0.04 0.05 0.08 0.06 0.01 0.48
Allowance for credit losses to total
loans................................... 1.07 0.79 1.09 0.84 0.81 0.85 0.77
Allowance for credit losses to
nonperforming loans(6).................. -- -- -- -- -- -- --
Ratio of Earnings to Fixed Charges(7):
Excluding deposit interest................ 102.67x 30.66x 33.55x 20.38x 16.02x 15.43x 12.25x
Including deposit interest................ 1.70 1.63 1.64 1.56 1.49 1.45 1.47
Capital Ratios(8):
Leverage ratio............................ 7.69% 6.25% 7.58% 6.30% 5.45% 6.05% 5.39%
Average shareholders' equity to average
total assets............................ 9.23 7.79 7.87 7.18 6.86 6.64 6.12
Tier 1 risk-based capital ratio........... 18.09 14.32 18.02 14.94 13.11 14.99 13.75
Total risk-based capital ratio............ 19.16 15.08 19.08 15.73 13.89 15.79 14.37
</TABLE>
- ---------------
(1) Adjusted for a four-for-one stock split effective September 10, 1998.
(2) Calculated by dividing total assets, less total liabilities and goodwill, by
shares outstanding at end of period.
(3) Calculated on a tax-equivalent basis using a 34% federal income tax rate.
(4) Calculated by dividing total noninterest expense, excluding securities
losses, by net interest income plus noninterest income.
(5) At period end, except for net loan charge-offs to average loans, which is
for periods ended at such dates.
(6) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and restructured loans. We had no significant
nonperforming loans at any of the dates indicated.
(7) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus interest and one-third of
rental expense. Fixed charges, excluding interest on deposits, consist of
interest on indebtedness and one-third of rental expense (which is deemed
representative of the interest factor). Fixed charges, including interest on
deposits, consists of the foregoing items plus interest on deposits.
(8) At period end, except for average shareholders' equity to average total
assets, which is for periods ended at such dates.
23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OR OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of our balance sheets and statements of
income. This section should be read in conjunction with our financial statements
and accompanying notes and other detailed information appearing elsewhere in
this prospectus.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
OVERVIEW
We showed positive earnings growth for the six month period ended June 30,
1999 due to an increase in loan volume and the acquisition of Union State Bank
in East Bernard, Texas in the fourth quarter of 1998, which was accounted for
under the purchase method of accounting. At June 30, 1998, Union had total
assets of approximately $76.9 million, total deposits of approximately $63.7
million (12.9% of which were noninterest-bearing) and total shareholders' equity
of approximately $12.9 million. For the six months ended June 30, 1999, our net
income was $2.9 million ($0.55 per common share on a diluted basis) compared
with $2.1 million ($0.50 per common share on a diluted basis) for the same
period in 1998, an increase of $880,000 or 42.8%. We estimate that slightly less
than one-half of this increase was attributable to internal growth. We posted
returns on average common equity of 13.94% and 15.99% and returns on average
assets of 1.29% and 1.25% for the six months ended June 30, 1999 and 1998,
respectively.
Total assets were $442.8 million at June 30, 1999 compared with $436.3
million at December 31, 1998. Total loans increased to $188.0 million at June
30, 1999 from $170.5 million at December 31, 1998, an increase of $17.5 million,
or 10.3%. At June 30, 1999, we had no nonperforming loans and our allowance for
credit losses was $2.0 million. Total deposits were $398.4 million at June 30,
1999 compared with $390.7 million at December 31, 1998, an increase of $7.7
million, or 2.0%. Shareholders' equity increased $793,000, or 1.9%, to $42.2
million at June 30, 1999 compared with $41.4 million at December 31, 1998.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of our earnings.
Interest rate fluctuations, as well as changes in the amount and type of earning
assets and liabilities, combine to affect net interest income. Our net interest
income is affected by changes in the amount and mix of interest-earning assets
and interest-bearing liabilities, referred to as a "volume change." It is also
affected by changes in yields earned on interest-earning assets and rates paid
on interest-bearing deposits and other borrowed funds, referred to as a "rate
change."
Net interest income increased $2.3 million, or 37.6%, to $8.4 million for
the six months ended June 30, 1999 from $6.1 million for the same period in
1998. This increase was mainly attributable to higher average interest-earning
assets and higher average loans. The net interest margin on a tax-equivalent
basis decreased to 4.09% from 4.14% for the same periods, principally due to a
slightly greater decrease in the yield on interest-earning assets than the
decrease in the rate on interest-bearing liabilities.
The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. Except as
indicated in the
24
<PAGE> 29
footnotes, no tax-equivalent adjustments were made and all average balances are
daily average balances. Nonaccruing loans have been included in the tables as
loans carrying a zero yield.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE(4) BALANCE PAID RATE(4)
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.............................. $178,861 $ 7,456 8.41% $129,228 $ 5,568 8.69%
Securities(1)...................... 227,710 6,675 5.86 170,005 5,136 6.04
Federal funds sold and other
temporary investments........... 17,421 422 4.82 4,789 132 5.48
-------- ------- -------- -------
Total interest-earning
assets................... 423,992 14,553 6.89% 304,022 10,836 7.16%
------- -------
Less allowance for credit losses... (1,915) (1,047)
-------- --------
Total interest-earning assets,
net of allowance.............. 422,077 302,975
Noninterest-earning assets...... 34,412 27,122
-------- --------
Total assets............... $456,489 $330,097
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits... $ 49,454 $ 372 1.52% $ 41,064 $ 330 1.62%
Savings and money market
accounts........................ 122,230 2,014 3.32 78,704 1,376 3.53
Certificates of deposit............ 158,573 3,737 4.75 115,918 2,942 5.12
Federal funds purchased and other
borrowings...................... 322 7 4.32 2,345 68 5.77
-------- ------- -------- -------
Total interest-bearing
liabilities.............. 330,579 6,130 3.74% 238,031 4,716 4.00%
-------- ------- -------- -------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits........................ 81,807 65,057
Other liabilities.................. 1,955 1,426
-------- --------
Total liabilities.......... 414,341 304,514
-------- --------
Shareholders' equity................. 42,148 25,583
-------- --------
Total liabilities and
shareholders' equity..... $456,489 $330,097
======== ========
Net interest rate spread............. 3.15% 3.16%
Net interest income and margin(2).... $ 8,423 4.01% $ 6,120 4.06%
======= =======
Net interest income and margin (tax-
equivalent basis)(3)............... $ 8,597 4.09% $ 6,242 4.14%
======= =======
</TABLE>
- ---------------
(1) Yield is based on amortized cost and does not include any component of
unrealized gains or losses.
(2) The net interest margin is equal to net interest income divided by average
interest-earning assets.
(3) In order to make pretax income and resultant yields on tax-exempt
investments and loans comparable to those on taxable investments and loans,
a tax-equivalent adjustment has been computed using a federal income tax
rate of 34%.
(4) Annualized.
25
<PAGE> 30
The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances and the volatility of interest rates
for the periods indicated. For purposes of this table, changes attributable to
both rate and volume which cannot be segregated have been allocated to rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 VS. 1998
-----------------------------
INCREASE (DECREASE)
DUE TO
-------------------
VOLUME RATE TOTAL
-------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans................................................... $2,139 $(251) $1,888
Securities.............................................. 1,743 (204) 1,539
Federal funds sold and other temporary investments...... 348 (58) 290
------ ----- ------
Total increase (decrease) in interest income.... 4,230 (513) 3,717
------ ----- ------
Interest-bearing liabilities:
Interest-bearing demand deposits........................ 67 (25) 42
Savings and money market accounts....................... 761 (123) 638
Certificates of deposit................................. 1,083 (288) 795
Federal funds purchased and other borrowings............ (59) (2) (61)
------ ----- ------
Total increase (decrease) in interest expense... 1,852 (438) 1,414
------ ----- ------
Increase (decrease) in net interest income................ $2,378 $ (75) $2,303
====== ===== ======
</TABLE>
Provision for Credit Losses
Our provision for credit losses is established through charges to income in
the form of the provision in order to bring the total allowance for credit
losses to a level deemed appropriate by our management based on such factors as
our historical loan loss experience, industry diversification of our commercial
loan portfolio, the amount of nonperforming loans and related collateral, the
volume, growth and composition of our loan portfolio, current economic
conditions that may affect the borrower's ability to pay and the value of
collateral, the evaluation of our loan portfolio through our internal loan
review process and other relevant factors.
The provision for credit losses for the six months ended June 30, 1999
decreased $15,000 to $130,000 from $145,000 in the same period in 1998.
Noninterest Income
Noninterest income is an important source of revenue for financial
institutions. Our primary sources of noninterest income are service charges on
deposit accounts and other banking service related fees. Noninterest income
increased $173,000, or 13.6%, to $1.4 million for the six month period ended
June 30, 1999 from $1.3 million for the same period in 1998. The increase in
service charges on deposit accounts was principally due to the Union
acquisition.
The following table presents, for the periods indicated, the major
categories of noninterest income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts......................... $1,241 $1,074
Other noninterest income.................................... 205 199
------ ------
Total noninterest income.......................... $1,446 $1,273
====== ======
</TABLE>
26
<PAGE> 31
Noninterest Expense
Noninterest expense totaled $5.4 million for the six months ended June 30,
1999, an increase of $1.1 million, or 27.8%, from $4.3 million for the same
period in 1998. The increase primarily reflected additional expenses resulting
from the Union acquisition.
The following table presents, for the periods indicated, the major
categories of noninterest expense:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits.............................. $2,820 $2,115
Non-staff expenses:
Net occupancy expense..................................... 437 367
Equipment depreciation.................................... 173 136
Data processing........................................... 417 369
Professional fees......................................... 98 46
Regulatory assessments and FDIC insurance................. 42 35
Ad valorem and franchise taxes............................ 99 101
Goodwill amortization..................................... 323 235
Other..................................................... 1,026 848
------ ------
Total noninterest expense......................... $5,435 $4,252
====== ======
</TABLE>
Salaries and employee benefits for the six month period ended June 30, 1999
totaled $2.8 million, an increase of $705,000, or 33.3%, from $2.1 million for
the six month period ending June 30, 1998. The change was due primarily to an
increase in the number of employees due to the Union acquisition and regular
annual employee salary increases.
Non-staff expenses increased $478,000, or 22.4%, to $2.6 million for the
six month period ended June 30, 1999 from $2.1 million for the same period in
1998. The increase was principally due to the Union acquisition.
Income Taxes
The amount of federal income tax expense is influenced by the amount of
taxable income, the amount of tax-exempt income, the amount of nondeductible
interest expense and the amount of other nondeductible expenses. Income tax
expense increased $428,000, or 45.6%, to $1.4 million for the six months ended
June 30, 1999 from $939,000 for the same period in 1998. The increase was
primarily attributable to higher earnings.
Impact of Inflation
The effects of inflation on the local economy and on our operating results
have been relatively modest for the past several years. Since substantially all
of our assets and liabilities are monetary in nature, such as cash, securities,
loans and deposits, their values are less sensitive to the effects of inflation
than to changing interest rates, which do not necessarily change in accordance
with inflation rates. We try to control the impact of interest rate fluctuations
by managing the relationship between our interest rate sensitive assets and
liabilities. See "-- Financial Condition -- Interest Rate Sensitivity and
Liquidity."
FINANCIAL CONDITION
Loan Portfolio
Total loans were $188.0 million at June 30, 1999, an increase of $17.5
million, or 10.3%, from $170.5 million at December 31, 1998. Loan growth
occurred primarily in 1-4 family residential and
27
<PAGE> 32
agricultural loans. Period end loans comprised 44.4% of average earning assets
at June 30, 1999 compared with 51.9% at December 31, 1998.
The following table summarizes our loan portfolio by type of loan as of
June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial...................... $ 18,699 9.9% $ 16,972 10.0%
Real estate:
Construction and land development............ 2,012 1.1 1,727 1.0
1-4 family residential....................... 86,945 46.2 80,062 46.9
Home equity.................................. 9,908 5.3 8,077 4.7
Commercial mortgages......................... 25,238 13.4 22,240 13.1
Farmland..................................... 5,917 3.2 6,148 3.6
Multifamily residential...................... 1,405 0.8 1,090 0.6
Agriculture.................................... 18,578 9.9 14,107 8.3
Consumer....................................... 19,332 10.2 20,055 11.8
-------- ----- -------- -----
Total loans.......................... $188,034 100.0% $170,478 100.0%
======== ===== ======== =====
</TABLE>
Our lending focus is on 1-4 family residential, agricultural, small and
medium-sized business and consumer loans. We offer a variety of commercial
lending products including term loans and lines of credit. We also offer a broad
range of short to medium-term commercial loans, primarily collateralized, to
businesses for working capital (including inventory and receivables), business
expansion (including acquisitions of real estate and improvements) and the
purchase of equipment and machinery. Historically, we have originated loans for
our own account and have not securitized our loans. The purpose of a particular
loan generally determines its structure. All loans in the 1-4 family residential
category were originated by us.
Loans from $300,000 to $750,000 are evaluated and acted upon by an
officers' loan committee, which meets weekly. Loans above that amount must be
approved by the Directors Loan Committee, which meets monthly.
In nearly all cases, our commercial loans are made in our primary market
area and are underwritten on the basis of the borrower's ability to service such
debt from income. As a general practice, we take as collateral a lien on any
available real estate, equipment or other assets owned by the borrower and
obtain a personal guaranty of the borrower. Working capital loans are primarily
collateralized by short-term assets, whereas term loans are primarily
collateralized by long-term assets. As a result, commercial loans involve
additional complexities, variables and risks and require more thorough
underwriting and servicing than other types of loans.
In addition to commercial loans secured by real estate, we make commercial
mortgage loans to finance the purchase of real property, which generally
consists of real estate with completed structures. Our commercial mortgage loans
are secured by first liens on real estate, typically have variable interest
rates and amortize over a ten to 15 year period. Payments on loans secured by
such properties are often dependent on the successful operation or management of
the properties. Accordingly, repayment of these loans may be subject to adverse
conditions in the real estate market or the economy to a greater extent than
other types of loans. We seek to minimize these risks in a variety of ways,
including giving careful consideration to the property's operating history,
future operating projections, current and projected occupancy, location and
physical condition in connection with underwriting these loans. The underwriting
analysis also includes credit verification, appraisals and a review of the
financial condition of the borrower.
28
<PAGE> 33
Additionally, a significant portion of our lending activity has consisted
of the origination of 1-4 family residential mortgage loans collateralized by
owner-occupied properties located in our market areas. We offer a variety of
mortgage loan products which generally are amortized over five to 25 years.
Loans collateralized by 1-4 family residential real estate generally have been
originated in amounts of no more than 89% of appraised value or have mortgage
insurance. We require mortgage title insurance and hazard insurance. We have
elected to keep all 1-4 family residential loans for our own account rather than
selling such loans into the secondary market. By doing so, we are able to
realize a higher yield on these loans; however, we also incur interest rate risk
as well as the risks associated with nonpayments on such loans.
We make loans to finance the construction of residential and, to a limited
extent, nonresidential properties. Construction loans generally are secured by
first liens on real estate and have floating interest rates. We conduct periodic
inspections, either directly or through an agent, prior to approval of periodic
draws on these loans. Underwriting guidelines similar to those described above
are also used in our construction lending activities. Construction loans involve
additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value
prior to its completion. Because of uncertainties inherent in estimating
construction costs, the market value of the completed project and the effects of
governmental regulation on real property, it can be difficult to accurately
evaluate the total funds required to complete a project and the related loan to
value ratio. As a result of these uncertainties, construction lending often
involves the disbursement of substantial funds with repayment dependent, in
part, on the success of the ultimate project rather than the ability of a
borrower or guarantor to repay the loan. If we are forced to foreclose on a
project prior to completion, there is no assurance that we will be able to
recover all of the unpaid portion of the loan. In addition, we may be required
to fund additional amounts to complete a project and may have to hold the
property for an indeterminate period of time. While we have underwriting
procedures designed to identify what we believe to be acceptable levels of risks
in construction lending, no assurance can be given that these procedures will
prevent losses from the risks described above.
The consumer loans we make include direct "A"-credit automobile loans,
recreational vehicle loans, boat loans, home improvement loans, home equity
loans, personal loans (collateralized and uncollateralized) and deposit account
collateralized loans. The terms of these loans typically range from 12 to 120
months and vary based upon the nature of the collateral and size of the loan.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan balance. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state laws may
limit the amount which can be recovered on such loans.
We provide agricultural loans for short-term crop production, including
rice, cotton, milo and corn, farm equipment financing and agricultural real
estate financing. We evaluate agricultural borrowers primarily based on their
historical profitability, level of experience in their particular agricultural
industry, overall financial capacity and the availability of secondary
collateral to withstand economic and natural variations common to the industry.
Because agricultural loans present a higher level of risk associated with events
caused by nature, we routinely make on-site visits and inspections in order to
monitor and identify such risks.
29
<PAGE> 34
The contractual maturity ranges of the commercial and industrial and
construction and land development portfolios and the amount of such loans with
predetermined interest rates and floating rates in each maturity range as of
June 30, 1999 are summarized in the following table:
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------
AFTER ONE
ONE YEAR THROUGH AFTER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial............................. $10,408 $4,691 $3,600 $18,699
Construction and land development..................... 1,693 319 -- 2,012
------- ------ ------ -------
Total........................................ $12,101 $5,010 $3,600 $20,711
======= ====== ====== =======
Loans with a predetermined interest rate.............. $ 5,687 $2,894 $1,495 $10,076
Loans with a floating interest rate................... 6,414 2,116 2,105 10,635
------- ------ ------ -------
Total........................................ $12,101 $5,010 $3,600 $20,711
======= ====== ====== =======
</TABLE>
We have adopted Statement of Financial Accounting Standards ("SFAS") No.
114, Accounting for Creditors for Impairment of a Loan, as amended by SFAS No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. Under SFAS No. 114, as amended, a loan is considered impaired based
on current information and events, if it is probable that we will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. The fair value of impaired loans is
based on either the present value of expected future cash flows discounted at
the loan's effective interest rate or the loan's observable market price or the
fair value of the collateral if the loan is collateral-dependent. The
implementation of SFAS Nos. 114 and 118 did not have a material adverse effect
on our financial statements.
Nonperforming Assets
We have several procedures in place to assist us in maintaining the overall
quality of our loan portfolio. We have established underwriting guidelines to be
followed by our officers. We also monitor our delinquency levels for any
negative or adverse trends. There can be no assurance, however, that our loan
portfolio will not become subject to increasing pressures from deteriorating
borrower credit due to general economic conditions.
We require appraisals on loans secured by real estate. With respect to
potential problem loans, we make an evaluation of the borrower's overall
financial condition to determine the need, if any, for possible write-downs or
appropriate additions to the allowance for credit losses.
We generally place a loan on nonaccrual status and cease accruing interest
when the payment of principal or interest is delinquent for 90 days, or earlier
in some cases, unless the loan is in the process of collection and the
underlying collateral fully supports the carrying value of the loan. We
generally charge off all loans before attaining nonaccrual status.
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans............................................ $ -- $ 5
Restructured loans.......................................... -- --
Other real estate........................................... 128 135
----- -----
Total nonperforming assets........................ $ 128 $ 140
===== =====
Nonperforming assets to total loans and other real estate... 0.07% 0.08%
</TABLE>
30
<PAGE> 35
Allowance for Credit Losses
The allowance for credit losses is a reserve established through charges to
earnings in the form of a provision for credit losses. Management has
established an allowance for credit losses which it believes is adequate for
estimated losses in our loan portfolio. Based on an evaluation of the loan
portfolio, management presents a monthly review of the allowance for credit
losses to the bank's Board of Directors, indicating any change in the allowance
since the last review and any recommendations as to adjustments in the
allowance. In making its evaluation, management considers factors such as our
historical loan loss experience, industry diversification of our commercial loan
portfolio, the amount of nonperforming assets and related collateral, the
volume, growth and composition of our loan portfolio, current economic changes
that may affect the borrower's ability to pay and the value of collateral, the
evaluation of our loan portfolio through our internal loan review process and
other relevant factors. Charge-offs occur when loans are deemed to be
uncollectible.
Although we do not determine the total allowance based upon the amount of
loans in a particular type or category, risk elements attributable to particular
loan types or categories are considered in assessing the quality of individual
loans. Some of the risk elements considered include:
- in the case of 1-4 family residential mortgage loans, the borrower's
ability to repay the loan, including a consideration of the debt to
income ratio and employment and income stability, the loan to value
ratio, and the age, condition and marketability of collateral;
- for non-farm non-residential loans and multifamily residential loans, the
debt service coverage ratio (income from the property in excess of
operating expenses compared to loan payment requirements), operating
results of the owner in the case of owner-occupied properties, the loan
to value ratio, the age and condition of the collateral and the
volatility of income, property value and future operating results typical
of properties of that type;
- for agricultural real estate loans, the experience and financial
capability of the borrower, projected debt service coverage of the
operations of the borrower and loan to value ratio;
- for construction and land development loans, the perceived feasibility of
the project including the ability to sell developed lots or improvements
constructed for resale or ability to lease property constructed for
lease, the quality and nature of contracts for presale or preleasing, if
any, experience and ability of the developer and loan to value ratio;
- for commercial and industrial loans, the operating results of the
commercial, industrial or professional enterprise, the borrower's
business, professional and financial ability and expertise, the specific
risks and volatility of income and operating results typical for
businesses in that category and the value, nature and marketability of
collateral; and
- for non-real estate agricultural loans, the operating results, experience
and financial capability of the borrower, historical and expected market
conditions and the value, nature and marketability of collateral.
In addition, for each category, we consider secondary sources of income and the
financial strength and credit history of the borrower and any guarantors.
We follow a loan review program to evaluate the credit risk in the loan
portfolio. Through the loan review process, we maintain an internally classified
loan list which, along with the delinquency list of loans, helps management
assess the overall quality of the loan portfolio and the adequacy of the
allowance for credit losses. Loans classified as "substandard" are those loans
with clear and defined weaknesses such as a highly-leveraged position,
unfavorable financial ratios, uncertain repayment sources or poor financial
condition, which may jeopardize recoverability of the debt. Loans classified as
"doubtful" are those loans which have characteristics similar to substandard
accounts but with an increased risk that a loss may occur, or at least a portion
of the loan may require a charge-off if liquidated at present. Loans classified
as "loss" are those loans which are in the process of being charged off.
31
<PAGE> 36
In addition to the internally classified loan list and delinquency list of
loans, we maintain a separate "watch list" which further aids us in monitoring
loan portfolios. Watch list loans have one or more deficiencies that require
attention in the short term or pertinent ratios of the loan account that have
weakened to a point where more frequent monitoring is warranted. These loans do
not have all of the characteristics of a classified loan (substandard or
doubtful) but do show weakened elements compared with those of a satisfactory
credit. We review these loans to assist in assessing the adequacy of the
allowance for credit losses.
In order to determine the adequacy of the allowance for credit losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on our
historical charge-off experience. We then charge to operations a provision for
credit losses to maintain the allowance for credit losses at an adequate level
determined by the foregoing methodology.
For the six months ended June 30, 1999, net recoveries totaled $33,000, or
(0.02)%, of average loans outstanding for the period, compared with net
charge-offs of $47,000, or 0.04%, of average loans for the six months ended June
30, 1998. During the six months ended June 30, 1999, we recorded a provision for
credit losses of $130,000 compared with $145,000 for the same period in 1998. At
June 30, 1999, the allowance totaled $2.0 million, or 1.07% of total loans,
compared with $1.1 million, or 0.79% of total loans, at June 30, 1998.
The following table presents, for the periods indicated, an analysis of the
allowance for credit losses and other related data:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding................................... $178,861 $129,228
======== ========
Gross loans outstanding at end of period.................... $188,034 $141,080
======== ========
Allowance for credit losses at beginning of period.......... $ 1,850 $ 1,016
Balance acquired with Union acquisition..................... -- --
Provision for credit losses................................. 130 145
Charge-offs:
Commercial and industrial................................. -- (1)
Real estate and agriculture............................... (4) (12)
Consumer.................................................. (15) (42)
Recoveries:
Commercial and industrial................................. 5 2
Real estate and agriculture............................... 44 --
Consumer.................................................. 3 6
-------- --------
Net recoveries (charge-offs)................................ 33 (47)
-------- --------
Allowance for credit losses at end of period................ $ 2,013 $ 1,114
======== ========
Ratio of allowance to end of period loans................... 1.07% 0.79%
Ratio of net (recoveries) charge-offs to average loans...... (0.02) 0.04
Ratio of allowance to end of period nonperforming loans..... -- --
</TABLE>
32
<PAGE> 37
The following table describes the allocation of the allowance for credit
losses among various categories of loans and certain other information at June
30, 1999. The allocation is made for analytical purposes and is not necessarily
indicative of the categories in which future losses may occur. The total
allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
PERCENT OF LOANS
AMOUNT TO TOTAL LOANS
------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance of allowance for credit losses applicable to:
Commercial and industrial................................. $ 13 9.9%
Real estate............................................... 18 70.0
Agriculture............................................... 31 9.9
Consumer.................................................. 4 10.2
Unallocated............................................... 1,947 --
------ -----
Total allowance for credit losses................. $2,013 100.0%
====== =====
</TABLE>
Where management is able to identify specific loans or categories of loans
where specific amounts of reserve are required, allocations are assigned to
those categories. Federal and state bank regulators also require that a bank
maintain a reserve that is sufficient to absorb an estimated amount of
unidentified potential losses based on management's perception of economic
conditions, loan portfolio growth, historical charge-off experience and exposure
concentrations. While our recent rate of charge-offs is low, management is aware
that we have been operating in an extremely beneficial economic environment. Our
management, along with a number of economists, has perceived during the past
year an increasing instability in the national and Southeast Texas economies and
a worldwide economic slowdown that could contribute to job losses and otherwise
adversely affect a broad variety of business sectors. In addition, as we have
grown, our aggregate loan portfolio has increased and since we have made a
decision to diversify our loan portfolio into areas other than 1-4 family
residential mortgage loans, the risk profile of our loans has increased. By
virtue of our increased capital levels, we are able to make larger loans,
thereby increasing the possibility of one bad loan having a larger adverse
impact than before. Accordingly, management believes that the maintenance of an
unallocated reserve in the current amount is prudent and consistent with
regulatory requirements.
We believe that the allowance for credit losses at June 30, 1999 is
adequate to cover losses inherent in the portfolio as of such date. There can be
no assurance, however, that we will not sustain losses in future periods which
could be substantial in relation to the size of the allowance at June 30, 1999.
Securities
We use our securities portfolio both as a source of income and as a source
of liquidity. At June 30, 1999, investment securities totaled $221.7 million, a
decrease of $6.0 million, or 2.7%, from $227.7 million at December 31, 1998. At
June 30, 1999, securities represented 50.1% of total assets compared with 52.2%
of total assets at December 31, 1998.
33
<PAGE> 38
The following table presents the amortized cost and fair value of
securities classified as available-for-sale at June 30, 1999:
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies................... $ 91,468 $ 13 $1,618 $ 89,863
Mortgage-backed securities................. 34,371 41 866 33,546
States and political subdivisions.......... 3,976 128 -- 4,104
Collateralized mortgage obligations........ 10,270 407 20 10,657
-------- ---- ------ --------
Total............................ $140,085 $589 $2,504 $138,170
======== ==== ====== ========
</TABLE>
The following table presents the amortized cost and fair value of
securities classified as held-to-maturity at June 30, 1999:
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies.................... $42,569 $156 $ 85 $42,640
Mortgage-backed securities.................. 26,149 87 163 26,073
States and political subdivisions........... 14,570 120 49 14,641
Collateralized mortgage obligations......... 223 -- -- 223
------- ---- ---- -------
Total............................. $83,511 $363 $297 $83,577
======= ==== ==== =======
</TABLE>
Mortgage-backed securities are securities that have been developed by
pooling a number of real estate mortgages and which are principally issued by
federal agencies such as the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. These securities are deemed to have high
credit ratings, and minimum regular monthly cash flows of principal and interest
are guaranteed by the issuing agencies.
At June 30, 1999, 56.5% of the mortgage-backed securities we held had
contractual final maturities of more than ten years with a weighted average life
of 4.7 years. However, unlike U.S. Treasury and U.S. government agency
securities, which have a lump sum payment at maturity, mortgage-backed
securities provide cash flows from regular principal and interest payments and
principal prepayments throughout the lives of the securities. Mortgage-backed
securities which are purchased at a premium will generally suffer decreasing net
yields as interest rates drop because home owners tend to refinance their
mortgages. Thus, the premium paid must be amortized over a shorter period.
Therefore, these securities purchased at a discount will obtain higher net
yields in a decreasing interest rate environment. As interest rates rise, the
opposite will generally be true. During a period of increasing interest rates,
fixed rate mortgage-backed securities do not tend to experience heavy
prepayments of principal and consequently, the average life of this security
will not be unduly shortened. If interest rates begin to fall, prepayments will
increase.
34
<PAGE> 39
The following table summarizes the contractual maturity of investment
securities and their weighted average yields (available-for-sale securities are
not adjusted for unrealized gains or losses):
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT BUT
WITHIN ONE WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS TOTAL
--------------- ---------------- ----------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- -------- ----- -------- ------ ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies........ $11,599 6.00% $ 96,354 6.01% $26,086 6.16% $ -- --% $134,039 6.04%
Mortgage-backed
securities............... 3,724 5.07 16,066 6.21 6,541 6.40 34,188 5.91 60,519 5.99
States and political
subdivisions............. 2,355 6.82 11,902 6.95 4,016 7.37 272 10.62 18,545 7.08
Collateralized mortgage
obligations.............. -- -- -- -- 223 4.66 10,270 6.44 10,493 6.40
------- -------- ------- ------- --------
Total.............. $17,678 5.91% $124,322 6.13% $36,866 6.33% $44,730 6.09% $223,596 6.13%
======= ==== ======== ==== ======= ==== ======= ===== ======== ====
</TABLE>
The tax-exempt states and political subdivisions are not calculated on a
tax-equivalent basis. On a tax-equivalent basis, the yield on states and
political subdivisions would have been 7.46% at June 30, 1999.
We have adopted SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities. At the date of purchase, we are required to classify debt
and equity securities into one of three categories: held-to-maturity, trading or
available-for-sale. At each reporting date, the appropriateness of the
classification is reassessed. Investments in debt securities are classified as
held-to-maturity and measured at amortized cost in the financial statements only
if management has the positive intent and ability to hold those securities to
maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading and measured at fair
value in the financial statements with unrealized gains and losses included in
earnings. Investments not classified as either held-to-maturity or trading are
classified as available-for-sale and measured at fair value in the financial
statements with unrealized gains and losses reported, net of tax, in a separate
component of shareholders' equity until realized.
Premises and Equipment
Premises and equipment, net of accumulated depreciation, totaled $6.1
million at June 30, 1999 and December 31, 1998, respectively.
Deposits
We offer a variety of deposit accounts having a wide range of interest
rates and terms. Our deposits consist of demand, savings, money market and time
accounts. We rely primarily on competitive pricing policies and customer service
to attract and retain these deposits. We do not have or accept any brokered
deposits.
Total deposits at June 30, 1999 were $398.4 million compared with $390.7
million at December 31, 1998, an increase of $7.7 million, or 1.97%. At June 30,
1999, noninterest-bearing deposits accounted for approximately 20.3% of total
deposits compared with 21.8% of total deposits at December 31, 1998.
Interest-bearing deposits totaled $317.5 million, or 79.7%, of total deposits at
June 30, 1999 compared with $305.7 million, or 78.3%, of total deposits at
December 31, 1998.
35
<PAGE> 40
The daily average balances and weighted average rates paid on deposits for
the period ended June 30, 1999 are presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
-----------------
AMOUNT RATE
--------- -----
<S> <C> <C>
Interest-bearing checking................................... $ 49,454 1.52%
Regular savings............................................. 13,790 2.44
Money market savings........................................ 108,440 3.43
Time deposits............................................... 158,573 4.75
--------
Total interest-bearing deposits................... 330,257 3.74
Noninterest-bearing deposits................................ 81,807
--------
Total deposits.................................... $412,064 3.00%
======== ====
</TABLE>
The following table sets forth the amount of our certificates of deposit
that were $100,000 or greater by time remaining until maturity at June 30, 1999:
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less............................. $17,887
Over three through six months.................... 8,842
Over six through 12 months....................... 12,207
Over 12 months................................... 4,046
-------
Total deposits......................... $42,982
=======
</TABLE>
Other Borrowings
We had $570,000 in Federal Home Loan Bank advances at June 30, 1999,
compared with $2.4 million in such advances at December 31, 1998. The amount of
FHLB advances we have at any given time is based on our daily liquidity position
and will increase or decrease according to our funding needs.
Interest Rate Sensitivity and Liquidity
Our asset liability and funds management policy provides management with
the necessary guidelines for effective funds management, and we have established
a measurement system for monitoring our net interest rate sensitivity position.
We manage our sensitivity position within established guidelines.
Interest rate risk is managed by the Asset Liability Committee ("ALCO"),
which is composed of our senior officers, in accordance with policies approved
by our Board of Directors. The ALCO formulates strategies based on appropriate
levels of interest rate risk. In determining the appropriate level of interest
rate risk, the ALCO considers the impact on earnings and capital of the current
outlook on interest rates, potential changes in interest rates, regional
economies, liquidity, business strategies and other factors. The ALCO meets
regularly to review, among other things, the sensitivity of assets and
liabilities to interest rate changes, the book and market values of assets and
liabilities, unrealized gains and losses, purchase and sale activities,
commitments to originate loans and the maturities of investments and borrowings.
Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of
deposits and consumer and commercial deposit activity. Management uses two
methodologies to manage interest rate risk: (i) an analysis of relationships
between interest-earning assets and interest-bearing liabilities; and (ii) an
interest rate shock simulation model. We have traditionally managed our business
to reduce its overall exposure to changes in interest rates.
We manage our exposure to interest rates by structuring our balance sheet
in the ordinary course of business. We do not enter into instruments such as
leveraged derivatives, interest rate swaps, financial
36
<PAGE> 41
options, financial future contracts or forward delivery contracts for the
purpose of reducing interest rate risk.
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is performed
by analyzing the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at specific points in time ("GAP") and
by analyzing the effects of interest rate changes on net interest income over
specific periods of time by projecting the performance of the mix of assets and
liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in interest
rates. A company is considered to be asset sensitive, or having a positive GAP,
when the amount of its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a company is
considered to be liability sensitive, or having a negative GAP, when the amount
of its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a negative
GAP would tend to affect net interest income adversely, while a positive GAP
would tend to result in an increase in net interest income. During a period of
falling interest rates, a negative GAP would tend to result in an increase in
net interest income, while a positive GAP would tend to affect net interest
income adversely.
The following table sets forth our interest rate sensitivity analysis at
June 30, 1999:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
---------------------------------------------------------------
0-30 31-180 181-365 AFTER
DAYS DAYS DAYS ONE YEAR TOTAL
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities........................................ $ 26,177 $ 15,065 $ 18,782 $163,572 $223,596
Loans............................................. 37,072 16,807 17,235 116,920 188,034
Federal funds sold and other temporary
investments..................................... 45 -- -- -- 45
--------- --------- --------- -------- --------
Total interest-earning assets............... 63,294 31,872 36,017 280,492 411,675
--------- --------- --------- -------- --------
Interest-bearing liabilities:
Demand, money market and savings deposits......... 161,966 -- -- -- 161,966
Certificates of deposit and other time deposits... 16,146 69,391 48,008 22,022 155,567
Federal funds purchased and FHLB advances......... 570 -- -- -- 570
--------- --------- --------- -------- --------
Total interest-bearing liabilities.......... 178,682 69,391 48,088 22,022 318,103
--------- --------- --------- -------- --------
Period GAP.......................................... $(115,388) $ (37,519) $ (11,991) $258,470 $ 93,572
Cumulative GAP...................................... $(115,388) $(152,907) $(164,898) $ 93,572
Period GAP to total assets.......................... (26.06)% (8.47)% (2.71)% 58.37%
Cumulative GAP to total assets...................... (26.06)% (34.53)% (37.24)% 21.13%
</TABLE>
Shortcomings are inherent in any GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change. In addition to
GAP analysis, we use an interest rate risk simulation model and shock analysis
to test the interest rate sensitivity of net interest income and the balance
sheet, respectively. Contractual maturities and repricing opportunities of loans
are incorporated in the model as are prepayment assumptions, maturity data and
call options within the investment portfolio. Assumptions based on past
experience are incorporated into the model for nonmaturity deposit accounts.
Based on our June 30, 1999 simulation analysis, we estimate that a 200 basis
point rise in rates over the next 12 month period would have an impact of
approximately (7.36)% on our net interest income for the period, while a 200
basis point decline in rates over the same period would have an impact of
approximately (2.99)% on our net interest income for the period. The change is
relatively small, despite our liability sensitive GAP position. The results are
primarily from the behavior of demand, money market and savings deposits. We
have found that historically interest rates on these deposits change more slowly
in a rising rate environment than in a declining rate environment. This
assumption is incorporated into the simulation model and is generally not fully
reflected in a GAP analysis.
37
<PAGE> 42
As a financial institution, our primary component of market risk is
interest rate volatility. Fluctuations in interest rates will ultimately impact
both the level of income and expense recorded on most of our assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which have a short term to
maturity. Based upon the nature of our operations, we are not subject to foreign
exchange or commodity price risk. We do not own any trading assets.
Our exposure to market risk is reviewed by senior management and our
Investment Committee on a regular basis. Interest rate risk is the potential of
economic losses due to future interest rate changes. These economic losses can
be reflected as a loss of future net interest income and/or a loss of current
fair market values. The objective is to measure the effect on net interest
income and to adjust the balance sheet to minimize the inherent risk while at
the same time maximizing income. Management realizes certain risks are inherent,
and that the goal is to identify and accept the risks.
Liquidity involves our ability to raise funds to support asset growth or
reduce assets to meet deposit withdrawals and other payment obligations, to
maintain reserve requirements and otherwise to operate on an ongoing basis.
During the past three years, our liquidity needs have primarily been met by
growth in core deposits, as previously discussed. Although access to purchased
funds from correspondent banks is available and has been utilized on occasion to
take advantage of investment opportunities, we do not generally rely on these
external funding sources. The cash and federal funds sold position, supplemented
by amortizing investment and loan portfolios, have generally created an adequate
liquidity position.
Asset liquidity is provided by cash and assets which are readily marketable
or which will mature in the near future. As of June 30, 1999, we had cash and
cash equivalents of $12.5 million, down from $18.2 million at December 31, 1998.
The decline was due primarily to an increase in loans.
Capital Resources
Capital management consists of providing equity to support both current and
future operations. We are subject to capital adequacy requirements imposed by
the Federal Reserve and the bank is subject to capital adequacy requirements
imposed by the FDIC and the Texas Banking Department. Both the Federal Reserve
and the FDIC have adopted risk-based capital requirements for assessing bank
holding company and bank capital adequacy. These standards define capital and
establish minimum capital requirements in relation to assets and off-balance
sheet exposure, adjusted for credit risk. The risk-based capital standards
currently in effect are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among bank holding companies and
banks, to account for off-balance sheet exposure and to minimize disincentives
for holding liquid assets. Assets and off-balance sheet items are assigned to
broad risk categories, each with appropriate relative risk weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
The risk-based capital standards issued by the Federal Reserve require all
bank holding companies to have "Tier 1 capital" of at least 4.0% and "total
risk-based" capital (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted
assets. "Tier 1 capital" generally includes common shareholders' equity and
qualifying perpetual preferred stock together with related surpluses and
retained earnings, less deductions for goodwill and various other intangibles.
"Tier 2 capital" may consist of a limited amount of intermediate-term preferred
stock, a limited amount of term subordinated debt, certain hybrid capital
instruments and other debt securities, perpetual preferred stock not qualifying
as Tier 1 capital, and a limited amount of the general valuation allowance for
loan losses. The sum of Tier 1 capital and Tier 2 capital is "total risk-based
capital."
The Federal Reserve has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions
38
<PAGE> 43
will be expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), each federal banking agency revised its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of nontraditional activities,
as well as reflect the actual performance and expected risk of loss on
multifamily mortgages. The bank is subject to capital adequacy guidelines of the
FDIC that are substantially similar to the Federal Reserve's guidelines. Also
pursuant to FDICIA, the FDIC has promulgated regulations setting the levels at
which an insured institution such as the bank would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under the FDIC's
regulations, the bank is classified "well capitalized" for purposes of prompt
corrective action.
Shareholders' equity increased to $42.2 million at June 30, 1999 compared
with $41.4 million at December 31, 1998, an increase of $793,000, or 1.9%. The
increase was primarily due to net earnings of $2.9 million, cash dividends paid
of $519,000, and an unrealized loss on available for sale securities of $1.3
million for the six months ended June 30, 1999.
The following table provides a comparison of the leverage and risk-weighted
capital ratios of us and the bank as of June 30, 1999 to the minimum and well
capitalized regulatory standards:
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
MINIMUM REQUIRED UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION ACTUAL RATIO AT
ADEQUACY PURPOSES PROVISIONS JUNE 30, 1999
----------------- ---------------------- ---------------
<S> <C> <C> <C>
PROSPERITY
Leverage ratio................... 3.00%(1) N/A 7.69%
Tier 1 risk-based capital
ratio......................... 4.00% N/A 18.09%
Risk-based capital ratio......... 8.00% N/A 19.16%
FIRST PROSPERITY BANK
Leverage ratio................... 3.00%(2) 5.00% 5.84%
Tier 1 risk-based capital
ratio......................... 4.00% 6.00% 13.74%
Risk-based capital ratio......... 8.00% 10.00% 14.81%
</TABLE>
- ---------------
(1) The Federal Reserve may require us to maintain a leverage ratio of up to 200
basis points above the required minimum.
(2) The FDIC may require the bank to maintain a leverage ratio of up to 200
basis points above the required minimum.
Year 2000 Compliance
General. The Year 2000 risk involves computer programs and computer
software that are not able to perform without interruption into the Year 2000.
If computer systems do not correctly recognize the date change from December 31,
1999 to January 1, 2000, computer applications that rely on the date field could
fail or create erroneous results. Such erroneous results could affect interest,
payment or due dates or cause the temporary inability to process transactions,
send invoices or engage in similar normal business activities. If we or our
suppliers or borrowers do not address these issues, there could be a material
adverse impact on our financial condition or results of operations.
State of Readiness. We formally initiated our Year 2000 project and plan in
November 1997 to insure that our operational and financial systems will not be
adversely affected by Year 2000 related problems. We have formed a Year 2000
project team and the Board of Directors and management are supporting all
compliance efforts and allocating the necessary resources to ensure completion.
An inventory of all systems and products (including both information technology
("IT") and non-informational technology ("non-IT") systems) that could be
affected by the Year 2000 date change has been developed, verified and
categorized as to its importance to us and an assessment of all major IT and
critical non-IT
39
<PAGE> 44
systems has been completed. This assessment involved inputting test data which
simulates the Year 2000 date change into such IT systems and reviewing the
system output for accuracy. Our assessment of critical non-IT systems involved
reviewing such systems to determine whether they were date dependent. Based on
such assessment, we believe that none of our critical non-IT systems are date
dependent. The software for our systems is provided through service bureaus and
software vendors. We have contacted all of our third party vendors and software
providers and are requiring them to demonstrate and represent that the products
provided are or will be Year 2000 compliant and have planned a program of
testing compliance. Our service bureau, which performs substantially all of our
data processing functions, has warranted in writing that its software is Year
2000 compliant and pursuant to applicable regulatory guidelines we have reviewed
the results of user group tests performed by the service provider to verify this
assertion. We believe that we would have recourse against the service provider
for actual damages we incur in the event the service provider breaches this
warranty. In addition, the FDIC has reviewed our compliance with Year 2000
issues.
We have completed the following phases of our Year 2000 plan: (i)
recognizing Year 2000 issues, (ii) assessing the impact of Year 2000 issues on
our critical systems, (iii) upgrading systems as necessary to resolve those Year
2000 issues which have been identified and (iv) developing a business resumption
contingency plan. We have implemented and tested all of our mission critical
systems and continue to monitor customer awareness of Year 2000 issues.
Costs of Compliance. Management does not expect the costs of bringing our
systems into Year 2000 compliance will have a material adverse effect on our
financial condition, results of operations or liquidity. We have budgeted
$10,000 to address Year 2000 issues. As of June 30, 1999, we have incurred
expenses of $6,000 in relation to Year 2000. The largest potential internal risk
to us concerning Year 2000 is the malfunction of our data processing system. In
the event our data processing system does not function properly, we are prepared
to perform functions manually. We believe we are in compliance with regulatory
guidelines regarding Year 2000 compliance, including the timetable for achieving
compliance.
Risks Related to Third Parties. The impact of Year 2000 noncompliance by
third parties with which we transact business cannot be accurately gauged. We
identified our largest dollar deposit (aggregate deposits over $500,000) and
loan ($250,000 or more) customers and, based on information available to us,
conducted an evaluation to determine which of those customers are likely to be
affected by Year 2000 issues. We then surveyed those customers deemed at risk to
determine their readiness with respect to Year 2000 issues, including their
awareness of Year 2000 issues, plans to address such issues and progress with
respect to such plans. The responses indicated that the customers are aware of
Year 2000 issues, are in the process of updating their systems and have informed
us that they believe they will be ready for the Year 2000 date change by the end
of 1999. We will continue to monitor our customers deemed at risk and will
encourage customers to resolve any identified problems. To the extent a problem
is identified, we intend to monitor the customer's progress in resolving such
problem. In the event that Year 2000 noncompliance adversely affects a borrower,
we may be required to charge-off the loan to that borrower. For a discussion of
possible effects of such charge-offs, see "-- Contingency Plans" below. In the
event that Year 2000 noncompliance causes a depositor to withdraw funds, we plan
to maintain additional cash on hand. We also have access to the FHLB and Federal
Reserve discount windows to address any additional liquidity needs. With respect
to borrowers, our loan documents include a Year 2000 disclosure form and an
addendum to the loan agreement in which the borrower represents and warrants its
Year 2000 compliance to us.
Customer Awareness. We have implemented a series of notifications to our
customers via statement inserts, statement messages and community forums. Future
plans for increasing customer awareness will include advertising and signs
regarding the Year 2000 issue located in the lobby of each banking center.
Contingency Plans. We have finalized our contingency planning with respect
to the Year 2000 date change and believe that if our own systems should fail, we
could convert to a manual entry system for a period of up to six months without
significant losses. We believe that any mission critical systems could be
recovered and operating within seven days. In the event that the Federal Reserve
is unable to handle
40
<PAGE> 45
electronic funds transfers and check clearing, we do not expect the impact to be
material to our financial condition or results of operations as long as we are
able to utilize an alternative electronic funds transfer and clearing source. As
part of our contingency planning, we have reviewed our loan customer base and
the potential impact on capital of Year 2000 noncompliance. Based upon such
review, using what we consider to be a reasonable worst case scenario, we have
assumed that certain of our commercial borrowers whose businesses are most
likely to be affected by Year 2000 noncompliance would be unable to repay their
loans, resulting in charge-offs of loan amounts in excess of collateral values.
If such were the case, we believe that it is unlikely that our exposure would
exceed $100,000, although there are no assurances that this amount will not be
substantially higher. We do not believe that this amount is material enough for
us to adjust our current methodology for making provisions to the allowance for
credit losses. In addition, we plan to maintain additional cash on hand to meet
any unusual deposit withdrawal activity.
41
<PAGE> 46
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
OVERVIEW
Net income was $4.5 million, $3.6 million and $2.7 million for the years
ended December 31, 1998, 1997 and 1996, respectively, and diluted earnings per
share were $1.04, $0.92 and $0.76 for these same periods. Net income increased
$851,000, or 31.4%, from 1996 to 1997 primarily due to internal growth, the
acquisition of the Angleton, Texas branch of Wells Fargo bank in the second
quarter of 1997 and the acquisition of the Bay City, Texas branch of Norwest
Bank, Texas in 1996. Net income increased $898,000, or 25.2%, from 1997 to 1998
primarily due to internal growth and the Union and Angleton acquisitions. We
estimate that slightly greater than one-half of the increase in net income in
both 1997 and 1998 was due to internal growth. We posted returns on average
assets of 1.26%, 1.17% and 1.05% and returns on average equity of 15.97%, 16.32%
and 15.36% for 1998, 1997 and 1996, respectively. We posted returns on average
assets excluding amortization of goodwill of 1.40%, 1.30%, and 1.15% and returns
on average equity excluding amortization of goodwill of 17.76%, 18.17% and
16.82% for the years ended December 31, 1998, 1997 and 1996, respectively. Our
efficiency ratio was 57.38% in 1998, 59.48% in 1997 and 61.34% in 1996. Our
efficiency ratio excluding amortization of goodwill was 54.21% in 1998, 56.43%
in 1997 and 58.96% in 1996.
Total assets at December 31, 1998, 1997 and 1996 were $436.3 million,
$320.1 million and $294.0 million, respectively. Total deposits at December 31,
1998, 1997 and 1996 were $390.7 million, $291.5 million and $270.9 million,
respectively, with deposit growth from 1996 to 1997 resulting from the Angleton
acquisition and deposit growth from 1997 to 1998 resulting from internal growth
and the Union acquisition. Loans were $170.5 million at December 31, 1998, an
increase of $49.9 million, or 41.4%, from $120.6 million at the end of 1997.
Loans were $113.4 million at year end 1996. Shareholders' equity was $41.4
million, $24.8 million, and $18.8 million at December 31, 1998, 1997 and 1996,
respectively. The increase in shareholders' equity from 1997 to 1998 is
primarily due to our initial public offering of 1,182,517 shares of common stock
in November 1998, in which we raised net proceeds of $12.8 million.
RESULTS OF OPERATIONS
Net Interest Income
1998 versus 1997. Our net interest income for 1998 was $13.3 million,
compared with $10.9 million for 1997, an increase of $2.4 million, or 22.0%. The
improvement in net interest income for 1998 was mainly due to an increase in
total average interest-earning assets and a decrease in funding costs. Average
interest-earning assets increased $50.1 million from $278.8 million to $328.3
million in 1998. Total funding costs decreased eight basis points from 4.04% in
1997 to 3.96% in 1998. For 1998, the net interest margin on a tax-equivalent
basis increased 11 basis points to 4.13% from 4.02% in 1997.
1997 versus 1996. Our net interest income in 1997 was $10.9 million, an
increase of 22.5% over the 1996 level of $8.9 million, due to an increase in the
loan portfolio in 1997. For 1997 as a whole, our funding costs decreased seven
basis points from 4.11% to 4.04%, while asset yields increased eight basis
points from 7.08% to 7.16%.
42
<PAGE> 47
The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. Except as
indicated in the footnotes, no tax-equivalent adjustments were made and all
average balances are daily average balances. Nonaccruing loans have been
included in the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- --------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans................... $143,196 $12,282 8.58% $117,586 $10,205 8.68% $104,534 $9,136 8.74%
Securities(1)........... 178,416 10,834 6.07 157,677 9,572 6.07 127,607 7,396 5.80
Federal funds sold and
other temporary
investments........... 6,676 306 4.58 3,545 193 5.44 5,743 309 5.38
-------- ------- -------- ------- -------- ------
Total
interest-earning
assets.......... 328,288 23,422 7.13% 278,808 19,970 7.16% 237,884 16,841 7.08%
------- ------- ------
Less allowance for
credit losses......... (1,271) (961) (820)
-------- -------- --------
Total
interest-earning
assets, net of
allowance....... 327,017 277,847 237,064
Noninterest-earning
assets................ 27,834 26,239 20,141
-------- -------- --------
Total assets...... $354,851 $304,086 $257,205
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 41,710 $ 670 1.61% $ 42,898 $ 915 2.13% $ 35,285 $ 741 2.10%
Savings and money market
accounts.............. 83,428 2,838 3.40 64,448 2,158 3.35 49,429 1,620 3.28
Certificates of
deposit............... 128,097 6,485 5.06 113,669 5,785 5.09 105,538 5,359 5.08
Federal funds purchased
and other
borrowings............ 2,267 135 5.96 3,030 202 6.67 2,402 203 8.45%
-------- ------- -------- ------- -------- ------
Total
interest-bearing
liabilities..... 255,502 10,128 3.96% 224,045 9,060 4.04% 192,654 7.923 4.11%
-------- ------- -------- ------- -------- ------
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits....... 69,810 57,362 46,082
Other liabilities....... 1,606 858 823
-------- -------- --------
Total
liabilities..... 326,918 282,265 239,559
-------- -------- --------
Shareholders' equity...... 27,933 21,821 17,646
-------- -------- --------
Total liabilities
and
shareholders'
equity.......... $354,851 $304,086 $257,205
======== ======== ========
Net interest rate
spread.................. 3.17% 3.12% 2.97%
Net interest income and
margin(2)............... $13,294 4.05% $10,910 3.91% $8,918 3.75%
======= ======= ======
Net interest income and
margin (tax-equivalent
basis)(3)............... $13,571 4.13% $11,222 4.02% $9,290 3.91%
======= ======= ======
</TABLE>
- ---------------
(1) Yield is based on amortized cost and does not include any component of
unrealized gains or losses.
(2) The net interest margin is equal to net interest income divided by average
interest-earning assets.
(3) In order to make pretax income and resultant yields on tax-exempt
investments and loans comparable to those on taxable investments and loans,
a tax-equivalent adjustment has been computed using a federal income tax
rate of 34%.
43
<PAGE> 48
The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to higher outstanding balances and the volatility of interest
rates. For purposes of this table, changes attributable to both rate and volume
which cannot be segregated have been allocated to rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 VS. 1997 1997 VS. 1996
----------------------- ----------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO DUE TO
-------------- -------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ------ ------ ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans..................................... $2,223 $(146) $2,077 $1,141 $(72) $1,069
Securities................................ 1,259 3 1,262 1,744 432 2,176
Federal funds sold and other temporary
investments............................ 170 (57) 113 (118) 2 (116)
------ ----- ------ ------ ---- ------
Total increase (decrease) in
interest income................. 3,652 (200) 3,452 2,767 362 3,129
------ ----- ------ ------ ---- ------
Interest-bearing liabilities:
Interest-bearing demand deposits.......... (25) (220) (245) 160 14 174
Savings and money market accounts......... 636 44 680 493 45 538
Certificates of deposit................... 734 (34) 700 413 13 426
Federal funds purchased and other
borrowings............................. (51) (16) (67) 53 (54) (1)
------ ----- ------ ------ ---- ------
Total increase (decrease) in
interest expense................ 1,294 (226) 1,068 1,119 18 1,137
------ ----- ------ ------ ---- ------
Increase in net interest income............. $2,358 $ 26 $2,384 $1,648 $344 $1,992
====== ===== ====== ====== ==== ======
</TABLE>
Provision for Credit Losses
The allowance for credit losses at December 31, 1998 was $1.9 million,
representing 1.09% of outstanding loans. One year earlier, this ratio was 0.84%
of outstanding loans. The provision for credit losses charged against earnings
was $239,000 in 1998 compared with $190,000 in 1997. We made the increased
provision in response to the increase in our loan portfolio, our increased legal
lending limit and the changing risk profile in our loan portfolio. Net loans
charged off in 1998 were $66,000 compared with $97,000 in loan charge-offs in
1997.
During 1997, we made provisions totaling $190,000 to the allowance for
credit losses, a decrease of $40,000 compared with 1996. We recorded a lower
provision in 1997 because we had specific reserves in the amount of $45,000
which were no longer necessary due to the repayment of the related loans. Net
loans charged off in 1997 were $97,000 compared with $60,000 in loan charge-offs
for 1996.
Noninterest Income
In 1998, noninterest income totaled $2.5 million, an increase of $228,000,
or 10.1%, versus $2.3 million in 1997. The increase was primarily due to the
Union and Angleton acquisitions and an increase in customer service fees.
Noninterest income for 1997 was $2.3 million, a $367,000 or 19.3% increase from
1996 resulting largely from an increase in income due to insufficient funds
charges and customer service fees.
44
<PAGE> 49
The following table presents, for the periods indicated, the major
categories of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts........................ $2,173 $2,062 $1,742
Other noninterest income................................... 319 202 155
------ ------ ------
Total noninterest income......................... $2,492 $2,264 $1,897
====== ====== ======
</TABLE>
Noninterest Expense
For the years ended 1998, 1997 and 1996, noninterest expense totaled $9.1
million, $7.8 million and $6.6 million, respectively. Our efficiency ratio
showed a positive trend over this period as it was reduced from 59% in 1996 to
54% in 1998. This reduction reflects our continued success in controlling
operating expenses and integrating the Union, Angleton and Bay City
acquisitions.
The following table presents, for the periods indicated, the major
categories of noninterest expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits............................. $4,541 $3,968 $3,415
Non-staff expenses:
Net occupancy expense.................................... 768 811 710
Equipment depreciation................................... 290 431 367
Data processing.......................................... 807 642 493
Professional fees........................................ 112 97 114
Regulatory assessments and FDIC insurance................ 73 63 28
Ad valorem and franchise taxes........................... 200 164 140
Goodwill amortization.................................... 500 402 257
Other.................................................... 1,767 1,258 1,110
------ ------ ------
Total noninterest expense........................ $9,058 $7,836 $6,634
====== ====== ======
</TABLE>
For 1998, noninterest expense totaled $9.1 million, an increase of $1.2
million, or 15.6%, over $7.8 million in 1997. Salaries and employee benefits for
1998 totaled $4.5 million, an increase of $573,000, or 14.4%, over $4.0 million
for 1997. Other operating expenses of $1.8 million represented an increase of
$509,000, or 40.5%, compared with $1.3 million in 1997. These increases were
principally due to the Union and Angleton acquisitions. Total noninterest
expenses in 1997 were $7.8 million, an 18.2% increase over the 1996 level of
$6.6 million due principally to the Angleton and Bay City acquisitions. Salaries
and employee benefits in 1997 increased by 16.2% from $3.4 million for the year
ended December 31, 1996 to $4.0 million. The increase was principally due to
additional staff associated with the Union and Angleton acquisitions.
Income Taxes
Income tax expense for the year ended December 31, 1998 was $2.0 million
compared with $1.6 million for the year ended December 31, 1997 and $1.2 million
for the year ended December 31, 1996. The effective tax rate in the years ended
1998, 1997 and 1996 was 31.3%, 30.8% and 31.4%, respectively.
45
<PAGE> 50
FINANCIAL CONDITION
Loan Portfolio
At December 31, 1998, loans were $170.5 million, an increase of $49.9
million or 41.4% from $120.6 million at December 31, 1997. The growth in the
loan portfolio was due to continued strong loan demand, especially in the real
estate area. Our 1-4 family residential loans increased from $53.6 million at
December 31, 1997 to $88.1 million at year end 1998. Agriculture loans also had
a substantial increase from $6.4 million at year end 1997 to $14.1 million at
year end 1998. The growth in agricultural loans was due mainly to the Union
acquisition. At December 31, 1998, total loans were 43.6% of deposits and 39.1%
of total assets. At December 31, 1997, total loans were 41.4% of deposits and
37.7% of total assets.
Loans increased 6.3% during 1997 from $113.4 million at December 31, 1996
to $120.6 million at December 31, 1997. The loan growth during 1997 was
primarily spread between real estate and agriculture loans and was due to
increased demand for loans.
The following table summarizes our loan portfolio by type of loan as of the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ ------------------ ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial................. $ 16,972 9.9% $ 11,611 9.6% $ 10,633 9.4% $10,445 11.8% $ 9,479 12.4%
Real estate:
Construction and land
development............ 1,727 1.0 6,453 5.3 5,021 4.4 2,507 2.8 2,139 2.8
1-4 family residential... 80,062 47.0 53,625 44.5 49,845 44.0 40,331 45.4 37,247 48.7
Home equity.............. 8,077 4.7 NA NA NA NA NA NA NA NA
Commercial mortgages..... 22,240 13.1 16,277 13.5 14,376 12.7 12,835 14.5 9,520 12.5
Farmland................. 6,148 3.6 5,804 4.8 5,468 4.8 3,989 4.5 3,529 4.6
Multifamily
residential............ 1,090 0.6 937 0.8 1,068 0.9 716 0.8 64 0.0
Agriculture................ 14,107 8.3 6,359 5.3 5,686 5.0 4,666 5.2 4,605 6.0
Consumer................... 20,055 11.8 19,512 16.2 21,285 18.8 13,308 15.0 9.960 13.0
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total loans........ $170,478 100.0% $120,578 100.0% $113,382 100.0% $88,797 100.0% $76,543 100.0%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
</TABLE>
The contractual maturity ranges of the commercial and industrial and
construction and land development portfolios and the amount of such loans with
predetermined interest rates and floating rates in each maturity range as of
December 31, 1998 are summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
AFTER ONE
ONE YEAR THROUGH AFTER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial..................... $10,354 $4,355 $2,263 $16,972
Construction and land development............. 1,707 20 -- 1,727
------- ------ ------ -------
Total............................... $12,061 $4,375 $2,263 $18,699
======= ====== ====== =======
Loans with a predetermined interest rate...... $ 6,248 $2,879 $1,670 $10,797
Loans with a floating interest rate........... 5,813 1,496 593 7,902
------- ------ ------ -------
Total............................... $12,061 $4,375 $2,263 $18,699
======= ====== ====== =======
</TABLE>
Nonperforming Assets
Our conservative lending approach, as well as a healthy local economy, have
resulted in strong asset quality. We had nonperforming assets of $140,000 at
December 31, 1998 and no nonperforming assets as of December 31, 1997 or 1996.
46
<PAGE> 51
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans....................................... $ 5 $ -- $ -- $ -- $ --
Restructured loans..................................... -- -- -- -- --
Other real estate...................................... 135 -- -- -- 15
----- ----- ----- ----- -----
Total nonperforming assets................... $ 140 $ -- $ -- $ -- $ 15
===== ===== ===== ===== =====
Nonperforming assets to total loans and other real
estate............................................... 0.08% 0.00% 0.00% 0.00% 0.02%
</TABLE>
Allowance for Credit Losses
For the year ended 1998, net charge-offs totaled $66,000 or 0.05% of
average loans outstanding for the period, compared with net charge-offs of
$97,000 or 0.08% of average loans outstanding during 1997. Our net charge-offs
totaled $60,000 or 0.06% of average loans outstanding in 1996. During 1998, we
recorded a provision for credit losses of $239,000 compared with $190,000 for
1997. At December 31, 1998, the allowance totaled $1.9 million, or 1.09% of
total loans. We made a provision for credit losses of $190,000 during 1997
compared with a provision of $230,000 for 1996. At December 31, 1997, the
allowance aggregated $1.0 million, or 0.84% of total loans. At December 31,
1996, the allowance was $923,000, or 0.81% of total loans.
The following table presents, for the periods indicated, an analysis of the
allowance for credit losses and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding................. $143,196 $117,586 $104,534 $81,631 $69,200
======== ======== ======== ======= =======
Gross loans outstanding at end of
period.................................. $170,478 $120,578 $113,382 $88,797 $76,543
======== ======== ======== ======= =======
Allowance for credit losses at beginning
of period............................... $ 1,016 $ 923 $ 753 $ 588 $ 734
Balance acquired with Union acquisition... 661 -- -- -- --
Provision for credit losses............... 239 190 230 175 188
Charge-offs:
Commercial and industrial............... -- (26) (9) (6) (31)
Real estate and agriculture............. (14) (47) -- (2) (270)
Consumer................................ (67) (57) (64) (24) (129)
Recoveries:
Commercial and industrial............... 5 15 -- -- 17
Real estate and agriculture............. -- 7 -- 3 51
Consumer................................ 10 11 13 19 28
-------- -------- -------- ------- -------
Net (charge-offs) recoveries.............. (66) (97) (60) (10) (334)
Allowance for credit losses at end of
period.................................. $ 1,850 $ 1,016 $ 923 $ 753 $ 588
======== ======== ======== ======= =======
Ratio of allowance to end of period
loans................................... 1.09% 0.84% 0.81% 0.85% 0.77%
Ratio of net charge-offs to average
loans................................... 0.05 0.08 0.06 0.01 0.48
Ratio of allowance to end of period
nonperforming loans..................... -- -- -- -- --
</TABLE>
47
<PAGE> 52
The following tables describe the allocation of the allowance for credit
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1998 1997
-------------------- --------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for credit losses applicable to:
Commercial and industrial.......................... $ 18 9.9% $ 41 9.6%
Real estate........................................ 70 70.0 59 68.9
Agriculture........................................ 40 8.3 -- 5.3
Consumer........................................... 1 11.8 51 16.2
Unallocated........................................ 1,721 -- 865 --
------ ----- ------ -----
Total allowance for credit losses.......... $1,850 100.0% $1,016 100.0%
====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for credit
losses applicable to:
Commercial and industrial...... $ 9 9.4% $ 7 11.8% $ 15 12.4%
Real estate.................... 34 66.8 27 68.0 33 68.6
Agriculture.................... -- 5.0 -- 5.2 -- 6.0
Consumer....................... 6 18.8 6 15.0 4 13.0
Unallocated.................... 874 -- 713 -- 536 --
---- ----- ---- ----- ---- -----
Total allowance for
credit losses........ $923 100.0% $753 100.0% $588 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
Securities
The following table summarizes the amortized cost of securities as of the
dates shown (available-for-sale securities are not adjusted for unrealized gains
or losses):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government agencies............. $128,603 $ 83,160 $ 60,830 $ 42,147 $ 33,037
Mortgage-backed securities.............. 66,651 64,168 59,382 41,278 34,956
States and political subdivisions....... 19,048 11,829 13,042 15,753 17,440
Collateralized mortgage obligations..... 12,914 8,749 14,341 18,411 36,676
-------- -------- -------- -------- --------
Total......................... $227,216 $167,906 $147,595 $117,589 $122,109
======== ======== ======== ======== ========
</TABLE>
48
<PAGE> 53
The following table summarizes the contractual maturity of securities and
their weighted average yields (available-for-sale securities are not adjusted
for unrealized gains or losses):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN BUT WITHIN BUT WITHIN
ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS TOTAL
--------------- ---------------- ----------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- -------- ----- -------- ------ ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies............................ $18,654 6.07% $ 95,864 6.05% $14,081 6.39% $ -- --% $128,599 6.09%
Mortgage-backed securities.......... 5,515 4.43 23,193 6.16 7,589 6.4 30,361 6.01 66,658 5.98
States and political subdivisions... 1,473 5.04 11,617 4.84 5,684 5.07 272 7.45 19,046 4.96
Collateralized mortgage
obligations....................... 1,606 6.69 890 6.35 -- -- 10,417 6.29 12,913 6.34
------- -------- ------- ------- --------
Total....................... $27,248 5.72% $131,564 5.96% $27,354 6.12% $41,050 6.09% $227,216 5.98%
======= ==== ======== ==== ======= ==== ======= ==== ======== ====
</TABLE>
The tax-exempt states and political subdivisions are not calculated on a
tax-equivalent basis. On a tax-equivalent basis, the yield on states and
political subdivisions would have been 7.52% at December 31, 1998.
The following table summarizes the carrying value by classification of
securities as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Available-for-sale...................... $113,828 $ 38,612 $ 49,342 $ 35,452 $ 25,411
Held-to-maturity........................ 113,916 129,256 98,222 82,053 96,501
-------- -------- -------- -------- --------
Total......................... $227,744 $167,868 $147,564 $117,505 $121,912
======== ======== ======== ======== ========
</TABLE>
At December 31, 1998, securities totaled $227.7 million, an increase of
$59.9 million, or 35.7%, from $167.9 million at December 31, 1997, as we
invested deposits from the Union acquisition. At December 31, 1998, securities
represented 56.7% of total deposits and 52.2% of total assets.
Securities increased $20.3 million, or 13.8%, from $147.6 million at
December 31, 1996 to $167.9 million at December 31, 1997, as we invested
deposits from the Angleton and Bay City acquisitions.
49
<PAGE> 54
The following tables present the amortized cost and fair value of
securities classified as available-for-sale at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------- ---------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies...................... $ 67,864 $285 $ 58 $ 68,091 $19,988 $ 57 $ -- $20,045
Mortgage-backed securities.... 30,578 98 176 30,500 17,299 61 258 17,102
States and political
subdivisions................ 4,026 239 -- 4,265 1,363 102 -- 1,465
Collateralized mortgage
obligations................. 10,832 166 26 10,972 -- -- -- --
-------- ---- ---- -------- ------- ---- ---- -------
Total................. $113,300 $788 $260 $113,828 $38,650 $220 $258 $38,612
======== ==== ==== ======== ======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies.................................... $29,980 $127 $ -- $30,107
Mortgage-backed securities............................. 17,952 43 306 17,689
States and political subdivisions...................... 1,441 105 -- 1,546
Collateralized mortgage obligations.................... -- -- -- --
------- ---- ---- -------
Total........................................ $49,373 $275 $306 $49,342
======= ==== ==== =======
</TABLE>
The following tables present the amortized cost and fair value of
securities classified as held-to-maturity at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies...................... $ 60,739 $ 572 $ 2 $ 61,309 $ 63,171 $245 $ 21 $ 63,395
Mortgage-backed securities.... 36,074 265 100 36,239 46,871 372 222 47,021
States and political
subdivisions................ 2,081 -- 3 2,078 8,749 19 15 8,753
Collateralized mortgage
obligations................. 15,022 376 3 15,395 10,465 141 1 10,605
-------- ------ ---- -------- -------- ---- ---- --------
Total................. $113,916 $1,213 $108 $115,021 $129,256 $777 $259 $129,774
======== ====== ==== ======== ======== ==== ==== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies.................................... $30,849 $121 $121 $30,849
Mortgage-backed securities............................. 41,431 90 704 40,817
States and political subdivisions...................... 14,341 -- 103 14,238
Collateralized mortgage obligations.................... 11,601 173 18 11,756
------- ---- ---- -------
Total........................................ $98,222 $384 $946 $97,660
======= ==== ==== =======
</TABLE>
50
<PAGE> 55
Deposits
Deposits at December 31, 1998 were $390.7 million, an increase of $99.2
million, or 34.0%, from $291.5 million at December 31, 1997. The increase is
attributable to internal growth and the Union acquisition. Noninterest-bearing
deposits of $85.0 million at December 31, 1998 increased $23.6 million, or
38.4%, from $61.4 million at December 31, 1997. Noninterest-bearing deposits as
of December 31, 1997 were $61.4 million compared with $55.2 million at December
31, 1996. Interest-bearing deposits at December 31, 1998 were $305.7 million, up
$75.6 million, or 32.9%, from $230.1 million at December 31, 1997. Total
deposits at December 31, 1996 were $270.9 million.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1998, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing checking................. $ 41,710 1.61% $ 42,898 2.13% $ 35,285 2.10%
Regular savings........................... 10,640 2.45 9,215 2.32 7,674 2.46
Money market savings...................... 72,788 3.54 55,233 3.50 41,755 3.43
Time deposits............................. 128,097 5.06 113,669 5.08 105,538 5.08
-------- ---- -------- ---- -------- ----
Total interest-bearing
deposits...................... 253,235 3.95 221,015 4.00 190,252 4.06
Noninterest-bearing deposits.............. 69,810 -- 57,362 -- 46,082 --
-------- ---- -------- ---- -------- ----
Total deposits.................. $323,045 3.09% $278,377 3.18% $236,334 3.27%
======== ==== ======== ==== ======== ====
</TABLE>
The following table sets forth the amount of our certificates of deposit
that were $100,000 or greater by time remaining until maturity at December 31,
1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less.............................. $ 5,835
Over three through six months..................... 9,603
Over six through 12 months........................ 21,296
Over 12 months.................................... 6,097
-------
Total deposits.......................... $42,831
=======
</TABLE>
Other Borrowings
Deposits are our primary source of funds for lending and investment
activities. Occasionally, we obtain additional funds from the Federal Home Loan
Bank and correspondent banks. At December 31, 1998, we had borrowings of $2.4
million compared with $2.8 million at December 31, 1997 and zero at December 31,
1996.
At December 31, 1998 and 1997, we had no outstanding borrowings under a
revolving line of credit extended by a commercial bank. At December 31, 1996, we
had $3.3 million outstanding under this line of credit.
51
<PAGE> 56
Interest Rate Sensitivity and Liquidity
The following table sets forth our interest rate sensitivity analysis at
December 31, 1998:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
-------------------------------------------------------
0-30 31-180 181-365 AFTER
DAYS DAYS DAYS ONE YEAR TOTAL
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities................................... $ 24,450 $ 38,838 $ 47,530 $116,398 $227,216
Loans........................................ 31,204 21,744 14,329 103,201 170,478
Other temporary investments.................. 99 -- -- -- 99
--------- --------- --------- -------- --------
Total interest-earning assets......... $ 55,753 $ 60,582 $ 61,859 $219,599 $397,793
========= ========= ========= ======== ========
Interest-bearing liabilities:
Demand, money market and savings deposits.... $ 144,613 $ -- $ -- $ -- $144,613
Certificates of deposit and other time
deposits................................... 17,072 74,756 47,428 21,814 161,070
Federal funds purchased and FHLB advances.... 2,437 -- -- -- 2,437
--------- --------- --------- -------- --------
Total interest-bearing liabilities.... $ 164,122 $ 74,756 $ 47,428 $ 21,814 $308,120
========= ========= ========= ======== ========
Period GAP................................... $(108,369) $ (14,174) $ 14,431 $197,784 $ 89,672
Cumulative GAP............................... $(108,369) $(122,543) $(108,112) $ 89,672
Period GAP to total assets................... (24.84)% (3.25)% 3.31% 45.33%
Cumulative GAP to total assets............... (24.84)% (28.09)% (24.78)% 20.55%
</TABLE>
See "-- Interest Rate Sensitivity and Liquidity" for the six months ended
June 30, 1999 and 1998 for a discussion of our policies regarding asset and
liability risk management.
Capital Resources
Shareholders' equity increased to $41.4 million at December 31, 1998 from
$24.8 million at December 31, 1997, an increase of $16.6 million or 67.0%. This
increase was primarily the result of net income of $4.5 million plus $12.8
million in net proceeds from our initial public offering, offset by dividends
paid on the common stock of $1.1 million. During 1997, shareholders' equity
increased by $6.0 million, or 31.9%, from $18.8 million at December 31, 1996.
This increase was due to net income of $3.6 million plus $3.0 million in
proceeds from the issuance of 480,000 shares of our common stock, offset by
dividends paid on the common stock of $575,000.
The following table provides a comparison of the leverage and risk-weighted
capital ratios of us and the bank as of December 31, 1998 to the minimum and
well capitalized regulatory standards:
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED
REQUIRED UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION ACTUAL RATIO AT
PURPOSES PROVISIONS DECEMBER 31, 1998
----------------- ---------------------- -----------------
<S> <C> <C> <C>
PROSPERITY
Leverage ratio................. 3.00%(1) N/A 7.58%
Tier 1 risk-based capital
ratio....................... 4.00% N/A 18.02%
Risk-based capital ratio....... 8.00% N/A 19.08%
FIRST PROSPERITY BANK
Leverage ratio................. 3.00%(2) 5.00% 5.00%
Tier 1 risk-based capital
ratio....................... 4.00% 6.00% 11.87%
Risk-based capital ratio....... 8.00% 10.00% 12.93%
</TABLE>
- ---------------
(1) The Federal Reserve may require us to maintain a leverage ratio of up to 200
basis points above the required minimum.
(2) The FDIC may require the bank to maintain a leverage ratio of up to 200
basis points above the required minimum.
52
<PAGE> 57
BUSINESS
GENERAL
We were formed in 1983 as a vehicle to acquire the former Allied Bank in
Edna, Texas which was chartered in 1949. We derive substantially all of our
income from our wholly-owned bank subsidiary, First Prosperity Bank. As a result
of our recent acquisition of South Texas Bancshares, we have 15 full-service
banking centers in the greater Houston metropolitan area and nine contiguous
counties situated to the south and southwest of Houston and extending into South
Texas.
Operating under a community banking philosophy, we seek to develop broad
customer relationships based on service and convenience while maintaining our
conservative approach to lending and strong asset quality. We have grown through
a combination of internal growth, the acquisition of community banks and
branches and the opening of new banking centers. Utilizing a low cost of funds
and employing stringent cost controls, we have been profitable in every full
year of our existence, including the period of adverse economic conditions in
Texas in the late 1980s. Since 1989, our net income has grown at a compound
annual rate of 45.1%.
From 1988 to 1992, as a sound and profitable institution, we took advantage
of the economic downturn and acquired the deposits and certain assets of failed
banks in West Columbia, El Campo and Cuero, Texas and two failed banks in
Houston, which diversified our franchise and increased our core deposits. We
opened a full-service banking center in Victoria, Texas in 1993 and the
following year established a banking center in Bay City, Texas. We expanded our
Bay City presence in 1996 with the acquisition of an additional branch location
from Norwest Bank Texas, and in 1997, we acquired the Angleton, Texas branch of
Wells Fargo Bank. In 1998, we enhanced our West Columbia banking center with the
purchase of a commercial bank branch located in West Columbia and acquired Union
State Bank in East Bernard, Texas. As a result of the addition of these
acquisitions and internal growth, our assets have increased from $79.4 million
at the end of 1989 to $442.8 million as of June 30, 1999 and our deposits have
increased from $70.3 million to $398.4 million in that same period. In addition,
on October 1, 1999, we acquired South Texas Bancshares, with locations in
Beeville, Mathis and Goliad, Texas. At June 30, 1999, South Texas Bancshares had
total assets of $135.8 million, total deposits of $119.0 million and total loans
(net of unearned discount and allowance for loan losses) of $34.5 million. Along
with steady asset growth, our financial performance has been characterized by
consistent core earnings and strong asset quality.
Our primary market consists of the communities served by our three
locations in the greater Houston metropolitan area and our 12 locations in nine
contiguous counties (Brazoria, Wharton, Matagorda, Jackson, Victoria, DeWitt,
Goliad, Bee and San Patricio) located to the south and southwest of Houston and
extending into South Texas. Texas Highway 59 (scheduled to become Interstate
Highway 69), which serves as the primary "NAFTA Highway" linking the interior
United States and Mexico, runs directly through the center of our market area.
The increased traffic along this NAFTA Highway has enhanced economic activity in
our market area and created opportunities for growth. The diverse nature of the
economies in each local market we serve provides us with a varied customer base
and allows us to spread our lending risk throughout a number of different
industries including farming, ranching, petrochemicals, manufacturing, tourism,
recreation and professional service firms and their principals. Our primary
competition in our market areas outside of Houston is small community banks or
branches of large regional banks. Management believes that as one of the few
publicly traded mid-sized financial institutions that combines responsive
community banking with the variety of products and services of a regional bank
holding company, we have a competitive advantage in our market area and
excellent growth opportunities through acquisitions, new branch locations and
additional business development.
Our directors and officers are important to our success in developing broad
customer relationships and play a key role in our business development efforts
by actively participating in a number of civic and public service activities in
the communities we serve, such as the Rotary Club, Lion's Club, United Way and
Chamber of Commerce. In addition, our banking centers in Bay City, Clear Lake,
Cuero, Edna,
53
<PAGE> 58
Meyerland, Post Oak and Victoria maintain community development boards. The
functions of these boards are to solicit new business, develop customer
relations and provide valuable community knowledge to their respective banking
center Presidents.
We have invested heavily in our officers and associates by recruiting
talented officers in our market areas and providing them with economic
incentives in the form of stock options and bonuses based on cross-selling
performance. The senior management team has substantial experience in both our
Houston and surrounding market areas. Each banking center location is
administered by a local president with knowledge of the community and lending
expertise in the specific industries found in the community. We entrust our
banking center presidents with authority and flexibility within general
parameters with respect to product pricing and decision making in order to avoid
the bureaucratic structure of larger banks. We operate each banking center as a
separate profit center, maintaining separate data with respect to each banking
center's net interest income, efficiency ratio, deposit growth, loan growth and
overall profitability. Banking center presidents are accountable for performance
in these areas and compensated accordingly. Each banking center has its own
local telephone number, which enables a customer to be served by a local banker.
BANK ACTIVITIES
We offer a variety of traditional loan and deposit products to our
customers, which consist primarily of consumers and small and medium-sized
businesses. We tailor our products to the specific needs of customers in a given
market. At October 1, 1999, we maintained approximately 48,000 separate deposit
accounts and 7,000 separate loan accounts.
We have been an active mortgage lender, with 1-4 family residential and
commercial mortgage loans comprising 59.6% of our total loans as of June 30,
1999. We also offer loans for automobiles and other consumer durables, home
equity loans, debit cards, personal computer banking and other cash management
services and telebanking. By offering certificates of deposit, NOW accounts,
savings accounts and overdraft protection at competitive rates, we give our
depositors a full range of traditional deposit products. We have successfully
introduced Banclub, which for a monthly fee provides consumers with a package of
benefits including unlimited free checking, personalized checks, credit card
protection, free travelers checks, cashier's checks, money orders and certain
travel discounts.
The businesses we target are primarily those that require aggregate loans
in the $100,000 to $3.0 million range. We offer these businesses a broad array
of loan products including term loans, lines of credit and loans for working
capital, business expansion and the purchase of equipment and machinery, interim
construction loans for builders and owner-occupied commercial real estate loans.
For our business customers, we have developed a specialized checking product
called Business 10 Checking which provides discounted fees for checking and
normal account analysis.
BUSINESS STRATEGIES
Our main objective is to take advantage of expansion opportunities while
maintaining efficiency and individualized customer service and maximizing
profitability. To achieve this objective, we have emphasized the following
strategies:
Continue Community Banking Emphasis. We intend to continue operating as a
community banking organization focused on meeting the specific needs of
consumers and small and medium-sized businesses in our market areas. We will
continue to provide a high degree of responsiveness combined with a wide variety
of banking products and services. We staff our banking centers with experienced
bankers with lending expertise in the specific industries found in the
community, giving them authority to make certain pricing and credit decisions,
thereby attempting to avoid the bureaucratic structure of large banks.
Expand Market Share Through Internal Growth and a Disciplined Acquisition
Strategy. We intend to continue seeking opportunities, both inside and outside
our existing markets, to expand either by establishing new branches or by
acquiring existing banks or branches of banks. All of our acquisitions have
54
<PAGE> 59
been accretive to earnings immediately and have supplied us with relatively
low-cost deposits which have been used to fund our lending activities. Factors
we use to evaluate expansion opportunities include similarity in management and
operating philosophies, whether the acquisition will be accretive to earnings
and enhance shareholder value, the ability to achieve economies of scale to
improve our efficiency ratio and the opportunity to enhance our image and market
presence.
Increase Loan Volume and Diversify Loan Portfolio. Historically, we have
elected to trade off some earnings for the historically lower credit losses
associated with home mortgage loans. While maintaining our conservative approach
to lending, we plan to emphasize both new and existing loan products, focusing
on growing our home equity and commercial loan portfolios. Among new loan
products, we have successfully introduced home equity lending. At June 30, 1999,
we had a balance of $9.9 million in such loans. We have also increased our
number of loans to finance the construction of commercial owner-occupied real
estate and loans to commercial businesses for accounts receivable financing and
other purposes. We are also targeting professional service firms such as legal
and medical practices for both loans secured by owner-occupied premises and
personal loans to their principals. As an outgrowth of our traditional mortgage
lending activity, we are making more jumbo mortgage loans, particularly in the
Houston area.
Enhance Cross-Selling Through the Use of Incentives and Technology. We
recognize that our customer base provides significant opportunities to
cross-sell various products, and therefore we seek to develop broader customer
relationships by identifying cross-selling opportunities. We use training,
incentives and friendly competition to encourage cross-selling efforts and
increase cross-selling results. To assist with cross-selling efforts, we have
updated our technology to help officers and associates identify cross-selling
opportunities. Using data which includes existing and related account
relationships, our officers and associates inform customers of additional
products when customers visit or call the various banking centers or use their
drive-in facilities. In addition, we include product information in monthly
statements and other mailouts. The products most frequently targeted for
cross-selling include auto loans, mortgage loans, home equity loans, checking
accounts, savings accounts, certificates of deposit, individual retirement
accounts, direct deposit accounts, personal computer banking and safe deposit
boxes.
Continue Strict Focus on Efficiency. We plan to maintain our stringent cost
control practices and policies. We have invested significantly in the
infrastructure required to centralize many of our critical operations, such as
data processing and loan application processing. For our banking centers, which
we operate as independent profit centers, we supply complete support in the
areas of loan review, internal audit, compliance and training. We maintain a
products committee which provides support in the areas of product development,
marketing and pricing. Management believes that this centralized infrastructure
can accommodate substantial additional growth while enabling us to minimize
operational costs through certain economies of scale.
Maintain Strong Asset Quality. We intend to maintain the strong asset
quality that has been representative of our historical loan portfolio. As we
diversify and increase our lending activities, we may face higher risks of
nonpayment and increased risks in the event of economic downturns. We intend,
however, to continue to employ the strict underwriting guidelines and
comprehensive loan review process that have contributed to our low incidence of
nonperforming assets and our minimal charge-offs.
RECENT ACQUISITION
We actively pursue an acquisition strategy designed to increase efficiency,
market share and return to shareholders. As part of this strategy, on October 1,
1999 we acquired South Texas Bancshares and its subsidiary, The Commercial
National Bank of Beeville, pursuant to a statutory merger for aggregate cash
consideration of $23,350,000. We will operate the newly acquired banking
locations in Beeville, Mathis and Goliad, Texas as banking centers, continuing
to conduct business which includes conventional consumer and commercial products
and services, including interest and noninterest-bearing depository accounts and
commercial, industrial, consumer, agricultural and real estate lending. As of
June 30, 1999, South Texas
55
<PAGE> 60
Bancshares had total assets of $135.8 million, total deposits of $119.0 million
and total loans (net of unearned discount and allowance for loan losses) of
$34.5 million.
The South Texas Bancshares acquisition has provided us with a presence in
the South Texas towns of Beeville, Mathis and Goliad. We believe South Texas
Bancshares had a lending philosophy which is similar to our own philosophy. Our
significantly higher lending limit is expected to create lending opportunities
in the market that South Texas Bancshares was unable to take advantage of prior
to the acquisition. Furthermore, the acquisition provided us with the ability to
offer trust services to our customers. Similar to our previous acquisitions, the
South Texas Bancshares acquisition is expected to be accretive to earnings
immediately and result in economies of scale and savings for us from the
operation of the newly acquired offices as additional banking centers.
COMPETITION
The banking business is highly competitive, and our profitability depends
principally on our ability to compete successfully in our market areas. We
compete with other commercial banks, savings banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking firms, asset-based nonbank lenders
and certain other nonfinancial entities, including retail stores which may
maintain their own credit programs and certain governmental organizations which
may offer more favorable financing than we do. We have been able to compete
effectively with other financial institutions by emphasizing customer service,
technology and responsive decision-making by establishing long-term customer
relationships and building customer loyalty as well as by providing products and
services designed to address the specific needs of our customers. We expect
competition from both financial and nonfinancial institutions to continue.
ASSOCIATES
As of June 30, 1999, we and the bank had 136 full-time equivalent
associates, 65 of whom were officers of the bank. We provide medical and
hospitalization insurance to our full-time associates. We consider our relations
with our associates to be excellent. Neither we nor the bank is a party to any
collective bargaining agreement.
PROPERTIES
We conduct business at 15 full-service banking center locations. Our
corporate headquarters are located at 3040 Post Oak Boulevard, Houston, Texas.
We own all of the buildings in which our banking centers are located other than
the Post Oak, Meyerland and Victoria banking centers. The lease terms of the
Post Oak, Meyerland and Victoria banking centers expire in July 2002, October
2003 and December 2001, respectively. The expiration dates do not include the
renewal option periods which may be available. The following table sets forth
specific information on each of our banking centers:
<TABLE>
<CAPTION>
DEPOSITS AT
LOCATION ADDRESS JUNE 30, 1999
- -------- ------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Angleton............................ 116 South Velasco $30,868
Angleton, Texas 77516
Bay City-North...................... 1600 Seventh St 16,209
Bay City, Texas 77404
Bay City-South...................... 3700 Avenue F 29,627
Bay City, Texas 77404
Beeville(1)......................... 100 South Washington 78,578
Beeville, Texas 78107
1901 North St. Mary's Street
Beeville, Texas 78107
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
DEPOSITS AT
LOCATION ADDRESS JUNE 30, 1999
- -------- ------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Clear Lake.......................... 100 West Medical Center Blvd 27,948
Webster, Texas 77598
Cuero............................... 106 North Esplanade 23,776
Cuero, Texas 77954
East Bernard........................ 700 Church St 63,331
East Bernard, Texas 77435
Edna................................ 102 North Wells 33,869
Edna, Texas 77962
El Campo............................ 1301 N Mechanic 44,261
El Campo, Texas 77437
Goliad.............................. 145 North Jefferson 12,953
Goliad, Texas 77963
Mathis.............................. 103 North Highway 359 27,471
Mathis, Texas 78368
Meyerland........................... 8801 West Loop South 20,902
Houston, Texas 77252
3040 Post Oak Blvd. Suite
Post Oak............................ 150 54,887
Houston, Texas 77056
Victoria............................ 2702 North Navarro 14,196
Victoria, TX 77903
West Columbia....................... 510 East Brazos 38,505
West Columbia, TX 77486
</TABLE>
- ---------------
(1) The Beeville banking center consists of the main office located at 100 South
Washington and a drive-thru facility located approximately one-half mile
from the main office.
LEGAL PROCEEDINGS
We and the bank are from time to time parties to or otherwise involved in
legal proceedings arising in the normal course of business. Management does not
believe that there is any pending or threatened proceeding against us or the
bank which, if determined adversely, would have a material effect on our
business, financial condition or results of operations or those of the bank.
57
<PAGE> 62
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors and the executive officers of the bank:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Harry Bayne................................ 59 Class II Director of Prosperity
James A. Bouligny.......................... 63 Class II Director of Prosperity
J. T. Herin................................ 83 Class I Director of Prosperity
David Hollaway............................. 43 Treasurer and Chief Financial Officer of
Prosperity; Senior Vice President and
Chief Financial Officer of First
Prosperity Bank
Tracy T. Rudolph........................... 60 Chairman of the Board, Class III Director
and President of Prosperity; Chairman of
the Board of First Prosperity Bank
Charles M. Slavik.......................... 83 Class I Director of Prosperity
Harrison Stafford.......................... 87 Class I Director of Prosperity
Robert Steelhammer......................... 58 Class II Director of Prosperity
David Zalman............................... 43 Class III Director and Vice
President/Secretary of Prosperity; Director
and President of First Prosperity Bank
</TABLE>
There are no family relationships among any of our executive officers and
directors.
Harry Bayne. Mr. Bayne has been a director of Prosperity since 1989. He has
been the President and Chief Executive Officer of Varitec Industries, Inc. in
Houston for more than the past five years. Since 1967, Mr. Bayne has served as
President of Bayne TV & Appliance Co., a subsidiary of Varitec Industries, Inc.
Mr. Bayne is active in the Houston and Bay Area Chambers of Commerce.
Jim Bouligny. Mr. Bouligny has been a director of Prosperity since 1991.
Mr. Bouligny has been a name partner in the El Campo law firm of Duckett,
Bouligny & Collins, LLP for more than the past five years. Mr. Bouligny received
a Bachelor of Business Administration degree and a Juris Doctor degree from the
University of Texas. Mr. Bouligny's civic activities include a 24 year tenure as
a member of the Board of Directors of Wharton County Junior College. He is
currently a member of the MG and Lillie Johnson Foundation.
J. T. Herin. Mr. Herin has been a director of Prosperity since 1989. His
affiliation with the bank started in 1953 with his election to the Board of
Directors. He has been the owner of the J-Bar Ranch in Ganado for more than the
past five years.
David Hollaway. Mr. Hollaway has been Senior Vice President and Chief
Financial Officer of the bank since 1992 and Treasurer of Prosperity since 1993.
He became Chief Financial Officer of Prosperity in 1998. From 1990 to 1992, Mr.
Hollaway worked for the Resolution Trust Corporation in its Gulf Coast
Consolidated Office in Houston. From 1988 to 1990, he worked as the Cost
Accounting Manager of San Jacinto Savings Association in Bellaire, Texas. From
1981 to 1988, Mr. Hollaway was Vice President-Auditor of South Main Bank in
Houston. Mr. Hollaway is a Certified Public Accountant.
Tracy T. Rudolph. Mr. Rudolph founded Prosperity in 1983 and has served as
Chairman of the Board since its inception. From 1980 to 1986, Mr. Rudolph was
Chairman and Chief Executive Officer of South Main Bank in Houston. Prior to
that, he worked at Town & Country Bank in Houston from 1972 to 1980, where he
became President and Chief Executive Officer prior to that bank's acquisition by
Allied Bancshares, Inc. Mr. Rudolph has over 35 years of commercial banking
experience.
Charles M. Slavik. Mr. Slavik has been a director of Prosperity since 1993
and was a founding director of the bank in 1949. Mr. Slavik has been the
Chairman of the Board of both Slavik's, Inc. and
58
<PAGE> 63
Slavik's Funeral Home for more than the past five years. Mr. Slavik attended St.
Edward's University and Landig College of Mortuary Science. He was commissioned
as a Second Lieutenant in World War II and was released from active duty as a
Captain in 1946. Mr. Slavik has served as a member of the Edna Rotary Club,
Veterans of Foreign Wars, the Edna Hospital Board and the Chamber of Commerce.
From 1959 to 1963, Mr. Slavik served as Mayor of Edna.
Harrison Stafford. Mr. Stafford has been a director of Prosperity since
1987 and was involved in the founding of the bank in 1949. Mr. Stafford has
engaged in farming, ranching and investments for more than the past five years.
Mr. Stafford graduated from the University of Texas, where he was a three year
All-Conference football player. Mr. Stafford has been inducted into the National
Collegiate Football Hall of Fame, the University of Texas Hall of Fame and the
Texas High School Hall of Fame. Mr. Stafford has participated actively in the
Edna Rotary Club and the University of Texas Ex's Association, and has served as
president of the Edna Independent School District Board and as a member of the
Lavaca Navidad River Authority.
Robert Steelhammer. Mr. Steelhammer has been a director of Prosperity since
its inception. Mr. Steelhammer has been a name partner with Steelhammer &
Miller, P.C. in Houston for more than the past five years. He received a
Bachelor of Science degree from the University of Texas and a Juris Doctor
degree from South Texas College of Law. He is a member of the State Bar of
Texas, a registered professional engineer for the State of Texas and a member of
the American Institute of Chemical Engineers.
David Zalman. Mr. Zalman joined the bank as President in 1986 and became a
director and Vice President/Secretary of Prosperity in 1987. From 1978 to 1986,
Mr. Zalman was employed by Commercial State Bank in El Campo, beginning as
cashier and rising to become Chief Executive Officer. Mr. Zalman received a
Bachelor of Business Administration degree in Finance and Marketing from the
University of Texas in 1978. He has served as a member of the El Campo City
Council, the Edna Rotary Club and the El Campo Lion's Club and as president of
the West Wharton County United Way.
Directors are elected to three year terms, classified into Classes I, II
and III. Messrs. Herin, Slavik and Stafford are Class I directors with terms of
office expiring on the date of our annual meeting of shareholders in 2002;
Messrs. Bayne, Bouligny and Steelhammer are Class II directors with terms of
office expiring on the date of our annual meeting of shareholders in 2000; and
Messrs. Rudolph and Zalman are Class III directors with terms of office expiring
on the date of our annual meeting of shareholders in 2001. Each of our officers
is elected by the Board of Directors and holds office until his successor is
duly elected and qualified or until his earlier death, resignation or removal.
OPERATION OF OUR BOARD OF DIRECTORS
Our Board of Directors established Audit and Compensation Committees in
July 1998. The purpose of the Audit Committee is to review the general scope of
the audit conducted by our independent auditors and matters relating to our
internal control systems. In performing its function, the Audit Committee will
review reports from our independent auditors and meet separately with
representatives of senior management. The Audit Committee is comprised of
Messrs. Bayne, Bouligny and Steelhammer, each of whom is an outside director.
Prior to the formation of the Audit Committee, all matters relating to our
external audit and internal control systems were reviewed by the Board of
Directors of the bank.
The Compensation Committee is responsible for making recommendations to the
Board of Directors with respect to the compensation of our executive officers
and is responsible for the establishment of policies dealing with various
compensation and employee benefit matters. The Compensation Committee also
administers our stock option plans and makes recommendations to the Board of
Directors as to option grants to our employees and employees of the bank under
such plans. The Compensation Committee is comprised of Messrs. Bayne, Bouligny,
Herin, Slavik, Stafford and Steelhammer, each of whom is an outside director.
The members of the recently formed Compensation Committee were the same
directors who handled all compensation, stock options and employee benefit
matters prior to the formation of the Compensation Committee.
59
<PAGE> 64
EMPLOYMENT AGREEMENTS
Tracy T. Rudolph and David Zalman entered into employment agreements with
us in January 1998. Each agreement is for an initial term of three years and
automatically renews each year thereafter unless terminated in accordance with
its terms. The employment agreements provide that if the employee is terminated
without cause (including constructive termination) or if we undergo a change in
control, the employee shall be entitled to receive from us a lump sum payment
equal to three years' base salary. The employment agreements do not contain
non-compete restrictions. The employees have the power to terminate the
employment agreements upon 30 days prior notice.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in 1998, matters
related to compensation and employee benefit matters of our executive officers
and stock options for our employees and employees of the bank were considered
and determined by our Board of Directors. However, because such compensation
matters directly affected Messrs. Rudolph and Zalman, who serve as directors and
executive officers, Messrs. Rudolph and Zalman did not participate in such
discussions or decisions. No member of the Compensation Committee is or was an
officer or employee of our company or the bank.
DIRECTOR COMPENSATION
Our directors receive a $1,250 fee for each meeting of our Board of
Directors attended and no fees for each committee meeting attended. Directors of
the bank receive a $350 fee for each meeting of the bank's Board of Directors
attended and a $300 fee for each committee meeting attended.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation we paid or accrued to or on behalf of our Chairman of the Board and
Chief Executive Officer and our other most highly compensated executive officer
(determined as of the end of the last fiscal year) for each of the two fiscal
years ended December 31, 1998:
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- -------- ------ ------------
<S> <C> <C> <C> <C>
Tracy T. Rudolph...................................... 1998 $238,542 $ -- $7,129(1)
Chairman of the Board and President of Prosperity; 1997 225,000 -- 6,324
Chairman of the Board of First Prosperity Bank
David Zalman.......................................... 1998 206,667 -- 7,593(2)
Vice President/Secretary of Prosperity; President of
First 1997 185,000 -- 6,606
Prosperity Bank
</TABLE>
- ---------------
(1) Consists of contributions by us to the 401(k) Plan of $4,531 in 1998 and
$3,726 in 1997 and premiums paid by us on a life insurance policy for the
benefit of Mr. Rudolph.
(2) Consists of contributions by us to the 401(k) Plan of $4,533 in 1998 and
$3,726 in 1997 and premiums paid by us on two life insurance policies for
the benefit of Mr. Zalman.
STOCK OPTION PLANS
We have outstanding options to purchase 297,500 shares of common stock
issued pursuant to a stock option plan approved by our shareholders in 1995 (the
"1995 Plan") for our executive officers and directors. The options were granted
at an average exercise price of $4.75. Compensation expense was not recognized
for the options because the options had an exercise price approximating the fair
value of the common stock at the time of the grant. Under the 1995 Plan, the
options vest ratably over a ten year period beginning on the date of the grant,
however, pursuant to the Incentive Stock Option Agreement ("Agreement") signed
by each optionee, no options may be exercised until the optionee has completed
60
<PAGE> 65
five years of employment with us after the date of the grant. Notwithstanding
the Agreement, the 1995 Plan provides that the Board of Directors may in its
sole discretion accelerate the time at which any option may be exercised. In
early 1999, the Compensation Committee of the Board of Directors accelerated the
time at which the options held by two of our executive officers, Tracy T.
Rudolph and David Zalman, could be exercised. As a result, 22,900 options are
currently exercisable and an additional 45,400 options will be exercisable
beginning January 1, 2000. Options to purchase an additional 20,000 shares are
available for issuance under the 1995 Plan.
Our Board of Directors and shareholders approved a second stock option plan
in 1998 (the "1998 Plan") which authorizes the issuance of up to 460,000 shares
of common stock under both "non-qualified" and "incentive" stock options to
employees and "non-qualified" stock options to directors who are not employees.
Generally, under the 1998 Plan it is intended that the options will vest 60% at
the end of the third year following the date of grant and an additional 20% at
the end of each of the two following years; however, an individual option may
vest as much as 20% at the end of the first or second year following the date of
grant if necessary to maximize the "incentive" tax treatment to the optionee for
the particular option being granted. Options under the 1998 Plan generally must
be exercised within 10 years following the date of grant or no later than three
months after the optionee's termination of employment with us, if earlier. The
1998 Plan also provides for the granting of restricted stock awards, stock
appreciation rights, phantom stock awards and performance awards on
substantially similar terms. No options or other awards have been granted under
the 1998 Plan. The 1998 Plan provides that in the event we undergo a change in
control, all options granted immediately vest and become exercisable. In
addition, the 1998 Plan permits the Compensation Committee, which administers
the 1998 plan, discretion in the event of a change in control to modify in
certain respects the terms of awards under the 1998 Plan, including (i)
providing for the payment of cash in lieu of such award, (ii) limiting the time
during which an option may be exercised, (iii) making adjustments to options to
reflect the change in control and (iv) providing that options shall be
exercisable for another form of consideration in lieu of the common stock
pursuant to the terms of the transaction resulting in a change in control.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. This statement established fair
value based accounting and reporting standards for all transactions in which a
company acquires goods or services by issuing its equity investments, which
includes stock-based compensation plans. Under SFAS 123, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Fair value of
stock options is determined using an option-pricing model. This statement
encourages companies to adopt as prescribed the fair value based method of
accounting to recognize compensation expense for employee stock compensation
plans. Although it does not require the fair value based method to be adopted, a
company must comply with the disclosure requirements set forth in the statement.
We have continued to apply accounting in Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations, and,
accordingly, provide the pro forma disclosures of net income and earnings per
share.
BENEFIT PLAN
We have established a contributory profit sharing plan pursuant to Section
401(k) of the Internal Revenue Code covering substantially all employees. At
least three months of service is required for an employee to be eligible for
employer-matching contributions. Participants may contribute up to 15% of their
annual compensation to the 401(k) plan, not to exceed the maximum amount
allowable under Internal Revenue Service regulations. Each year we determine, in
our discretion, the amount of matching contributions. Total plan expenses
charged to our operations were approximately $112,000, $87,000 and $72,000 in
1998, 1997 and 1996, respectively.
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INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Many of our directors, executive officers and principal shareholders (i.e.,
those who own 10% or more of the common stock) and their associates, which
include corporations, partnerships and other organizations in which they are
officers or partners or in which they and their immediate families have at least
a 5% interest, are our customers. During 1998, we made loans in the ordinary
course of business to many of our directors, executive officers and principal
shareholders and their associates, all of which were on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with persons unaffiliated with us and did not
involve more than the normal risk of collectibility or present other unfavorable
features. Loans to our directors, executive officers and principal shareholders
are subject to limitations contained in the Federal Reserve Act, the principal
effect of which is to require that extensions of credit by us to executive
officers, directors and principal shareholders satisfy the foregoing standards.
On June 30, 1999, all of such loans aggregated $4.1 million, which was
approximately 11.95% of our Tier 1 capital at such date.
We expect to have such transactions or transactions on a similar basis with
our directors, executive officers and principal shareholders and their
associates in the future.
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BENEFICIAL OWNERSHIP OF COMMON STOCK BY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of September 30, 1999, by (i) our directors and
executive officers, (ii) each shareholder whom we know to own beneficially 5% or
more of the common stock and (iii) all of our directors and executive officers
as a group. Unless otherwise indicated, based on information furnished by such
shareholders, management believes that each person has sole voting and
dispositive power over their shares and the address of each shareholder is the
same as our address.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(1)
- ---- ------------ ------------
<S> <C> <C>
Harry Bayne................................................. 94,709 1.82%
James A. Bouligny........................................... 158,006 3.04%
J. T. Herin................................................. 33,733 *
David Hollaway.............................................. 2,440(2) *
Tracy T. Rudolph............................................ 187,400(3) 3.59%
Charles M. Slavik........................................... 34,990(4) *
Harrison Stafford........................................... 90,300(5) 1.74%
Robert Steelhammer.......................................... 126,410(6) 2.43%
David Zalman................................................ 412,434(7) 7.87%
Directors and executive officers as a group (9 persons)..... 1,140,422 21.67%
</TABLE>
- ---------------
* Indicates ownership which does not exceed 1.0%.
(1) The percentage beneficially owned was calculated based on 5,195,325 shares
of common stock issued and outstanding. This percentage assumes the exercise
by the shareholder or group named in each row of all options for the
purchase of common stock held by such shareholder or group and exercisable
within 60 days.
(2) Includes 440 shares held of record by our 401(k) plan as custodian for Mr.
Hollaway's spouse.
(3) Includes 2,000 shares held of record by the Tracy T. Rudolph 2000 Trust, of
which Mr. Rudolph is the trustee, 4,640 shares held of record by our 401(k)
plan as custodian for Mr. Rudolph and 22,900 shares which may be acquired
within 60 days pursuant to options granted under the 1995 Plan.
(4) Consists of 34,990 shares held of record by the Charles and Emma Slavik
Investment Partnership, of which Mr. Slavik is general partner.
(5) Consists of 90,300 shares held of record by the Harrison Stafford Investment
Partnership, of which Mr. Stafford is general partner.
(6) Includes 410 shares held of record by a 401(k) plan for the benefit of Mr.
Steelhammer.
(7) Includes 6,400 shares held of record by Mr. Zalman as custodian for his
minor children and 45,400 shares which may be acquired within 60 days
pursuant to options granted under the 1995 Plan.
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SUPERVISION AND REGULATION
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, and not for the
protection of the bank holding company shareholders or creditors. The banking
agencies have broad enforcement power over bank holding companies and banks
including the power to impose substantial fines and other penalties for
violations of laws and regulations.
The following description summarizes some of the laws to which we and the
bank are subject. References herein to applicable statutes and regulations are
brief summaries thereof, do not purport to be complete, and are qualified in
their entirety by reference to such statutes and regulations. We believe that we
are in compliance in all material respects with these laws and regulations.
PROSPERITY
We are a bank holding company registered under the Bank Holding Company Act
of 1956, as amended ("BHCA"), and therefore subject to supervision, regulation
and examination by the Federal Reserve. The BHCA and other federal laws subject
bank holding companies to particular restrictions on the types of activities in
which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws and
regulations.
Regulatory Restrictions on Dividends; Source of Strength. It is the policy
of the Federal Reserve that bank holding companies should pay cash dividends on
common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization's expected
future needs and financial condition. The policy provides that bank holding
companies should not maintain a level of cash dividends that undermines the bank
holding company's ability to serve as a source of strength to its banking
subsidiaries.
Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to each of its banking subsidiaries and commit
resources to their support. Such support may be required at times when, absent
this Federal Reserve policy, a holding company may not be inclined to provide
it. As discussed below, a bank holding company in certain circumstances could be
required to guarantee the capital plan of an undercapitalized banking
subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required
to cure immediately any deficit under any commitment by the debtor holding
company to any of the federal banking agencies to maintain the capital of an
insured depository institution, and any claim for breach of such obligation will
generally have priority over most other unsecured claims.
Activities "Closely Related" to Banking. The BHCA prohibits a bank holding
company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank or
from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve, by order or regulation, to be so closely
related to banking or managing or controlling banks, as to be a proper incident
thereto. Some of the activities that have been determined by regulation to be
closely related to banking are making or servicing loans, performing certain
data processing services, acting as an investment or financial advisor to
certain investment trusts and investment companies, and providing securities
brokerage services. Other activities approved by the Federal Reserve include
consumer financial counseling, tax planning and tax preparation, futures and
options advisory services, check guaranty services, collection agency and credit
bureau services, and personal property appraisals. In approving acquisitions by
bank holding companies of companies engaged in banking-related activities, the
Federal Reserve considers a number of factors, and weighs the expected benefits
to the public (such as greater convenience and increased competition or gains in
efficiency) against the risks of possible adverse effects (such as undue
concentration of resources,
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decreased or unfair competition, conflicts of interest, or unsound banking
practices). The Federal Reserve is also empowered to differentiate between
activities commenced de novo and activities commenced through acquisition of a
going concern.
Securities Activities. The Federal Reserve has approved applications by
bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer receivable-related securities and one-to-four family
mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to use
such subsidiaries to underwrite and deal in corporate debt and equity
securities.
Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to 10%
or more of its consolidated net worth. The Federal Reserve may oppose the
transaction if it believes that the transaction would constitute an unsafe or
unsound practice or would violate any law or regulation. Depending upon the
circumstances, the Federal Reserve could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.
The Federal Reserve has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or regulations,
and can assess civil money penalties for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as $1.0 million for each
day the activity continues.
Anti-Tying Restrictions. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other nonbanking services offered by a holding company or its
affiliates.
Capital Adequacy Requirements. The Federal Reserve has adopted a system
using risk-based capital guidelines to evaluate the capital adequacy of bank
holding companies. Under the guidelines, specific categories of assets are
assigned different risk weights, based generally on the perceived credit risk of
the asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2
capital. As of June 30, 1999, our ratio of Tier 1 capital to total risk-weighted
assets was 18.09% and our ratio of total capital to total risk-weighted assets
was 19.16%.
In addition to the risk-based capital guidelines, the Federal Reserve uses
a leverage ratio as an additional tool to evaluate the capital adequacy of bank
holding companies. The leverage ratio is a company's Tier 1 capital divided by
its average total consolidated assets. Certain highly rated bank holding
companies may maintain a minimum leverage ratio of 3.0%, but other bank holding
companies are required to maintain a leverage ratio of at least 4.0%. As of June
30, 1999, our leverage ratio was 7.69%.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria. The federal bank regulatory agencies may set capital
requirements for a particular banking organization that are higher than the
minimum ratios when circumstances warrant. Federal Reserve guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines below certain
levels. In the event an institution becomes "undercapitalized," it must submit a
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capital restoration plan. The capital restoration plan will not be accepted by
the regulators unless each company having control of the undercapitalized
institution guarantees the subsidiary's compliance with the capital restoration
plan up to a certain specified amount. Any such guarantee from a depository
institution's holding company is entitled to a priority of payment in
bankruptcy.
The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it became
undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a capital restoration plan. For example, a bank holding company
controlling such an institution can be required to obtain prior Federal Reserve
approval of proposed dividends, or might be required to consent to a
consolidation or to divest the troubled institution or other affiliates.
Acquisitions by Bank Holding Companies. The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve before it
may acquire all or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such acquisition it would own
or control, directly or indirectly, more than 5% of the voting shares of such
bank. In approving bank acquisitions by bank holding companies, the Federal
Reserve is required to consider the financial and managerial resources and
future prospects of the bank holding company and the banks concerned, the
convenience and needs of the communities to be served, and various competitive
factors.
Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve has been notified and has not objected to the transaction. Under
a rebuttable presumption established by the Federal Reserve, the acquisition of
10% of more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, such as us, would,
under the circumstances set forth in the presumption, constitute acquisition of
control of us.
In addition, any entity is required to obtain the approval of the Federal
Reserve under the BHCA before acquiring 25% (5% in the case of an acquiror that
is a bank holding company) or more of our outstanding common stock, or otherwise
obtaining control or a "controlling influence" over us.
FIRST PROSPERITY BANK
The bank is a Texas-chartered banking association, the deposits of which
are insured by the Bank Insurance Fund ("BIF") of the FDIC. The bank is not a
member of the Federal Reserve System; therefore, the bank is subject to
supervision and regulation by the FDIC and the Texas Banking Department. Such
supervision and regulation subject the bank to special restrictions,
requirements, potential enforcement actions and periodic examination by the FDIC
and the Texas Banking Department. Because the Federal Reserve regulates us, as
the bank holding company parent of the bank, the Federal Reserve also has
supervisory authority which directly affects the bank.
Equivalence to National Bank Powers. The Texas Constitution, as amended in
1986, provides that a Texas-chartered bank has the same rights and privileges
that are or may be granted to national banks domiciled in Texas. To the extent
that the Texas laws and regulations may have allowed state-chartered banks to
engage in a broader range of activities than national banks, FDICIA has operated
to limit this authority. FDICIA provides that no state bank or subsidiary
thereof may engage as principal in any activity not permitted for national
banks, unless the institution complies with applicable capital requirements and
the FDIC determines that the activity poses no significant risk to the insurance
fund. In general, statutory restrictions on the activities of banks are aimed at
protecting the safety and soundness of depository institutions.
Branching. Texas law provides that a Texas-chartered bank can establish a
branch anywhere in Texas provided that the branch is approved in advance by the
Texas Banking Department. The branch must also be approved by the FDIC, which
considers a number of factors, including financial history, capital
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adequacy, earnings prospects, character of management, needs of the community
and consistency with corporate powers.
Restrictions on Transactions with Affiliates and Insiders. Transactions
between the bank and its nonbanking affiliates, including us and any of our
nonbanking subsidiaries, are subject to Section 23A of the Federal Reserve Act.
In general, Section 23A imposes limits on the amount of such transactions, and
also requires certain levels of collateral for loans to affiliated parties. It
also limits the amount of advances to third parties which are collateralized by
our securities or obligations or the securities or obligations of any of our
nonbanking subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between the bank
and its affiliates be on terms substantially the same, or at least as favorable
to the bank, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated persons.
The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Federal Reserve Regulation
O apply to all insured institutions and their subsidiaries and holding
companies. These restrictions include limits on loans to one borrower and
conditions that must be met before such a loan can be made. There is also an
aggregate limitation on all loans to insiders and their related interests. These
loans cannot exceed the institution's total unimpaired capital and surplus, and
the FDIC may determine that a lesser amount is appropriate. Insiders are subject
to enforcement actions for knowingly accepting loans in violation of applicable
restrictions.
Restrictions on Distribution of Subsidiary Bank Dividends and
Assets. Dividends paid by the bank have provided a substantial part of our
operating funds and for the foreseeable future it is anticipated that dividends
paid by the bank to us will continue to be our principal source of operating
funds. Capital adequacy requirements serve to limit the amount of dividends that
may be paid by the bank. Under federal law, the bank cannot pay a dividend if,
after paying the dividend, the bank will be "undercapitalized." The FDIC may
declare a dividend payment to be unsafe and unsound even though the bank would
continue to meet its capital requirements after the dividend.
Because we are a legal entity separate and distinct from our subsidiaries,
our right to participate in the distribution of assets of any subsidiary upon
the subsidiary's liquidation or reorganization will be subject to the prior
claims of the subsidiary's creditors. In the event of a liquidation or other
resolution of an insured depository institution, the claims of depositors and
other general or subordinated creditors are entitled to a priority of payment
over the claims of holders of any obligation of the institution to its
shareholders, including any depository institution holding company (such as us)
or any shareholder or creditor thereof.
Examinations. The FDIC periodically examines and evaluates insured banks.
Based on such an evaluation, the FDIC may revalue the assets of the institution
and require that it establish specific reserves to compensate for the difference
between the FDIC-determined value and the book value of such assets. The Texas
Banking Department also conducts examinations of state banks but may accept the
results of a federal examination in lieu of conducting an independent
examination.
Audit Reports. Insured institutions with total assets of $500 million or
more must submit annual audit reports prepared by independent auditors to
federal and state regulators. In some instances, the audit report of the
institution's holding company can be used to satisfy this requirement. Auditors
must receive examination reports, supervisory agreements and reports of
enforcement actions. In addition, financial statements prepared in accordance
with generally accepted accounting principles, management's certifications
concerning responsibility for the financial statements, internal controls and
compliance with legal requirements designated by the FDIC, and an attestation by
the auditor regarding the statements of management relating to the internal
controls must be submitted. For institutions with total assets of more than $3
billion, independent auditors may be required to review quarterly financial
statements. FDICIA requires that independent audit committees be formed,
consisting of outside directors only. The
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committees of such institutions must include members with experience in banking
or financial management, must have access to outside counsel, and must not
include representatives of large customers.
Capital Adequacy Requirements. The FDIC has adopted regulations
establishing minimum requirements for the capital adequacy of insured
institutions. The FDIC may establish higher minimum requirements if, for
example, a bank has previously received special attention or has a high
susceptibility to interest rate risk.
The FDIC's risk-based capital guidelines generally require state banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4.0% and
a ratio of total capital to total risk-weighted assets of 8.0%. The capital
categories have the same definitions for the bank as for us. As of June 30,
1999, the bank's ratio of Tier 1 capital to total risk-weighted assets was
13.74% and its ratio of total capital to total risk-weighted assets was 14.81%.
The FDIC's leverage guidelines require state banks to maintain Tier 1
capital of no less than 5.0% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3.0% of average total
assets. The Texas Banking Department has issued a policy which generally
requires state chartered banks to maintain a leverage ratio (defined in
accordance with federal capital guidelines) of 6.0%. As of June 30, 1999, the
bank's ratio of Tier 1 capital to average total assets (leverage ratio) was
5.84%.
Corrective Measures for Capital Deficiencies. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well capitalized," "adequately
capitalized," "under capitalized," "significantly under capitalized" and
"critically under capitalized." A "well capitalized" bank has a total risk-based
capital ratio of 10.0% or higher; a Tier 1 risk-based capital ratio of 6.0% or
higher; a leverage ratio of 5.0% or higher; and is not subject to any written
agreement, order or directive requiring it to maintain a specific capital level
for any capital measure. An "adequately capitalized" bank has a total risk-based
capital ratio of 8.0% or higher; a Tier 1 risk-based capital ratio of 4.0% or
higher; a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated
a composite 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized bank.
A bank is "under capitalized" if it fails to meet any one of the ratios required
to be adequately capitalized. The bank is classified as "well capitalized" for
purposes of the FDIC's prompt corrective action regulations.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, the FDIC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management and other restrictions. The FDIC has only
very limited discretion in dealing with a critically undercapitalized
institution and is virtually required to appoint a receiver or conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
Deposit Insurance Assessments. The bank must pay assessments to the FDIC
for federal deposit insurance protection. The FDIC has adopted a risk-based
assessment system as required by FDICIA. Under this system, FDIC-insured
depository institutions pay insurance premiums at rates based on their risk
classification. Institutions assigned to higher risk classifications (that is,
institutions that pose a greater
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risk of loss to their respective deposit insurance funds) pay assessments at
higher rates than institutions that pose a lower risk. An institution's risk
classification is assigned based on its capital levels and the level of
supervisory concern the institution poses to the regulators. In addition, the
FDIC can impose special assessments in certain instances. The current range of
BIF assessments is between 0% and 0.27% of deposits.
The FDIC established a process for raising or lowering all rates for
insured institutions semi-annually if conditions warrant a change. Under this
system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in the
rate schedule outside the five cent range above or below the current schedule
can be made by the FDIC only after a full rulemaking with opportunity for public
comment.
On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalizing the Savings Association
Insurance Fund ("SAIF") and to assure the payment of the Financing Corporation's
("FICO") bond obligations. Under this new act, banks insured under the BIF are
required to pay a portion of the interest due on bonds that were issued by FICO
to help shore up the ailing Federal Savings and Loan Insurance Corporation in
1987. The BIF rate must equal one-fifth of the SAIF rate through year-end 1999,
or until the insurance funds are merged, whichever occurs first. Thereafter BIF
and SAIF payers will be assessed pro rata for the FICO bond obligations. With
regard to the assessment for the FICO obligation, for the second quarter of
1999, the BIF rate was .01176% of deposits and the SAIF rate was .0588% of
deposits and for the third quarter of 1999, the BIF rate was .01160% of deposits
and the SAIF rate was .0580% of deposits.
Enforcement Powers. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations and
supervisory agreements could subject us or our banking subsidiaries, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially substantial civil
money penalties. The appropriate federal banking agency may appoint the FDIC as
conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required to
do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan. The Texas
Banking Department also has broad enforcement powers over the bank, including
the power to impose orders, remove officers and directors, impose fines and
appoint supervisors and conservators.
Brokered Deposit Restrictions. Institutions that are only "adequately
capitalized" (as defined for purposes of the prompt corrective action rules
described above) cannot accept, renew or roll over brokered deposits except with
a waiver from the FDIC, and are subject to restrictions on the interest rates
that can be paid on such deposits. Undercapitalized institutions may not accept,
renew, or roll over brokered deposits.
Cross-Guarantee Provisions. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision which
generally makes commonly controlled insured depository institutions liable to
the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks. These
regulations also provide for regulatory assessment of a bank's record in meeting
the needs of its service area when considering applications to establish
branches, merger applications and applications to acquire the assets and assume
the liabilities of another bank. FIRREA requires federal banking agencies to
make public a rating of a bank's performance under the CRA. In the
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case of a bank holding company, the CRA performance record of the banks involved
in the transaction are reviewed in connection with the filing of an application
to acquire ownership or control of shares or assets of a bank or to merge with
any other bank holding company. An unsatisfactory record can substantially delay
or block the transaction.
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, the bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, and the Fair Housing Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. The bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of its ongoing customer
relations.
INSTABILITY AND REGULATORY STRUCTURE
Various legislation, including proposals to overhaul the bank regulatory
system, expand the powers of banking institutions and bank holding companies and
limit the investments that a depository institution may make with insured funds,
is from time to time introduced in Congress. Such legislation may change banking
statutes and the environment in which we and our banking subsidiaries operate in
substantial and unpredictable ways. We cannot determine the ultimate effect that
potential legislation, if enacted, or implementing regulations with respect
thereto, would have upon our financial condition or results of operations or
that of our subsidiaries.
EXPANDING ENFORCEMENT AUTHORITY
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal Reserve and FDIC
are possessed of extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties, issue
cease and desist or removal orders, seek injunctions, and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.
Federal Reserve monetary policies have materially affected the operating
results of commercial banks in the past and are expected to continue to do so in
the future. The nature of future monetary policies and the effect of such
policies on the business and earnings of us and our subsidiaries cannot be
predicted.
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DESCRIPTION OF THE TRUST
The trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a trust agreement executed by us, as sponsor for the
trust, and the trustees, and a certificate of trust filed with the Delaware
Secretary of State. The trust agreement will be amended and restated in its
entirety in the form filed as an exhibit to the registration statement of which
the prospectus is a part, as of the date the trust preferred securities are
initially issued. The trust agreement will be qualified under the Trust
Indenture Act of 1939.
Upon issuance of the trust preferred securities, the holders will own all
of the issued and outstanding trust preferred securities. We will acquire common
securities in an amount equal to at least 3% of the total capital of the trust
and will own, directly or indirectly, all of the issued and outstanding common
securities (together with the trust preferred securities, the "trust
securities"). The trust exists for the purposes of:
- issuing the trust preferred securities to the public for cash;
- issuing its common securities to us in exchange for our capitalization of
the trust;
- investing the proceeds from the sale of the trust securities in an
equivalent amount of debentures; and
- engaging in other activities that are incidental to those listed above.
The rights of the holders of the trust securities are as set forth in the
trust agreement, the Delaware Business Trust Act and the Trust Indenture Act.
The trust agreement does not permit the trust to borrow money or make any
investment other than in the debentures. Other than with respect to the trust
securities, we have agreed to pay for all debts and obligations and all costs
and expenses of the trust and the offering of the trust preferred securities,
including the fees and expenses of the trustees and any income taxes, duties and
other governmental charges, and all costs and expenses related to these charges,
to which the trust may become subject, except for United States withholding
taxes that are properly withheld.
Pursuant to the trust agreement, the number of trustees of the trust will
initially be five. Three of the trustees will be persons who are our employees
or officers or who are affiliated with us (the "administrative trustees"). The
fourth trustee will be an institution that maintains its principal place of
business in the State of Delaware (the "Delaware trustee"). Initially, First
Union Trust Company, National Association, a national banking association
("First Union"), will act as Delaware trustee. The fifth trustee will be a
financial institution that is unaffiliated with us and will serve as
institutional trustee under the trust agreement and as indenture trustee for the
purposes of compliance with the provisions of the Trust Indenture Act (the
"property trustee"). Initially, First Union will also be the property trustee.
For the purpose of compliance with the provisions of the Trust Indenture Act,
First Union will also act as guarantee trustee and indenture trustee under the
guarantee agreement and the indenture. We, as holder of all of the common
securities, will have the right to appoint, remove or replace any trustee unless
an event of default under the indenture shall have occurred and be continuing,
in which case only the holders of the trust preferred securities may remove the
indenture trustee or the property trustee. The trust has a term of approximately
31 years but may terminate earlier as provided in the trust agreement.
The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-bearing "property account" to hold all payments made in respect of
the debentures for the benefit of the holders of the trust securities. The
property trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the trust securities out
of funds from the property account. The guarantee trustee will hold the
guarantee for the benefit of the holders of the trust preferred securities.
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DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The trust preferred securities will be issued pursuant to the trust
agreement, which will be qualified as an indenture under the Trust Indenture
Act. First Union will act as property trustee for the trust preferred securities
under the trust agreement for purposes of complying with the provisions of the
Trust Indenture Act. The terms of the trust 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 is a summary of the material terms and
provisions of the trust preferred securities and the trust agreement. A form of
the trust agreement has been filed as an exhibit to the registration statement
of which this prospectus forms a part.
GENERAL
The trust agreement authorizes the administrative trustees, on behalf of
the trust, to issue the trust securities, which are comprised of the trust
preferred securities to be sold to the public and the common securities. We will
own all of the common securities issued by the trust. The trust preferred
securities will represent preferred undivided beneficial interests in the assets
of the trust, and the holders of the trust preferred securities will be entitled
to a preference upon an event of default with respect to distributions and
amounts payable on redemption or liquidation over the common securities. The
trust is not permitted to issue any securities other than the trust securities
or incur any other indebtedness.
The trust preferred securities will rank equally, and payments on the trust
preferred securities will be made proportionally, with the common securities,
except as described under "-- Subordination of Common Securities" below.
The property trustee will hold legal title to the debentures in trust for
the benefit of the holders of the trust securities. We guarantee the payment of
distributions out of money held by the trust, and payments upon redemption of
the trust preferred securities or liquidation of the trust, to the extent
described under "Description of the Guarantee." The guarantee agreement does not
cover the payment of any distribution or the liquidation amount when the trust
does not have sufficient funds available to make these payments.
DISTRIBUTIONS
Source of Distributions. The funds of the trust available for distribution
to holders of the trust preferred securities will be limited to payments made
under the debentures, which the trust will purchase with the proceeds from the
sale of the trust securities. Distributions will be paid through the property
trustee, who will hold the amounts received from our interest payments on the
debentures in the property account for the benefit of the holders of the trust
preferred securities. If we do not make interest payments on the debentures, the
property trustee will not have funds available to pay distributions on the trust
preferred securities.
Payment of Distributions. Distributions on the trust preferred securities
will be payable at the annual rate of % of the $10 stated liquidation amount,
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, to the holders of the trust preferred securities on the relevant record
dates. The record date will be the business day immediately preceding the
relevant distribution date. The first distribution date for the trust preferred
securities will be March 31, 2000.
Distributions will accumulate from the date of issuance, and the amount
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. If the distribution date is not a business day, then payment of
the distributions will be made on the next day that is a business day, without
any additional interest or other payment in respect of the delay. However, if
the next business day is in the next calendar year, payment of the distribution
will be made on the immediately preceding business day. "Business day" means any
day other than a Saturday, a Sunday, a day on which banking institutions in The
City of New York or Wilmington, Delaware are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office of
the property trustee or the indenture trustee is closed for business.
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Extension Period. As long as no event of default under the indenture has
occurred and is continuing, we have the right to defer the payment of interest
on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond , 2029 or end
on a date other than an interest payment date, which dates are the same as the
distribution dates. If we defer the payment of interest, quarterly distributions
on the trust preferred securities will also be deferred during any such
extension period. Any deferred distributions under the trust preferred
securities will accumulate additional amounts at the annual rate of %,
compounded quarterly from the relevant distribution date. The term
"distributions" as used in this prospectus includes those accumulated amounts.
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (other than the reclassification of any class of our capital stock
into another class of capital stock) or allow any of our subsidiaries to
do the same with respect to their capital stock (other than the payment
of dividends or distributions to us);
- make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the debentures or allow any of our subsidiaries to do the
same;
- make any guarantee payments with respect to any other guarantee by us of
any other debt securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures other than payments under
the guarantee; or
- redeem, purchase or acquire less than all of the debentures or any of the
trust preferred securities.
After the termination of any extension period and the payment of all amounts
then due, we may elect to begin a new extension period, subject to the above
requirements.
We have no current intention of exercising our right to defer distributions
on the trust preferred securities by extending the interest payment period on
the debentures.
REDEMPTION OR EXCHANGE
General. Subject to the prior approval of the Federal Reserve, if required,
we may redeem the debentures prior to maturity:
- in whole at any time, or in part from time to time, on or after
, 2004;
- in whole, but not in part, at any time within 90 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital
Treatment Event as defined below; or
- at any time, to the extent of any trust preferred securities we
repurchase.
Mandatory Redemption. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on , 2029 or earlier, the property
trustee will apply the proceeds to redeem a like amount of the trust securities,
upon not less than 30 days nor more than 60 days notice, at the redemption
price. The redemption price will equal 100% of the aggregate liquidation amount
of the trust securities plus accumulated but unpaid distributions and Additional
Interest (as defined below) to the date of redemption. If less than all of the
debentures are to be repaid or redeemed on a date of redemption, then the
proceeds from such repayment or redemption will be allocated to redemption of
the trust preferred securities and the common securities proportionally.
"Additional Interest" means the additional amounts as may be necessary to
be paid by us in order that the amount of distributions then due and payable by
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.
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Distribution of Debentures. Upon prior approval of the Federal Reserve, if
required, we will have the right at any time to dissolve, wind-up or terminate
the trust and, after satisfaction of the liabilities of creditors of the trust
as provided by applicable law, including, without limitation, amounts due and
owing the trustees of the trust, cause the debentures to be distributed directly
to the holders of trust securities in liquidation of the trust. See
"-- Liquidation Distribution Upon Termination."
After the liquidation date fixed for any distribution of debentures in
exchange for trust preferred securities:
- those trust preferred securities will no longer be deemed to be
outstanding; and
- any certificates representing trust preferred securities will be deemed
to represent debentures with a principal amount equal to the liquidation
amount of those trust preferred securities, and bearing accrued and
unpaid interest in an amount equal to the accumulated and unpaid
distributions on the trust preferred securities until the 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 trust preferred
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur. The trust preferred securities that an
investor may purchase, or the debentures that an investor may receive on
dissolution and liquidation of the trust, may trade at a discount to the price
that the investor paid to purchase the trust preferred securities.
Redemption upon a Tax Event, Investment Company Event or Capital Treatment
Event. If a Tax Event, an Investment Company Event or a Capital Treatment Event
(each as defined below) occurs, we have the right to redeem the debentures in
whole and thereby cause a mandatory redemption of the trust securities in whole
at the redemption price. If one of these events occurs and we do not elect to
redeem the debentures, or we elect to dissolve the trust and cause the
debentures to be distributed to holders of the trust securities, then the trust
preferred securities will remain outstanding and Additional Interest may be
payable on the debentures. See "Description of Debentures -- Redemption or
Exchange."
"Tax Event" means the receipt by the trust and us of an opinion of counsel
experienced in such matters stating that there is more than an insubstantial
risk that:
- interest payable by us on the debentures is not, or within 90 days of the
date of the opinion will not be, deductible by us, in whole or in part,
for federal income tax purposes;
- the trust is, or will be within 90 days after the date of the opinion,
subject to federal income tax with respect to income received or accrued
on the debentures; or
- the trust is, or will be within 90 days after the date of opinion,
subject to more than an immaterial amount of other taxes, duties,
assessments or other governmental charges, as a result of any amendment
to any tax laws or regulations.
"Investment Company Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that the trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation.
"Capital Treatment Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that there is more
than an insubstantial risk of impairment of our ability to treat the trust
preferred securities as Tier 1 capital for purposes of the current capital
adequacy guidelines of the Federal Reserve, as a result of any amendment to any
laws or any regulations.
For all of the events described above, we or the trust must request and
receive an opinion of counsel with regard to the event within a reasonable
period of time after we became aware of the possible occurrence of an event of
this kind.
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REDEMPTION PROCEDURES
Trust preferred securities may be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the trust preferred securities will be made and the redemption
price will be payable on each date of redemption only to the extent that the
trust has funds available for the payment of the redemption price. See
"-- Subordination of Common Securities."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date of redemption to each holder of trust securities to be
redeemed at its registered address. Unless we default in payment of the
redemption price on the debentures, interest will cease to accrue on the
debentures called for redemption on and after the date of redemption.
If the trust gives notice of redemption of its trust securities, then the
property trustee, to the extent funds are available, will irrevocably deposit
with the depositary for the trust securities funds sufficient to pay the
aggregate redemption price and will give the depositary for the trust securities
irrevocable instructions and authority to pay the redemption price to the
holders upon surrender of their certificates evidencing the trust securities.
See "Book-Entry Issuance." If the trust preferred securities are no longer in
book-entry form, the property trustee, to the extent funds are available, will
deposit with the designated paying agent for such trust preferred securities
funds sufficient to pay the aggregate redemption price and will give the paying
agent irrevocable instructions and authority to pay the redemption price to the
holders upon surrender of their certificates evidencing the trust preferred
securities. Notwithstanding the foregoing, distributions payable on or prior to
the date of redemption for any trust securities called for redemption will be
payable to the holders of the trust securities on the relevant record dates for
the related distribution dates.
If notice of redemption has been given and we have deposited funds as
required, then on the date of the deposit all rights of the holders of the trust
securities called for redemption will cease, except the right to receive the
redemption price, but without interest on such redemption price after the date
of redemption. The trust securities will also cease to be outstanding on the
date of the deposit. If any date fixed for redemption of trust securities is not
a business day, then payment of the redemption price payable on that date will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next succeeding calendar year, payment of the interest will be made on
the immediately preceding business day.
If payment of the redemption price in respect of trust securities called
for redemption is improperly withheld or refused and not paid by the trust, or
by us pursuant to the guarantee, distributions on the trust securities will
continue to accumulate at the applicable rate from the date of redemption
originally established by the trust for the trust securities to the date the
redemption price is actually paid. In this 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."
Payment of the redemption price on the trust preferred securities and any
distribution of debentures to holders of trust preferred securities will be made
to the applicable recordholders as they appear on the register for the trust
preferred securities on the relevant record date. The record date will be the
business day immediately preceding the date of redemption or liquidation date,
as applicable.
If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately between the common securities and the trust preferred
securities based upon the relative liquidation amounts. The particular trust
preferred securities to be redeemed will be selected by the property trustee
from the outstanding trust preferred securities not previously called for
redemption by a method the property trustee deems fair and appropriate. This
method may provide for the redemption of portions equal to $10 or an integral
multiple of $10 of the liquidation amount of the trust preferred securities. The
property trustee will promptly notify the registrar for the trust preferred
securities in writing of the trust preferred securities selected for redemption
and, in the case of any trust preferred securities selected for partial
redemption, the liquidation
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amount to be redeemed. For all purposes of the trust agreement, unless the
context otherwise requires, all provisions relating to the redemption of trust
preferred securities will relate to the portion of the aggregate liquidation
amount of trust preferred securities which has been or is to be redeemed.
Subject to applicable law, and if we are not exercising our right to defer
interest payments on the debentures, we may, at any time, purchase outstanding
trust preferred securities.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the trust
preferred securities and common securities will be made based on the liquidation
amount of these securities. However, if an event of default under the indenture
has occurred and is continuing, no distributions on or redemption of the common
securities may be made. Further, no payments may be made on the common
securities unless payment in full in cash of all accumulated and unpaid
distributions (including Additional Interest, if any is required) on all of the
outstanding trust preferred securities for all distribution periods terminating
on or before that time, or in the case of payment of the redemption price,
payment of the full amount of the redemption price on all of the outstanding
trust preferred securities then called for redemption, has been made or
provided. All funds available to the property trustee will first be applied to
the payment in full in cash of all distributions (including Additional Interest,
if any is required) on, or the redemption price of, the trust preferred
securities then due and payable.
In the case of the occurrence and continuance of any event of default under
the trust agreement resulting from an event of default under the indenture, we,
as holder of the common securities, will be deemed to have waived any right to
act with respect to that event of default under the trust agreement until the
effect of the event of default has been cured, waived or otherwise eliminated.
Until the event of default under the trust agreement has been so cured, waived
or otherwise eliminated, the property trustee will act solely on behalf of the
holders of the trust preferred securities and not on our behalf, and only the
holders of the trust preferred securities will have the right to direct the
property trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
We will have the right at any time to dissolve, wind-up or terminate the
trust and cause the debentures to be distributed to the holders of the trust
preferred securities. This right is subject, however, to our receiving approval
of the Federal Reserve, if required.
In addition, the trust will automatically terminate upon expiration of its
term and will terminate earlier on the first to occur of:
- our bankruptcy, dissolution or liquidation;
- the distribution of a like amount of the debentures to the holders of the
trust securities, if we have given written direction to the property
trustee to terminate the trust;
- redemption of all of the trust preferred securities as described under
"-- Redemption or Exchange -- Mandatory Redemption;" or
- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
With the exception of a redemption as described under "-- Redemption or
Exchange -- Mandatory Redemption," if an early termination occurs, the trust
will be liquidated by the administrative trustees as expeditiously as they
determine to be possible. After satisfaction of liabilities to creditors of the
trust as provided by applicable law, the trustees will distribute to the holders
of trust securities debentures:
- in an aggregate stated principal amount equal to the aggregate stated
liquidation amount of the trust securities;
- with an interest rate identical to the distribution rate on the trust
securities; and
- with accrued and unpaid interest equal to accumulated and unpaid
distributions on the trust securities.
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However, if the property trustee determines that the distribution is not
practical, then the holders will be entitled to receive a proportionate amount
of the liquidation distribution. The liquidation distribution will be the amount
equal to the aggregate of the liquidation amount plus accumulated and unpaid
distributions to the date of payment. If 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 the amounts payable directly
by the trust on the trust securities will be paid to us, as the holder of the
common securities, and the holders of the trust preferred securities on a
proportional basis based on liquidation amounts. However, if an event of default
under the indenture has occurred and is continuing, the trust preferred
securities will have a priority over the common securities. See
"-- Subordination of Common Securities."
Under current United States federal income tax law and interpretations and
assuming that the trust is treated as a grantor trust, as is expected, a
distribution of the debentures should not be a taxable event to holders of the
trust preferred securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or another circumstance, however, the distribution
could be a taxable event to holders of the trust preferred securities. See
"Federal Income Tax Consequences -- Receipt of Debentures or Cash Upon
Liquidation of the Trust." If we do not elect to redeem the debentures prior to
maturity or to liquidate the trust and distribute the debentures to holders of
the trust preferred securities, the trust preferred securities will remain
outstanding until the repayment of the debentures.
If we elect to dissolve the trust and thus cause the debentures to be
distributed to holders of the trust preferred securities in liquidation of the
trust, we will continue to have the right to shorten the maturity of the
debentures. See "Description of the Debentures -- General."
LIQUIDATION VALUE
The amount of the liquidation distribution payable on the trust preferred
securities in the event of any liquidation of the trust is $10 per trust
preferred security plus accumulated and unpaid distributions to the date of
payment, which may be in the form of a distribution of debentures having a
liquidation value and accrued interest of an equal amount. See "-- Liquidation
Distribution Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
trust agreement with respect to the trust preferred securities:
- the occurrence of an event of default under the indenture (see
"Description of the Debentures -- Debenture Events of Default");
- a default by the trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30 days;
- a default by the trust in the payment of any redemption price of any of
the trust securities when it becomes due and payable;
- a default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement, other than
those defaults covered in the previous two points, and continuation of
the 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 trust
preferred securities, a written notice specifying the default or breach
and requiring it to be remedied and stating that the notice is a "Notice
of Default" under the trust agreement; or
- the occurrence of events of bankruptcy or insolvency with respect to the
property trustee and our failure to appoint a successor property trustee
within 60 days.
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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 the event of default to the holders of the trust preferred securities,
the administrative trustees and to us, unless the event of default has been
cured or waived. We and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not we are
each in compliance with all the conditions and covenants applicable to us and
the administrative trustee, respectively, under the trust agreement.
If an event of default under the indenture has occurred and is continuing,
the trust preferred securities will have preference over the common securities
upon termination of the trust. See "-- Subordination of Common Securities" and
"-- Liquidation Distribution Upon Termination." The existence of an event of
default under the trust agreement does not entitle the holders of trust
preferred securities to accelerate the maturity thereof, unless the event of
default is caused by the occurrence of an event of default under the indenture
and both the indenture trustee and holders of at least 25% in principal amount
of the debentures fail to accelerate the maturity thereof.
REMOVAL OF THE TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, any trustee may be removed at any time by us. If an event of default
under the indenture has occurred and is continuing, only the holders of a
majority in liquidation amount of the outstanding trust preferred securities may
remove the property trustee or the Delaware trustee. The holders of the trust
preferred securities have no right to vote to appoint, remove or replace the
administrative trustees. These rights are vested exclusively with us 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 successor trustee
accepts the appointment in accordance with the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default under the indenture has occurred and is
continuing, 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, we will have the power to appoint at any time or times,
and upon written request of the property trustee will appoint, one or more
persons or entity either (i) to act as a co-trustee, jointly with the property
trustee, of all or any part of the trust property, or (ii) to act as separate
trustee of any trust property. In either case these trustees will have the
powers that may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case an event of
default under the indenture has occurred and is continuing, the property trustee
alone will have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees may be a
successor trustee to any of the trustees, including a successor resulting from a
merger or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.
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 as
described below. The trust may, at our request, with the consent of the
administrative trustees and without the consent of the holders of the trust
preferred securities, the property trustee or the Delaware trustee, undertake a
transaction listed above if the following conditions are met:
- the successor entity either (a) expressly assumes all of the obligations
of the trust with respect to the trust preferred securities, or (b)
substitutes for the trust preferred securities other securities having
substantially the same terms as the trust preferred securities (referred
to as "successor
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securities") so long as the successor securities rank the same in
priority as the trust preferred securities with respect to distributions
and payments upon liquidation, redemption and otherwise;
- we expressly appoint a trustee of the successor entity possessing
substantially the same powers and duties as the property trustee in its
capacity as the holder of the debentures;
- the successor securities are listed or will be listed upon notification
of issuance, on any national securities exchange or other organization on
which the trust preferred securities are then listed, if any;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the trust preferred securities (including
any successor securities) in any material respect;
- the successor entity has a purpose substantially identical to that of the
trust;
- prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we have received an opinion from
independent counsel to the effect that (a) any transaction of this kind
does not adversely affect the rights, preferences and privileges of the
holders of the trust preferred securities (including any successor
securities) in any material respect, and (b) following the transaction,
neither the trust nor the successor entity will be required to register
as an "investment company" under the Investment Company Act; and
- we own all of the common securities of the successor entity and guarantee
the obligations of the successor entity under the successor securities at
least to the extent provided by the guarantee.
Notwithstanding the foregoing, the trust may not, except with the consent of
holders of 100% in liquidation amount of the trust preferred securities, enter
into any transaction of this kind or permit any other person to consolidate,
amalgamate, merge with or into, or replace the trust if the transaction 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 trust preferred
securities will have no voting rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the trust preferred securities,
in the following circumstances:
- with respect to acceptance of appointment by a successor trustee;
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, as long as the amendment is not inconsistent with
the other provisions of the trust agreement and does have a material
adverse effect on the interests of any holder of trust securities; or
- to modify, eliminate or add to any provisions of the trust agreement if
necessary to ensure that the trust will be classified for 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.
With the consent of the holders of a majority of the aggregate liquidation
amount of the outstanding trust securities, we and the trustees may amend the
trust agreement if the trustees receive an opinion of counsel to the effect that
the amendment or the exercise of any power granted to the trustees in accordance
with the amendment will not affect the trust's status as a grantor trust for
federal income tax
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purposes or the trust's exemption from status as an "investment company" under
the Investment Company Act. However, without the consent of each holder of trust
securities, the trust agreement may not be amended to (i) change the amount or
timing of any distribution on the trust securities or otherwise adversely affect
the amount of any distribution required to be made in respect of the trust
securities as of a specified date, or (ii) restrict the right of a holder of
trust securities to institute suit for the enforcement of the payment on or
after that date.
As long as the property trustee holds any debentures, the trustees will
not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the property trustee with respect to the debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the debentures will be due and payable; or
- consent to any amendment, modification or termination of the indenture or
the debentures, where the consent is required, without obtaining the
prior approval of the holders of a majority in aggregate liquidation
amount of all outstanding trust securities. However, where a consent
under the indenture requires the consent of each holder of the affected
debentures, no consent will be given by the property trustee without the
prior consent of each holder of the trust securities.
The trustees may not revoke any action previously authorized or approved by a
vote of the holders of the trust securities except by subsequent vote of the
holders of the trust securities. The property trustee will notify each holder of
trust securities of any notice of default with respect to the debentures. In
addition to obtaining the foregoing approvals of the holders of the trust
securities, prior to taking any of the foregoing actions the trustees must
obtain an opinion of counsel experienced in these matters to the effect that the
trust will not be classified as an association taxable as a corporation for
federal income tax purposes on account of the action.
Any required approval of holders of trust securities may be given at a
meeting of holders of the trust securities convened for the purpose or pursuant
to written consent. The property trustee will cause a notice of any meeting at
which holders of the trust securities are entitled to vote, or of any matter
upon which action by written consent of the holders is to be taken, to be given
to each holder of record of trust securities.
No vote or consent of the holders of trust preferred securities will be
required for the trust to redeem and cancel its trust preferred securities in
accordance with the trust agreement.
Notwithstanding the fact that holders of trust preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the trust preferred securities that are owned by us, the trustees or any
affiliate of us or any trustee, will, for purposes of the vote or consent, be
treated as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The trust preferred securities will be represented by one or more global
trust preferred securities registered in the name of The Depository Trust
Company, New York, New York ("DTC") or its nominee. A global trust preferred
security is a security representing interests of more than one beneficial
holder. Beneficial interests in the global trust preferred securities will be
shown on, and transfers will be effected only through, records maintained by
participants. Participants are brokers, dealers, or others with accounts with
DTC. Except as described below, trust preferred securities in definitive form
will not be issued in exchange for the global trust preferred securities. See
"Book-Entry Issuance."
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No global trust preferred security may be exchanged for trust preferred
securities registered in the names of persons other than DTC or its nominee
unless:
- DTC notifies the indenture trustee that it is unwilling or unable to
continue as a depositary for the global trust preferred security and we
are unable to locate a qualified successor depositary;
- we execute and deliver to the indenture trustee a written order stating
that we elect to terminate the book-entry system through DTC; or
- there shall have occurred and be continuing an event of default under the
indenture.
Any global trust preferred security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered
in the names as DTC shall direct. It is expected that the instructions will be
based upon directions received by DTC with respect to ownership of beneficial
interests in the global trust preferred security. If trust preferred securities
are issued in definitive form, the trust preferred securities will be in
denominations of $10 and integral multiples of $10 and may be transferred or
exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
trust preferred securities represented thereby, a global trust preferred
security may not be transferred except as a whole by DTC to a nominee of DTC, by
a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee to a
successor depositary or any nominee of the successor.
Payments on global trust preferred securities will be made to DTC, as the
depositary for the global trust preferred securities. If the trust preferred
securities are issued in definitive form, distributions will be payable, the
transfer of the trust preferred securities will be registrable, and trust
preferred securities will be exchangeable, for trust preferred securities of
other denominations of a like aggregate liquidation amount, at the corporate
office of the property trustee, or at the offices of any paying agent or
transfer agent appointed by the administrative trustees. However, payment of any
distribution may be made at the option of the administrative trustees by check
mailed to the address of record of the persons entitled to the distribution or
by wire transfer. In addition, if the trust preferred securities are issued in
definitive form, the record dates for payment of distributions will be the 15th
day of the month in which the relevant distribution date occurs. For a
description of the terms of DTC arrangements relating to payments, transfers,
voting rights, redemptions and other notices and other matters, see "Book-Entry
Issuance."
Upon the issuance of one or more global trust preferred securities, and the
deposit of the global trust preferred security with or on behalf of DTC or its
nominee, DTC or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate liquidation amounts of the individual
trust preferred securities represented by the global trust preferred security to
the accounts of persons that have accounts with DTC. These accounts shall be
designated by the dealers, underwriters or agents with respect to the trust
preferred securities. Ownership of beneficial interests in a global trust
preferred security will be limited to persons or entities with an account with
DTC or who may hold interest through any person or entity with an account that
may hold interests through participants. With respect to interests of any person
or entity with an account with DTC, ownership of beneficial interests in a
global trust preferred security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
depositary or its nominee. With respect to persons or entities who hold interest
in a global trust preferred security through a participant, the interest and any
transfer of the interest will be shown on the participant's records. The laws of
some states require that certain purchasers of securities take physical delivery
of these securities in definitive form. These laws may impair the ability to
transfer beneficial interests in a global trust preferred security.
So long as DTC or another depositary, or its nominee, is the registered
owner of the global trust preferred security, the depositary or the nominee, as
the case may be, will be considered the sole owner or holder of the trust
preferred securities represented by the global trust preferred security for all
purposes under the trust agreement. Except as described in this prospectus,
owners of beneficial interests in a global trust preferred security will not be
entitled to have any of the individual trust preferred securities
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represented by the global trust preferred security registered in their names,
will not receive or be entitled to receive physical delivery of any the trust
preferred securities in definitive form and will not be considered the owners or
holders of the trust preferred securities under the trust agreement.
None of us, the property trustee, any paying agent or the securities
registrar for the trust preferred securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the global trust preferred security
representing the trust preferred securities or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of the
liquidation amount or distributions in respect of a global trust preferred
security, immediately will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global trust preferred security as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global trust preferred security held
through the participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name." The payments will be the
responsibility of the participants. See "Book-Entry Issuance."
PAYMENT AND PAYING AGENCY
Payments in respect of the trust preferred securities shall be made to DTC,
which shall credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the trust preferred securities are not held by
DTC, the payments shall be made by check mailed to the address of the holder as
listed on the register of holders of the trust preferred securities. The paying
agent for the trust preferred securities will initially be the property trustee
and any co-paying agent chosen by the property trustee and acceptable to us and
the administrative trustees. The paying agent for the trust preferred securities
may resign as paying agent upon 30 days written notice to the administrative
trustees, the property trustee and us. If the property trustee no longer is the
paying agent for the trust preferred securities, the administrative trustees
will appoint a successor to act as paying agent. The successor must be a bank or
trust company acceptable to us and the property trustee.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as the registrar and the transfer agent for
the trust preferred securities. Registration of transfers of trust 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 and its registrar and
transfer agent will not be required to register or cause to be registered the
transfer of trust preferred securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, until the occurrence and continuance of an event of
default under the trust agreement, undertakes to perform only the duties set
forth in the trust agreement. After an event of default under the trust
agreement, the property trustee must exercise the same degree of care and skill
as a prudent person exercises or uses in the conduct of its 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 trust preferred securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred. If no event of
default under the trust agreement 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 trust preferred securities are entitled to vote upon, then
the property trustee will take the action directed in writing by us. If the
property trustee is not so directed, then it will take the action it deems
advisable and in the best interests
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of the holders of the trust securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust 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;
- the trust will not be classified as an association taxable as a
corporation for federal income tax purposes; and
- the debentures will be treated as our indebtedness for federal income tax
purposes.
In this regard, we and the administrative trustees are authorized to take any
action not inconsistent with applicable law, the certificate of trust or the
trust agreement, that we and the administrative trustees determine to be
necessary or desirable for these purposes.
Holders of the trust preferred securities have no preemptive or similar
rights. The trust agreement and the trust preferred securities will be governed
by Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the trust preferred securities, the trust
will invest the proceeds from the sale of the trust securities in the debentures
issued by us. The debentures will be issued as unsecured debt under the
indenture between us and First Union, as trustee (the "indenture trustee"). The
indenture will be qualified under the Trust Indenture Act.
The following discussion is subject to, and is qualified in its entirety by
reference to, the indenture and to the Trust Indenture Act. We urge prospective
investors to read the form of the indenture, which is filed as an exhibit to the
registration statement of which this prospectus forms a part.
GENERAL
The debentures will be limited in aggregate principal amount to
$12,380,000, this amount being the sum of the aggregate stated liquidation
amounts of the trust securities. The debentures will bear interest at the annual
rate of % of the principal amount. The interest will be payable quarterly on
March 31, June 30, September 30 and December 31 of each year, beginning March
31, 2000, to the person in whose name each debenture is registered at the close
of business on the business day immediately preceding the day interest is due.
It is anticipated that, until the liquidation, if any, of the trust, the
debentures will be held in the name of the property trustee in trust for the
benefit of the holders of the trust 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. If any date on which interest is
payable on the debentures is not a business day, then payment of interest will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next calendar year, payment of the interest will be made on the
immediately preceding business day. Accrued interest that is not paid on the
applicable interest payment date will bear additional interest on the amount due
at the annual rate of %, compounded quarterly. The term "interest," includes
quarterly interest payments, interest on quarterly interest payments not paid on
the applicable interest payment date and additional interest, as applicable.
The debentures will mature on , 2029, the stated maturity date.
We may shorten this date once at any time to any date not earlier than
, 2004, subject to the prior approval of the Federal Reserve, if
required.
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We will give notice to the indenture trustee and the holders of the
debentures no more than 180 days and no less than 90 days prior to the
effectiveness of any change in the stated maturity date. We will not have the
right to redeem the debentures from the trust until after , 2004,
except if a Tax Event, an Investment Company Event or a Capital Treatment Event
has occurred, or to the extent we have repurchased trust preferred securities.
The debentures will be unsecured and will rank junior to all of our senior
and subordinate indebtedness. Because we are a holding company, our right to
participate in any distribution of assets of any of our subsidiaries, upon any
subsidiary's liquidation or reorganization or otherwise, and thus the ability of
holders of the debentures to benefit indirectly from any distribution by a
subsidiary, is subject to the prior claim of creditors of the subsidiary, except
to the extent that we may be recognized as a creditor of the subsidiary. The
debentures will, therefore, be effectively subordinated to all existing and
future liabilities of our subsidiaries, and holders of debentures should look
only to our assets for payment. The indenture does not limit our ability to
incur or issue secured or unsecured senior and junior debt. See
"-- Subordination."
The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transaction involving us, nor does it require us to maintain or achieve
any financial performance levels or to obtain or maintain any credit rating on
the debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
As long as no event of default under the indenture has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond the stated maturity of
the debentures or end on a date other than a date interest is normally due. At
the end of an extension period, we must pay all interest then accrued and
unpaid, together with interest thereon at the annual rate of % compounded
quarterly. During an extension period, interest will continue to accrue and
holders of debentures, or the holders of trust preferred securities if they are
then outstanding, will be required to accrue and recognize as income for federal
income tax purposes the accrued but unpaid interest amounts in the year in which
such amounts accrued. See "Federal Income Tax Consequences -- Interest Payment
Period and Original Issue Discount."
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (other than the reclassification of any class of our capital stock
into another class of capital stock) or allow any of our subsidiaries to
do the same with respect to their capital stock (other than the payment
of dividends or distributions to us);
- make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the debentures or allow any of our subsidiaries to do the
same;
- make any guarantee payments with respect to any other guarantee by us of
any other debt securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures other than payments under
the guarantee; or
- redeem, purchase or acquire less than all of the debentures or any of the
trust preferred securities.
Prior to the termination of any extension period, so long as no event of
default under the indenture is continuing, we may further defer the payment of
interest subject to the above stated requirements. Upon the termination of any
extension period and the payment of all amounts then due, we may elect to begin
a new extension period at any time. We have no present intention of exercising
our right to defer payments of interest on the debentures.
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We must give the property trustee, the administrative trustees and the
indenture trustee notice of our election of an extension period at least two
business days prior to the earlier of (i) the next date on which distributions
on the trust securities would have been payable except for the election to begin
an extension period, or (ii) the date we are required to give notice of the
record date, or the date the distributions are payable, to the Nasdaq National
Market, or other applicable self-regulatory organization, or to holders of the
trust preferred securities, but in any event at least one business day prior to
the record date.
Subject to the foregoing, there is no limitation on the number of times
that we may elect to begin an extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If the trust is required to pay any additional taxes, duties or other
governmental charges as a result of the occurrence of a Tax Event, we will pay
as additional amounts on the debentures any amounts which may be required so
that the net amounts received and retained by the trust after paying any
additional taxes, duties or other governmental charges will not be less than the
amounts the trust would have received had the additional taxes, duties or other
governmental charges not been imposed.
REDEMPTION OR EXCHANGE
Subject to prior approval of the Federal Reserve, if required, we may
redeem the debentures prior to maturity:
- in whole at any time, or in part from time to time, on or after
, 2004;
- in whole, but not in part, at any time within 90 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital
Treatment Event; or
- at any time, to the extent of any trust preferred securities we
repurchase.
In each case we will pay a redemption price equal to the accrued and unpaid
interest on the debentures so redeemed to the date fixed for redemption, plus
100% of the principal amount of the debentures.
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 debentures to be redeemed
at its registered address. Redemption of less than all outstanding debentures
shall be effected proportionately, by lot or in any other manner deemed to be
fair by the indenture trustee. Unless we default in payment of the redemption
price for the debentures, on and after the redemption date interest shall cease
to accrue on the debentures or portions thereof called for redemption.
The debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Termination," under certain
circumstances and with the Federal Reserve's approval, the debentures may be
distributed to the holders of the trust preferred securities in liquidation of
the trust after satisfaction of liabilities to creditors of the trust. If this
occurs, we will use our best efforts to list the debentures on the Nasdaq
National Market or other stock exchange or national quotation service, on which
the trust preferred securities are then listed, if any. There can be no
assurance as to the market price of any debentures that may be distributed to
the holders of trust preferred securities.
RESTRICTIONS ON PAYMENTS
We are restricted from making certain payments (as described below) if at
that time:
- an event of default is continuing under the indenture;
- we are in default with respect to our obligations under the guarantee; or
- we have given notice of our election to extend an interest payment period
with respect to the debentures and the notice has not been rescinded or
the extension period is continuing.
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If any of the above events have occurred, we will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock (other than the reclassification of any class of our
capital stock into another class of capital stock) or allow any of our
subsidiaries to do the same with respect to their capital stock (other
than the payment of dividends or distributions to us);
- make any payment of principal, interest or premium on, or repay or
repurchase or redeem any of our debt securities that rank equally with or
junior to the debentures or allow any of our subsidiaries to do the same;
- make any guarantee payments with respect to any guarantee by us of the
debt securities of any of our subsidiaries if the guarantee ranks equally
with or junior to the debentures other than payments under the guarantee;
or
- redeem, purchase or acquire less than all of the debentures or any of the
trust preferred securities.
SUBORDINATION
Under the indenture, the debentures are subordinated and junior in right of
payment to all of our senior and subordinated debt. Upon any payment or
distribution of assets to our 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
Prosperity, the holders of senior and subordinated debt will first be entitled
to receive payment in full of principal (and premium, if any) and interest
before the holders of debentures will be entitled to receive or retain any
payment in respect of the debentures.
In the event of the acceleration of the maturity of any debentures, the
holders of all or our senior and subordinated debt outstanding at the time of
the acceleration will also be entitled to first receive payment in full of all
amounts due, including any amounts due upon acceleration, before the holders of
the debentures will be entitled to receive or retain any payment in respect of
the principal of or interest on the debentures.
No payments of principal or interest in respect of the debentures may be
made if there has occurred and is continuing a default in any payment with
respect to any of our senior or subordinated debt or an event of default with
respect to any of our senior or subordinated debt resulting in the acceleration
of the maturity of the debentures, or if any judicial proceeding is pending with
respect to any default.
The term "debt" means, with respect to any entity, whether recourse is to
all or a portion of the assets of an entity and whether or not contingent:
- every obligation of the entity for money borrowed;
- every obligation of the entity evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
- every reimbursement obligation of the entity with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the entity;
- every obligation of the entity issued or assumed as the deferred purchase
price of property or services, excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business;
- every capital lease obligation of the entity; and
- every obligation of the type referred to in the first five points of
another person and all dividends of another person the payment of which,
in either case, the entity has guaranteed or is responsible or liable,
directly or indirectly, as obligor or otherwise.
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The term "senior debt" means, with respect to us, the principal of and
premium and interest, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not a
claim for post-petition interest is allowed in the proceeding, on debt, whether
incurred on or prior to the date of the indenture or incurred after the date.
Senior debt also includes 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. However, senior debt will not be
deemed to include:
- any debt where it is provided in the instrument creating the debt that
the obligations are not superior in right of payment to the debentures or
to other debt which is equal with, or subordinated to, the debentures;
- any of our debt that when incurred and without respect to any election
under the federal bankruptcy laws was without recourse to us;
- any debt of ours to any of our subsidiaries;
- any debt to any of our employees;
- any debt that 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 the debt by the holders of
the 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 the holders to pay amounts over to the
obligees on the trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions
to which the debt is subject; and
- debt which constitutes subordinated debt.
The term "subordinated debt" means, with respect to us, the principal of,
premium and interest, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not the
claim for post-petition interest is allowed in the proceeding, on debt.
Subordinated debt includes debt 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 ours, other than the debentures.
However, subordinated debt will not be deemed to include:
- any of our debt which when incurred and without respect to any election
under the federal bankruptcy laws, was without recourse to us;
- any debt of ours to any of our subsidiaries;
- any debt to any of our employees;
- 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 the debt by the holders of
the 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 the holders to pay amounts over to the
obligees on the trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions
to which the debt is subject;
- debt which constitutes senior debt; and
- any debt of ours under debt securities (and guarantees in respect of
these debt securities) initially issued to any trust, or a trustee of a
trust, partnership or other entity affiliated with us that is, directly
or indirectly, a financing vehicle of ours in connection with the
issuance by that entity of preferred securities or other securities which
are intended to qualify for "Tier 1" capital treatment.
We expect from time to time to incur additional indebtedness, and there is
no limitation on the amount we may incur. At June 30, 1999, we had consolidated
senior debt and subordinated debt of approximately $570,000.
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PAYMENT AND PAYING AGENTS
Generally, payment of principal of and any interest on the debentures will
be made at the office of the indenture trustee in Wilmington, Delaware. However,
we have the option to make payment of any interest by (i) check mailed to the
address of the person entitled to payment at the address listed in the register
of holders of the debentures, or (ii) transfer to an account maintained by the
person entitled thereto as specified in the register of holders of the
debentures, provided that proper transfer instructions have been received by the
regular record date. Payment of any interest on debentures will be made to the
person in whose name the debenture is registered at the close of business on the
regular record date for the interest payment, except in the case of defaulted
interest. We may at any time designate additional paying agents for the
debentures or rescind the designation of any paying agent for the debentures.
However, we will at all times be required to maintain a paying agent in
Wilmington, Delaware, and each place of payment for the debentures.
Any moneys deposited with the indenture trustee or any paying agent for the
debentures, or then held by us in trust, for the payment of the principal of or
interest on the debentures and remaining unclaimed for two years after the
principal or interest has become due and payable, will be repaid to us on May 31
of each year. If we hold any of this money in trust, then it will be discharged
from the trust to us and the holder of the debenture will thereafter look, as a
general unsecured creditor, only to us for payment.
REGISTRAR AND TRANSFER AGENT
The indenture trustee will act as the registrar and the transfer agent for
the debentures. 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. Provided that we
maintain a transfer agent in Wilmington, Delaware, we may rescind the
designation of any transfer agent or approve a change in the location through
which any transfer agent acts. We may at any time designate additional transfer
agents with respect to the debentures.
In the event of any redemption, neither we nor the indenture trustee will
be required to (i) issue, register the transfer of or exchange debentures during
a period beginning at the opening of business 15 days before the day of
selection for redemption of 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 debentures so selected for redemption, except, in the case of any
debentures being redeemed in part, any portion not to be redeemed.
MODIFICATION OF INDENTURE
We and the indenture trustee may, from time to time without the consent of
the holders of the debentures, amend, waive or supplement the indenture for
purposes which do not materially adversely affect the rights of the holders of
the debentures. Other changes may be made by us and the indenture trustee with
the consent of the holders of a majority in principal amount of the outstanding
debentures. However, without the consent of the holder of each outstanding
debenture affected by the proposed modification, no modification may:
- extend the fixed maturity of the debentures;
- reduce the principal amount or the rate or extend the time of payment of
interest; or
- reduce the percentage of principal amount of debentures required to amend
the indenture.
As long as any of the trust preferred securities remain outstanding, no
modification may be made that requires the consent of the holders of the
debentures, no termination of the indenture may occur, and no waiver of any
event of default under the indenture may be effective, without the prior consent
of the holders of a majority of the aggregate liquidation amount of the trust
preferred securities.
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DEBENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following described
events with respect to the debentures that has occurred and is continuing
constitutes an event of default under the indenture:
- failure for 30 days to pay any interest on the debentures when due,
subject to deferral of any due date in the case of an extension period;
- failure to pay any principal on the debentures when due whether at
maturity, upon redemption by declaration or otherwise;
- failure to observe or perform in any material respect other covenants
contained in the indenture for 90 days after written notice to us from
the indenture trustee or the holders of at least 25% in aggregate
outstanding principal amount of the debentures; or
- our bankruptcy, insolvency or reorganization or dissolution of the trust.
The holders of a majority of the aggregate outstanding principal amount of
the debentures have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the indenture trustee. The indenture
trustee, or the holders of at least 25% in aggregate outstanding principal
amount of the debentures, may declare the principal due and payable immediately
upon an event of default under the indenture. The holders of a majority of the
outstanding principal amount of the debentures may annul the declaration and
waive the default if the default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration, has been deposited with the indenture trustee. The holders may not
annul the declaration and waive a default if the default is the non-payment of
the principal of the debentures which has become due solely by the acceleration.
Should the holders of the debentures fail to annul the declaration and waive the
default, the holders of at least 25% in aggregate liquidation amount of the
trust preferred securities will have this right.
If an event of default under the indenture has occurred and is continuing,
the property trustee will have the right to declare the principal of and the
interest on the 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 the debentures.
We are required to file annually with the indenture trustee a certificate
as to whether or not we are in compliance with all of the conditions and
covenants applicable to us under the indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE TRUST PREFERRED SECURITIES
If an event of default under the indenture has occurred and is continuing
and the event is attributable to our failure to pay interest on or principal of
the debentures on the payment date on which the payment is due and payable, then
a holder of trust preferred securities may initiate a direct action against us.
In connection with a direct action, we will have a right to counter the amount
of the direct action to the extent of any payment made by us to the holder of
trust preferred securities with respect to the direct action. We may not amend
the indenture to remove the foregoing right to bring a direct action without the
prior written consent of all of the holders of the trust preferred securities.
If the right to bring a direct action is removed, the trust may become subject
to the reporting obligations under the Securities Exchange Act of 1934.
The holders of the trust 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 debentures unless there has been an event of
default under the trust agreement. See "Description of the Trust Preferred
Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not consolidate with or merge into any other entity or convey or
transfer our properties and assets substantially as an entirety to any entity,
and no entity may be consolidated with or merged into us
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or sell, convey, transfer or otherwise dispose of its properties and assets
substantially as an entirety to us, unless:
- if we consolidate with or merge into another person or convey or transfer
our 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 the successor person expressly
assumes by supplemental indenture our obligations on the debentures, or
substitutes securities having substantially similar terms;
- immediately after giving effect, no event of default under the indenture,
and no event which, after notice or lapse of time, or both, would become
an event of default under the indenture, has occurred and is continuing;
and
- other conditions as prescribed in the indenture are met.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect and we will be deemed to
have satisfied and discharged the indenture when all debentures not previously
delivered to the indenture trustee for cancellation:
- have become due and payable, or
- will become due and payable at their stated maturity within one year or
are to be called for redemption within one year, and we deposit or cause
to be deposited with the indenture trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the debentures not previously delivered to the indenture
trustee for cancellation, for the principal and interest due to the date
of the deposit or to the stated maturity or redemption date, as the case
may be.
We may still be required to provide officers' certificates, opinions of
counsel and pay fees and expenses due after these events occur.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of Texas.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable indemnity by the holder against
the costs, expenses and liabilities which might be incurred. The indenture
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 indenture
trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
MISCELLANEOUS
We have agreed, pursuant to the indenture, for so long as trust preferred
securities remain outstanding:
- to maintain directly or indirectly 100% ownership of the common
securities of the trust except that certain successors that are permitted
pursuant to the indenture may succeed to our ownership of the common
securities;
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- not to voluntarily terminate, wind up or liquidate the trust without
prior approval of the Federal Reserve, if required;
- to use our reasonable efforts to cause the trust (a) to remain a business
trust (and to avoid involuntary termination, winding up or liquidation),
except in connection with a distribution of debentures, the redemption of
all of the trust securities of the trust or 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 federal income tax purposes; and
- to use our reasonable efforts to cause each holder of trust securities to
be treated as owning an individual beneficial interest in the debentures.
BOOK-ENTRY ISSUANCE
GENERAL
DTC will act as securities depositary for the trust preferred securities
and may act as securities depositary for all of the debentures in the event of
the distribution of the debentures to the holders of trust preferred securities.
Except as described, the trust preferred securities will be issued only as
registered securities in the name of Cede & Co. (DTC's nominee). One or more
global trust preferred securities will be issued for the trust preferred
securities and will be deposited with DTC.
DTC is a limited purpose trust company organized under New York banking
law, a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to indirect participants, such as securities brokers and dealers,
banks and trust companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly. The rules applicable to
DTC and its participants are on file with the SEC.
Purchases of trust preferred securities within the DTC system must be made
by or through direct participants, which will receive a credit for the trust
preferred securities on DTC's records. The ownership interest of each actual
purchaser of each trust preferred security ("beneficial owner") is in turn to be
recorded on the direct and indirect participant's records. Beneficial owners
will not receive written confirmation from DTC of their purchases, but
beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owners
purchased trust preferred securities. Transfers of ownership interests in the
trust preferred securities are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interest in trust
preferred securities, except if use of the book-entry system for the trust
preferred securities is discontinued.
DTC will have no knowledge of the actual beneficial owners of the trust
preferred securities; DTC's records reflect only the identity of the direct
participants to whose accounts the trust preferred securities are credited,
which may or may not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of their customers.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be accurate, but we and the
trust assume no responsibility for the accuracy thereof. Neither we nor the
trust have any responsibility for the performance by DTC or its participants of
their respective obligations as described in this prospectus or under the rules
and procedures governing their respective operations.
NOTICES AND VOTING
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the trust preferred securities. If less than all of the trust preferred
securities are being redeemed, the amount to be redeemed will be determined in
accordance with the trust agreement.
Although voting with respect to the trust preferred securities is limited
to the holders of record of the trust preferred securities, in those instances
in which a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to trust preferred securities. Under its usual procedures, DTC
would mail an omnibus proxy to the property trustee as soon as possible after
the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting
rights to those direct participants to whose accounts the trust preferred
securities are credited on the record date.
DISTRIBUTION FUNDS
The property trustee will make distribution payments on the trust preferred
securities to DTC. DTC's practice is to credit direct participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on the payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices and will be the
responsibility of the participant and not of DTC, the property trustee, the
trust or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the responsibility
of the property trustee, disbursement of the payments to direct participants is
the responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.
SUCCESSOR DEPOSITORIES AND TERMINATION OF BOOK-ENTRY SYSTEM
DTC may discontinue providing its services with respect to any of the trust
preferred securities at any time by giving reasonable notice to the property
trustee and us. If no successor securities depositary is obtained, definitive
trust preferred securities representing the trust preferred securities are
required to be printed and delivered. We also have the option to discontinue use
of the system of book-entry transfers through DTC (or a successor depositary).
After an event of default under the indenture, the holders of a majority in
liquidation amount of trust preferred securities may determine to discontinue
the system of book-entry transfers through DTC. In these events, definitive
certificates for the trust preferred securities will be printed and delivered.
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DESCRIPTION OF THE GUARANTEE
The trust preferred securities guarantee agreement will be executed and
delivered by us concurrently with the issuance of the trust preferred securities
for the benefit of the holders of the trust preferred securities. The guarantee
agreement will be qualified as an indenture under the Trust Indenture Act. First
Union, the guarantee trustee, will act as trustee for purposes of complying with
the provisions of the Trust Indenture Act, and will also hold the guarantee for
the benefit of the holders of the trust preferred securities. Prospective
investors are urged to read the form of the guarantee agreement, which has been
filed as an exhibit to the registration statement of which this prospectus forms
a part.
GENERAL
We agree to pay in full on a subordinated basis, to the extent described in
the guarantee agreement, the guarantee payments (as defined below) to the
holders of the trust preferred securities, as and when due, regardless of any
defense or counterclaim that the trust may have or assert other than the defense
of payment.
The following payments with respect to the trust preferred securities are
called the "guarantee payments" and, to the extent not paid or made by the trust
and to the extent that the trust has funds available for those distributions,
will be subject to the guarantee:
- any accumulated and unpaid distributions required to be paid on the trust
preferred securities;
- with respect to any trust preferred securities called for redemption, the
redemption price; and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the trust (other than in connection with the distribution of debentures
to the holders of trust preferred securities or a redemption of all of
the trust preferred securities), the lesser of:
(a) the amount of the liquidation distribution; or
(b) the amount of assets of the trust remaining available for distribution
to holders of trust preferred securities in liquidation of the trust.
We may satisfy our obligations to make a guarantee payment by making a direct
payment of the required amounts to the holders of the trust preferred securities
or by causing the trust to pay the amounts to the holders.
The guarantee agreement is a guarantee, on a subordinated basis, of the
guarantee payments, but the guarantee only applies to the extent the trust has
funds available for those distributions. If we do not make interest payments on
the debentures purchased by the trust, the trust will not have funds available
to make the distributions and will not pay distributions on the trust preferred
securities.
STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation that ranks junior in
right of payment to all of our senior and subordinated debt in the same manner
as the debentures. We expect to incur additional indebtedness in the future,
although we have no specific plans in this regard presently, and neither the
indenture nor the trust agreement limits the amounts of the obligations that we
may incur.
The guarantee constitutes a guarantee of payment and not of collection. If
we fail to make guarantee payments when required, holders of trust preferred
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
any other person or entity.
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
debentures to the holders of the trust preferred securities. Because we are a
holding company, our right to participate in any distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of
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creditors of that subsidiary, except to the extent we may be recognized as a
creditor of that subsidiary. Our obligations under the guarantee, therefore,
will be effectively subordinated to all existing and future liabilities of our
subsidiaries, and claimants should look only to our assets for payments under
the guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the trust preferred securities, in which case no vote
will be required, the guarantee may be amended only with the prior approval of
the holders of a majority of the aggregate liquidation amount of the outstanding
trust preferred securities. See "Description of the Trust Preferred
Securities -- Voting Rights; Amendment of Trust Agreement."
EVENTS OF DEFAULT; REMEDIES
An event of default under the guarantee agreement will occur upon our
failure to make any required guarantee payments or to perform any other
obligations under the guarantee. The holders of a majority in aggregate
liquidation amount of the trust 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 and may direct the exercise
of any power conferred upon the guarantee trustee under the guarantee agreement.
Any holder of trust preferred securities may initiate and prosecute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the trust, the guarantee trustee or
any other person or entity.
We are required to provide to the guarantee trustee annually a certificate
as to whether or not we are in compliance with all of the conditions and
covenants applicable to us under the guarantee agreement.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect upon:
- full payment of the redemption price of the trust preferred securities;
- full payment of the amounts payable upon liquidation of the trust; or
- distribution of the debentures to the holders of the trust preferred
securities.
If at any time any holder of the trust preferred securities must restore
payment of any sums paid under the trust preferred securities or the guarantee,
the guarantee will continue to be effective or will be reinstated with respect
to such amounts.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance of
our default in performance of the guarantee, undertakes to perform only those
duties as are specifically set forth in the guarantee. When an event of default
has occurred and is continuing, the guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to those 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 trust preferred securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
EXPENSE AGREEMENT
We will, pursuant to the Agreement as to Expenses and Liabilities entered
into by us and the trust under the trust 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
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than obligations of the trust to pay to the holders of the trust preferred
securities or other similar interests in the trust of the amounts due to the
holders pursuant to the terms of the trust preferred securities or other similar
interests, as the case may be. Third party creditors of the trust may proceed
directly against us under the expense agreement, regardless of whether they had
notice of the expense agreement.
GOVERNING LAW
The guarantee will be governed by the laws of the State of Texas.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee, as and to the extent described in this
prospectus, payments of distributions and other amounts due on the trust
preferred securities, to the extent the trust has funds available for the
payment of these amounts. We and the trust believe that, taken together, our
obligations under the debentures, the indenture, the trust agreement, the
expense agreement and the guarantee agreement provide, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of payment of
distributions and other amounts due on the trust preferred securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes a 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 trust
preferred securities.
If and to the extent that we do not make payments on the debentures, the
trust will not pay distributions or other amounts due on the trust preferred
securities. The guarantee does not cover payment of distributions when the trust
does not have sufficient funds to pay the distributions. In this event, the
remedy of a holder of trust preferred securities is to institute a legal
proceeding directly against us for enforcement of payment of the distributions
to the holder. Our obligations under the guarantee are subordinate and junior in
right of payment to all of our other indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
debentures, these payments will be sufficient to cover distributions and other
payments due on the trust preferred securities, primarily because:
- the aggregate principal amount of the debentures will be equal to the sum
of the aggregate stated liquidation amount of the trust securities;
- the interest rate and interest and other payment dates on the debentures
will match the distribution rate and distribution and other payment dates
for the trust preferred securities;
- we will pay for any and all costs, expenses and liabilities of the trust,
except the obligations of the trust to pay to holders of the trust
preferred securities the amounts due to the holders pursuant to the terms
of the trust preferred securities; and
- the trust will not engage in any activity that is not consistent with the
limited purposes of the trust.
ENFORCEMENT RIGHTS OF HOLDERS OF TRUST PREFERRED SECURITIES
A holder of any trust preferred security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person. A default or event of default under any of our senior or
subordinated debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, our senior or subordinated debt, the subordination provisions
of the indenture provide that no payments may be made in respect of the
debentures until the obligations have
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been paid in full or any payment default has been cured or waived. Failure to
make required payments on the debentures would constitute an event of default
under the trust agreement.
LIMITED PURPOSE OF THE TRUST
The trust preferred securities evidence preferred undivided beneficial
interests in the assets of the trust. The trust exists for the exclusive
purposes of issuing the trust securities, investing the proceeds thereof in
debentures and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of a
trust preferred security and the rights of a holder of a debenture is that a
holder of a debenture is entitled to receive from us the principal amount of and
interest accrued on debentures held, while a holder of trust preferred
securities is entitled to receive distributions from the trust (or from us under
the guarantee) if and to the extent the trust has funds available for the
payment of the distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the trust involving the liquidation of the debentures, the holders of the trust
preferred securities will be entitled to receive, out of assets held by the
trust, the liquidation distribution in cash. See "Description of the Trust
Preferred Securities -- Liquidation Distribution Upon Termination."
Upon our voluntary or involuntary liquidation or bankruptcy, the property
trustee, as holder of the debentures, would be a subordinated creditor of ours.
Therefore, the property trustee would be subordinated in right of payment to all
of our senior and subordinated debt, but is entitled to receive payment in full
of principal and interest before any of our stockholders receive payments or
distributions. Since we are the guarantor under the guarantee and have agreed to
pay for all costs, expenses and liabilities of the trust other than the
obligations of the trust to pay to holders of the trust preferred securities the
amounts due to the holders pursuant to the terms of the trust preferred
securities, the positions of a holder of the trust preferred securities and a
holder of the debentures relative to our other creditors and to our shareholders
in the event of liquidation or bankruptcy are expected to be substantially the
same.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of the material federal income tax considerations
that may be relevant to the purchasers of trust preferred securities represents
the opinion of Bracewell & Patterson, L.L.P., counsel to us and the trust
insofar as it relates to matters of law and legal conclusions. The conclusions
expressed herein are based upon current provisions of the Internal Revenue Code
of 1986, regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change at any time, with possible
retroactive effect. Subsequent changes may cause tax consequences to vary
substantially from the consequences described below. Furthermore, the
authorities on which the following summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of trust preferred
securities may differ from the treatment described below. In rendering its
opinion, Bracewell & Patterson, L.L.P. has not sought a ruling from the Internal
Revenue Service as to any tax consequences, and its opinion is not binding on
the Internal Revenue Service.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting purchasers of trust preferred securities.
Moreover, the discussion generally focuses on holders of trust preferred
securities who are individual citizens or residents of the United States and who
acquire trust preferred securities on their original issue at their offering
price and hold trust preferred securities 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 trust 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 trust
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 trust
preferred securities. Accordingly, each prospective investor should consult, and
should rely exclusively on, the investor's own tax advisors in analyzing the
federal, state, local and foreign tax consequences of the purchase, ownership or
disposition of trust preferred securities.
CLASSIFICATION OF THE DEBENTURES
In accordance with the opinion of Bracewell & Patterson, L.L.P., we intend
to take the position that the debentures will be classified for federal income
tax purposes as our indebtedness under current law, and, by acceptance of a
trust preferred security, each holder covenants to treat the debentures as
indebtedness and the trust preferred securities as evidence of an indirect
beneficial ownership interest in the debentures. No assurance can be given,
however, that this position will not be challenged by the Internal Revenue
Service or, if challenged, that it will not be successful. The remainder of this
discussion assumes that the debentures will be classified for federal income tax
purposes as our indebtedness.
CLASSIFICATION OF THE TRUST
With respect to the trust preferred securities, Bracewell & Patterson,
L.L.P. has rendered its opinion generally to the effect that, assuming full
compliance with the terms of the trust agreement and indenture, the trust will
be classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for federal income tax
purposes, each holder of trust preferred securities generally will be treated as
owning an undivided beneficial interest in the debentures, and each holder will
be required to include in its gross income any interest with respect to the
debentures at the time such interest is accrued or is received, in accordance
with the holder's method of accounting. If the
97
<PAGE> 102
debentures were determined to be subject to the original issue discount ("OID")
rules, each holder would instead be required to include in its gross income any
OID accrued with respect to its allocable share of the debentures whether or not
cash were actually distributed to the holder.
INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
United States persons (including cash basis taxpayers) that hold debt
instruments issued with OID must generally include such OID in income as it
accrues on a constant yield method even if there is not a corresponding receipt
of cash attributable to such income. Debt instruments such as the debentures
will generally be treated as issued with OID if the stated interest on the
instrument does not constitute "qualified stated interest." Qualified stated
interest is generally any one of a series of stated interest payments on an
instrument that are unconditionally payable at least annually at a single fixed
rate. In determining whether stated interest on an instrument is unconditionally
payable and thus constitutes qualified stated interest, remote contingencies as
to the timely payment of stated interest are ignored. In the case of the
debentures, we have concluded that the likelihood of exercising our option to
defer payments of interest is remote.
If the option to defer any payment of interest was determined not to be
"remote" or if we actually exercise our option to defer the payment of interest,
the debentures would be treated as issued with OID at the time of issuance or at
the time of such exercise, as the case may be, and all stated interest would
thereafter be treated as OID as long as the debentures remained outstanding. In
such event, all of a United States person's taxable interest income in respect
of the debentures would constitute OID that would have to be included in income
on a constant yield method before the receipt of the cash attributable to such
income, regardless of such person's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a holder of trust preferred securities would be required to
include such OID in gross income even though we would not make any actual cash
payments during an extension period.
Because income on the trust preferred securities will constitute interest,
corporate holders of trust preferred securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the trust preferred securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of trust preferred securities other than holders who purchased the
trust preferred securities upon original issuance may be considered to have
acquired their undivided interests in the debentures with "market discount" or
"acquisition premium" as these phrases are defined for 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
trust preferred securities.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under "Description of the Trust Preferred
Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of trust preferred
securities upon a liquidation of the trust. Under current federal income tax
law, such a distribution would be treated as a nontaxable event to the holder
and would result in the holder having an aggregate tax basis in the debentures
received in the liquidation equal to the holder's aggregate tax basis in the
trust preferred securities immediately before the distribution. A holder's
holding period in debentures received in liquidation of the trust would include
the period for which the holder held the trust 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 trust preferred securities. Under
certain circumstances described herein, the debentures may be redeemed for cash
and the proceeds of the redemption distributed to holders in redemption of their
trust preferred securities. Under current law, such a redemption should, to the
extent that it constitutes a complete redemption,
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<PAGE> 103
constitute a taxable disposition of the redeemed trust preferred securities, and
a holder for federal income tax purposes, should recognize gain or loss as if
the holder sold the trust preferred securities for cash.
DISPOSITION OF TRUST PREFERRED SECURITIES
A holder that sells trust preferred securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the trust
preferred securities and the holder's adjusted tax basis in the trust preferred
securities. A holder's adjusted tax basis in the trust preferred securities
generally will be its initial purchase price increased by OID previously
includible in the holder's gross income to the date of disposition and decreased
by payments received on the trust preferred securities to the date of
disposition. A gain or loss of this kind will generally be a capital gain or
loss and will be a long-term capital gain or loss if the trust preferred
securities have been held for more than one year at the time of sale.
The trust preferred securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying debentures. A holder that disposes of its trust preferred securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the debentures through the date of
disposition in income as ordinary income, and to add the amount to its adjusted
tax basis in its proportionate share of the underlying debentures deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis a holder will recognize a capital loss. The adjusted basis would
include, in the form of OID, all accrued but unpaid interest. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for federal income tax purposes.
EFFECT OF POSSIBLE CHANGES IN TAX LAWS
Congress and the Clinton Administration have considered certain proposed
tax law changes in the past that would, among other things, generally deny
corporate issuers a deduction for interest in respect of certain debt
obligations if the debt obligations have a maximum term in excess of 15 years
and are not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Other proposed tax law changes would have denied interest
deductions if the term was in excess of 20 years. Although these proposed tax
law changes have not been enacted into law, there can be no assurance that tax
law changes will not be reintroduced into future legislation which, if enacted
after the date hereof, may adversely affect the federal income tax deductibility
of interest payable on the debentures. Accordingly, there can be no assurance
that a Tax Event will not occur. A Tax Event would permit us, upon approval of
the Federal Reserve if then required, to cause a redemption of the trust
preferred securities before, as well as after, , 2004. See
"Description of the Debentures -- Redemption or Exchange" and "Description of
the Trust Preferred Securities -- Redemption or Exchange -- Redemption upon a
Tax Event, Investment Company Event or Capital Treatment Event."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of qualified stated interest, or, if applicable, OID, accrued on
the trust 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 Internal Revenue Service on Forms 1099-INT, or, where
applicable, forms 1099-OID, which forms should be mailed to the holders by
January 31 following each calendar year. Payments made on, and proceeds from the
sale of, the trust 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 allowed as a credit against the holder's federal income tax liability,
provided the required information is provided to the Internal Revenue Service.
THE 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 TRUST PREFERRED SECURITIES. HOLDERS OF TRUST PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES,
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<PAGE> 104
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, or Section 4975 of the Internal Revenue Code, generally
may purchase trust preferred securities, subject to the investing fiduciary's
determination that the investment in trust preferred securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the plan.
In any case, we and/or any of our affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Internal Revenue Code) with respect to certain
plans. These plans generally include plans maintained or sponsored by, or
contributed to by, any such persons with respect to which we or any of our
affiliates are a fiduciary or plans for which we or any of our affiliates
provide services. The acquisition and ownership of trust preferred securities by
a plan (or by an individual retirement arrangement or other plans described in
Section 4975(e)(1) of the Internal Revenue Code) with respect to which we or any
of our affiliates are considered a party in interest or a disqualified person
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Internal Revenue Code, unless the trust preferred securities are acquired
pursuant to and in accordance with an applicable exemption.
As a result, plans with respect to which we or any of our affiliates or any
of its affiliates is a party in interest or a disqualified person should not
acquire trust preferred securities unless the trust preferred securities are
acquired pursuant to and in accordance with an applicable exemption. Any other
plans or other entities whose assets include plan assets subject to ERISA or
Section 4975 of the Internal Revenue Code proposing to acquire trust preferred
securities should consult with their own counsel.
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<PAGE> 105
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among us,
the trust and the underwriters listed on the table below for whom Howe Barnes
Investments, Inc. is acting as representative, the underwriters have severally
agreed to purchase from the trust an aggregate of 1,100,000 trust preferred
securities in the amounts set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF TRUST
UNDERWRITERS PREFERRED SECURITIES
- ------------ --------------------
<S> <C>
Howe Barnes Investments, Inc. .......................
---------
Total...................................... 1,200,000
=========
</TABLE>
The underwriting agreement requires the underwriters to accept and pay for
all of the trust preferred securities, if any are taken. In addition, the
underwriting agreement sets forth customary conditions that must be satisfied on
the part of us and the trust before the underwriters are obligated to purchase
the trust preferred securities. These conditions include the accuracy of
specific representations and warranties and the receipt of opinions of counsel
and reports from accountants as to our status and the status of the trust and
the trust preferred securities.
The table below shows the price and proceeds on a per security and
aggregate basis:
<TABLE>
<CAPTION>
PER TRUST
PREFERRED SECURITY TOTAL
------------------ -----------
<S> <C> <C>
Public offering price.................................... $10.00 $12,000,000
Underwriting fees to be paid by Prosperity Bancshares,
Inc. .................................................. $ $
Proceeds to the trust.................................... $10.00 $12,000,000
</TABLE>
The proceeds we will receive as shown in the table above do not reflect
estimated expenses of $135,000 payable by us.
All of the proceeds to the trust will be used to purchase the debentures
from us. We have agreed to pay the underwriters % of the public offering
price per trust preferred security, as compensation for arranging the investment
in the debentures. An aggregate of $ will be paid to the underwriters
for arranging the investment in the debentures.
The underwriters propose to offer the trust preferred securities in part
directly to the public at the initial public offering price set forth above, and
in part to securities dealers at this price less a concession not in excess of
$ per trust preferred security. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per trust
preferred security to brokers and dealers. After the trust preferred securities
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the underwriters.
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<PAGE> 106
We and the trust have agreed to indemnify the several underwriters against
several liabilities, including liabilities under the Securities Act of 1933.
Generally, the indemnification provisions in the underwriting agreement provide
for full indemnification of the underwriters in actions related to the
disclosure in this prospectus unless such disclosure was provided by the
underwriters specifically for use in this prospectus.
In connection with the offering, the underwriters may purchase and sell the
trust preferred securities in the open market. These transactions may include
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the trust preferred securities; and syndicate short positions
involve the sale by the underwriters of a greater number of securities than they
are required to purchase from us in the offering. The underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the securities sold in the offering for
their own account may be reclaimed by the syndicate if the trust preferred
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the trust preferred securities, which may be higher than the
price that might otherwise prevail in the open market. These activities, if
commenced, may be discontinued at any time. These transactions may be effected
in the over-the-counter market or otherwise.
The underwriters have advised the trust that they do not intend to confirm
any sales of trust preferred securities to any discretionary accounts. In
connection with the offer and sale of the trust preferred securities, the
underwriters will comply with Rule 2810 under the NASD Conduct Rules.
LEGAL MATTERS
Certain legal matters, including matters relating to federal income tax
considerations, for us and the trust will be passed upon by Bracewell &
Patterson, L.L.P., Houston, Texas, counsel to us and the trust. Certain legal
matters will be passed upon for the underwriters by Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, Chicago, Illinois. Bracewell & Patterson, L.L.P. and Barack
Ferrazzano Kirschbaum Perlman & Nagelberg may rely on the opinion of Richards,
Layton & Finger, P.A., Wilmington, Delaware, as to matters of Delaware law.
EXPERTS
The consolidated financial statements of Prosperity as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998,
included in this prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon such report given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND INFORMATION
This prospectus is a part of a Registration Statement on Form S-1 filed by
Prosperity and the trust with the Securities and Exchange Commission under the
Securities Act, with respect to the trust preferred securities, the debentures
and the guarantee. This prospectus does not contain all the information set
forth in the registration statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to Prosperity and the securities offered by this prospectus,
reference is made to the registration statement, including the exhibits to the
registration statement. Statements contained in this prospectus concerning the
provisions of such documents are necessarily summaries of such documents and
each such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Securities and Exchange Commission.
We file periodic reports, proxy statements and other information with the
SEC. Our filings are available to the public over the Internet at the SEC's web
site. The address of that site is
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<PAGE> 107
http://www.sec.gov. You may also inspect and copy these materials at the public
reference facilities of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, as well as at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 75 Park Place, Room 1400, New York, New York 10007.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information.
The trust is not currently subject to the information reporting
requirements of the Securities Exchange Act of 1934 and although the trust will
become subject to such requirements upon the effectiveness of the Registration
Statement, it is not expected that the trust will be required to file separate
reports under the Securities Exchange Act of 1934.
We have not included separate financial statements of the trust in this
prospectus. We do not consider that separate financial statements would be
material to holders of trust preferred securities because we will own all of the
trust's voting securities, the trust has no independent operations and we
guarantee the payments on the trust preferred securities to the extent described
in this prospectus.
103
<PAGE> 108
TABLE OF CONTENTS TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 and 1997............................ F-3
Consolidated Statements of Income for the Six Months Ended
June 30, 1999 (Unaudited) and June 30, 1998 (Unaudited)
and for the Years Ended December 31, 1998, 1997 and
1996...................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996 and
for the Six Months Ended June 30, 1999 (Unaudited)........ F-5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 (Unaudited) and June 30, 1998
(Unaudited) and for the Years Ended December 31, 1998,
1997 and 1996............................................. F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Prosperity Bancshares, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Prosperity
Bancshares, Inc. and subsidiaries (collectively, the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Prosperity Bancshares, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 18, 1999
Houston, Texas
F-2
<PAGE> 110
PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
----------- -------------------
1999 1998 1997
----------- -------- --------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks (Note 3)............................ $ 12,511 $ 18,243 $ 17,372
Interest-bearing deposits in financial institutions......... -- 99 198
Available for sale securities, at fair value (amortized cost
of $140,085 (unaudited), $113,300 and $38,650
respectively) (Note 4).................................. 138,170 113,828 38,612
Held to maturity securities, at cost (fair value of $83,577
(unaudited), $115,021 and $129,774 respectively) (Note
4)...................................................... 83,511 113,916 129,256
Loans (Notes 5 and 6)....................................... 188,034 170,478 120,578
Less allowance for credit losses (Note 7)................... (2,013) (1,850) (1,016)
-------- -------- --------
Loans, net......................................... 186,021 168,628 119,562
Accrued interest receivable................................. 4,316 3,990 2,501
Goodwill, net of accumulated amortization of $3,400
(unaudited), $3,077 and $2,577, respectively............ 9,366 9,690 5,644
Bank premises and equipment, net (Note 8)................... 6,054 6,105 5,530
Other assets................................................ 2,825 1,813 1,468
-------- -------- --------
TOTAL....................................................... $442,774 $436,312 $320,143
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 9):
Noninterest-bearing................................ $ 80,846 $ 84,976 $ 61,447
Interest-bearing................................... 317,533 305,683 230,069
-------- -------- --------
Total deposits................................. 398,379 390,659 291,516
Other borrowings (Note 10).............................. 570 2,437 2,800
Accrued interest payable................................ 978 1,081 709
Other liabilities....................................... 619 700 300
-------- -------- --------
Total liabilities.............................. 400,546 394,877 295,325
COMMITMENTS AND CONTINGENCIES
(Note 12 and 16)
SHAREHOLDERS' EQUITY (Notes 14, 17, and 18):
Common stock, $1 par value; 50,000,000 shares
authorized; 5,198,901 (unaudited), 5,176,401 and
3,993,884, shares issued at June 30, 1999, December
31, 1998 and 1997, respectively; 5,195,325
(unaudited), 5,172,825 and 3,990,308 shares
outstanding at June 30, 1999, December 31, 1998 and
1997, respectively................................. 5,199 5,176 3,993
Capital surplus......................................... 16,441 16,477 4,818
Retained earnings....................................... 21,870 19,452 16,049
Accumulated other comprehensive income -- net unrealized
gains (losses) on available for sale securities,
net of tax benefit of $651, (unaudited) and tax of
$179 and $13, respectively......................... (1,264) 348 (24)
Less treasury stock, at cost, 3,576 (unaudited), 3,576
and 3,576 shares, respectively..................... (18) (18) (18)
-------- -------- --------
Total shareholders' equity..................... 42,228 41,435 24,818
-------- -------- --------
TOTAL....................................................... $442,774 $436,312 $320,143
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 111
PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months For the Years Ended
Ended June 30, December 31,
------------------ -----------------------------
1999 1998 1998 1997 1996
------- ------- ------- ------- -------
(Unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees..................... $ 7,456 $ 5,568 $12,282 $10,206 $ 9,136
Securities:
Taxable.............................. 6,211 4,841 10,152 8,950 6,648
Nontaxable........................... 464 295 682 605 723
Federal funds sold........................ 422 127 299 193 310
Deposits in financial institutions........ -- 5 7 16 24
------- ------- ------- ------- -------
Total interest income........... 14,553 10,836 23,422 19,970 16,841
------- ------- ------- ------- -------
INTEREST EXPENSE:
Deposits.................................. 6,123 4,647 9,993 8,858 7,720
Note payable and federal funds
purchased.............................. -- -- 24 132 203
Other..................................... 7 69 111 70 --
------- ------- ------- ------- -------
Total interest expense.......... 6,130 4,716 10,128 9,060 7,923
------- ------- ------- ------- -------
NET INTEREST INCOME........................... 8,423 6,120 13,294 10,910 8,918
PROVISION FOR CREDIT LOSSES (Note 7).......... 130 145 239 190 230
------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES......................... 8,293 5,975 13,055 10,720 8,688
------- ------- ------- ------- -------
NONINTEREST INCOME:
Customer service fees..................... 1,241 1,074 2,173 2,062 1,742
Other..................................... 205 199 319 202 155
------- ------- ------- ------- -------
Total noninterest income........ 1,446 1,273 2,492 2,264 1,897
------- ------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits (Note
15).................................... 2,820 2,115 4,541 3,968 3,415
Net occupancy expense..................... 437 367 768 811 710
Data processing........................... 417 369 807 642 493
Goodwill amortization..................... 323 235 500 402 257
Depreciation expense...................... 175 136 290 431 367
Other..................................... 1,265 1,030 2,152 1,582 1,392
------- ------- ------- ------- -------
Total noninterest expense....... 5,435 4,252 9,058 7,836 6,634
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES.................... 4,304 2,996 6,489 5,148 3,951
PROVISION FOR INCOME TAXES (Note 13).......... 1,367 939 2,029 1,586 1,240
------- ------- ------- ------- -------
NET INCOME.................................... $ 2,937 $ 2,057 $ 4,460 $ 3,562 $ 2,711
======= ======= ======= ======= =======
EARNINGS PER SHARE (Note 1):
Basic..................................... $ 0.57 $ 0.52 $ 1.08 $ 0.94 $ 0.77
======= ======= ======= ======= =======
Diluted................................... $ 0.55 $ 0.50 $ 1.04 $ 0.92 $ 0.76
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 112
PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income -- Net
Unrealized Loss
Common Stock on Available Total
------------------ Capital Retained for Sale Treasury Shareholders'
Shares Amount Surplus Earnings Securities Stock Equity
--------- ------ ------- -------- --------------- -------- -------------
(Amounts in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............. 3,513,884 $3,513 $ 2,298 $10,701 $ (55) $ 16,457
Net income..................... 2,711 2,711
Net change in unrealized loss
on available for sale
securities................. 35 35
--------
Total comprehensive income..... 2,745
--------
Purchase of treasury stock..... $(19) (19)
Cash dividends declared, $0.10
per share.................. (351) (351)
--------- ------ ------- ------- ------- ---- --------
BALANCE AT DECEMBER 31, 1996........... 3,513,884 3,513 2,298 13,061 (20) (19) 18,833
Net income..................... 3,562 3,562
Net change in unrealized loss
on available for sale
securities................. (4) (4)
--------
Total comprehensive income..... 3,558
--------
Sale of treasury stock......... 1 1
Issuance of common stock....... 480,000 480 2,520 3,000
Cash dividends declared, $0.15
per share.................. (574) (574)
--------- ------ ------- ------- ------- ---- --------
BALANCE AT DECEMBER 31, 1997........... 3,993,884 3,993 4,818 16,049 (24) (18) 24,818
Net income..................... 4,460 4,460
Net change in unrealized loss
on available for sale
securities................. 372 372
--------
Total comprehensive income..... 4,832
--------
Sale of common stock........... 1,182,517 1,183 11,659 12,841
Cash dividends declared, $0.20
per share.................. (1,057) (1,057)
--------- ------ ------- ------- ------- ---- --------
BALANCE AT DECEMBER 31, 1998........... 5,176,401 5,176 16,477 19,452 348 (18) 41,435
Net income (unaudited)......... 2,937 2,937
Net change in unrealized gain
(loss) on available for
sale securities
(unaudited)................ (1,612) (1,612)
--------
Total comprehensive income
(unaudited)................ 1,325
--------
Sale of common stock
(unaudited)................ 22,500 23 76 99
Stock issuance cost
(unaudited)................ (112) (112)
Cash dividends declared, $0.10
per share (unaudited)...... (519) (519)
--------- ------ ------- ------- ------- ---- --------
BALANCE AT JUNE 30, 1999 (UNAUDITED)... 5,198,901 $5,199 $16,441 $21,870 $(1,264) $(18) $ 42,228
========= ====== ======= ======= ======= ==== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 113
PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
June 30, December 31,
------------------------ ------------------------------
1999 1998 1998 1997 1996
--------- --------- -------- -------- --------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 2,937 $ 2,057 $ 4,460 $ 3,562 $ 2,711
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 628 488 1,023 833 624
Provision for credit losses................. 130 145 239 190 230
Net amortization of premium/discount on
investments............................. 153 79 236 340 285
Loss on sale of real estate acquired by
foreclosure............................. -- 2 2 2 --
Increase in accrued interest receivable..... (326) (502) (624) (297) (126)
(Increase) in other assets.................. (361) (162) (180) (396) (222)
(Decrease) increase in accrued interest
payable and other liabilities........... (7) 93 217 (80) (138)
-------- -------- -------- -------- --------
Total adjustments....................... 217 143 913 592 653
-------- -------- -------- -------- --------
Net cash provided by operating
activities......................... 3,154 2,200 5,373 4,154 3,364
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal paydowns
of held to maturity securities.............. 30,653 26,924 54,725 35,405 23,334
Purchase of held to maturity securities.......... (282) (11,814) (15,983) (66,766) (39,744)
Proceeds from sales of available for sale
securities..................................
Proceeds from maturities and principal paydowns
of available for sale securities............ 9,548 17,584 24,109 14,206 12,061
Purchase of available for sale securities........ (36,352) (23,586) (81,729) (3,497) (25,942)
Net increase in loans............................ (17,523) (20,486) (28,433) (7,482) (14,189)
Net proceeds from sale of real estate acquired by
foreclosure................................. (253) (176) 38 187 --
Purchase of bank premises and equipment.......... (343) (743) (364)
Proceeds from sale of bank premises and
equipment................................... -- 40 -- -- 4
Net decrease (increase) in interest-bearing
deposits in financial institutions.......... 99 99 99 198 (198)
Premium paid for Angleton branch................. -- -- -- (1,990) --
Net liabilities acquired in purchase of Angleton
branch (net of acquired cash of $565)....... -- -- -- 28,647 --
Premium paid for Bay City branch................. -- -- -- -- (1,750)
Net liabilities acquired in purchase of Bay City
branch (net of acquired cash of $492)....... -- -- -- -- 27,542
Premium paid for West Columbia branch............ -- (250) (250) -- --
Net liabilities acquired in purchase of West
Columbia branch (net of acquired cash of
$84)........................................ -- 5,799 5,799 -- --
Premium paid for East Bernard branch............. -- -- (4,297) -- --
Net liabilities acquired in purchase of East
Bernard branch (net of acquired cash of
$16,602).................................... -- -- 3,134 -- --
-------- -------- -------- -------- --------
Net cash (used in) investing activities..... (14,308) (5,866) (43,131) (1,835) (19,246)
-------- -------- -------- -------- --------
</TABLE>
(Table continued on following page)
F-6
<PAGE> 114
PROSPERITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
June 30, December 31,
------------------------ ---------------------------
1999 1998 1998 1997 1996
--------- --------- ------- ------- -------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in
noninterest-bearing deposits.... $(4,130) $ 6,892 $13,881 $ 1,210 $ 5,212
Net increase (decrease) in
interest-bearing deposits....... 11,850 3,530 13,328 (9,861) 12,455
Proceeds from line of credit......... -- -- 2,000 3,266
Repayments of line of credit......... (1,865) -- (2,000) (3,266) (1,517)
Proceeds from other borrowings,
net............................. -- -- -- -- --
Repayments of other borrowings,
net............................. -- (2,800) (365) 2,800 --
Proceeds from the issuance of common
stock........................... 99 -- 12,842 3,000 --
Stock issuance costs................. (112) -- -- -- --
Purchase of treasury stock........... -- -- -- -- (19)
Sale of treasury stock............... -- -- -- 1
Payments of cash dividends........... (519) (399) (1,057) (575) (351)
------- ------- ------- ------- -------
Net cash (used in) provided
by financing
activities............ 5,323 7,223 38,629 (6,691) 19,046
------- ------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.......................... $(5,831) $ 3,557 $ 871 $(4,372) $ 3,164
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD............................... 18,342 17,372 17,372 21,744 18,580
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $12,511 $20,929 $18,243 $17,372 $21,744
======= ======= ======= ======= =======
INCOME TAXES PAID......................... $ 1,399 $ 946 $ 1,882 $ 1,681 $ 1,111
======= ======= ======= ======= =======
INTEREST PAID............................. $ 6,232 $ 4,699 $ 9,755 $ 9,039 $ 7,849
======= ======= ======= ======= =======
NONCASH INVESTING ACTIVITIES:
The Company acquired certain real estate
through foreclosure of collateral on
loans totaling approximately $140,
$189, and $0 during the years ended
December 31, 1998, 1997, and 1996,
respectively.
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 115
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES
NATURE OF OPERATIONS -- Prosperity Bancshares, Inc. ("Bancshares") and its
subsidiaries, Prosperity Holdings, Inc. ("Holdings") and First Prosperity Bank
(the "Bank") (collectively referred to as the "Company") provide retail and
commercial banking services.
The Bank operates twelve branch banking offices in South Central Texas, with
three locations in Houston and nine locations south, southeast and southwest of
Houston in Angleton, Bay City, Cuero, East Bernard, Edna, El Campo, West
Columbia and Victoria.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Bancshares and its wholly owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation. The accounting
and reporting policies of the Company conform to generally accepted accounting
principles ("GAAP") and the prevailing practices within the banking industry. A
summary of significant accounting and reporting policies is as follows:
USE OF ESTIMATES -- The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
SECURITIES -- Securities held to maturity are carried at cost, adjusted for the
amortization of premiums and the accretion of discounts. Management has the
positive intent and the Company has the ability to hold these assets as
long-term securities until their estimated maturities. Under certain
circumstances (including the deterioration of the issuer's creditworthiness or a
change in tax law or statutory or regulatory requirements), securities may be
sold or transferred to another portfolio.
Securities available for sale are carried at fair value. Unrealized gains and
losses are excluded from earnings and reported, net of tax, as a separate
component of shareholders' equity until realized. Securities within the
available for sale portfolio may be used as part of the Company's
asset/liability strategy and may be sold in response to changes in interest
risk, prepayment risk or other similar economic factors.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary would result in
write-downs of the individual securities to their fair value. The related
write-downs would be included in earnings as realized losses.
Premiums and discounts are amortized and accreted to operations using the
level-yield method of accounting, adjusted for prepayments as applicable. The
specific identification method of accounting is used to compute gains or losses
on the sales of these assets. Interest earned on these assets is included in
interest income.
LOANS -- Loans are stated at the principal amount outstanding, net of unearned
discount and fees. Unearned discount relates principally to consumer installment
loans. The related interest income for multipayment loans is recognized
principally by the "sum of the digits" method which records interest in
proportion to the declining outstanding balances of the loans; for single
payment loans, such income is recognized using the straight-line method.
Effective January 1, 1995, the Company adopted 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 Disclosure." SFAS No. 114 applies to all
impaired loans, with the exception of groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment. A loan is defined as
impaired by SFAS No. 114 if, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due, both
interest and principal, according to the contractual terms of the loan
agreement. Specifically, SFAS No. 114 requires that the allowance for credit
losses related to impaired loans be determined based on the difference of
carrying
F-8
<PAGE> 116
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of loans and the present value of expected cash flows discounted at the
loan's effective interest rate or, as a practical expedient, the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Prior to the adoption of SFAS No. 114, the Company's
methodology for determining the adequacy of the allowance for credit losses did
not incorporate the concept of the time value of money and the expected future
interest cash flow.
As permitted by SFAS No. 118, interest revenue received on impaired loans
continues to be either applied against principal or realized as interest
revenue, according to management's judgment as to the collectibility of
principal. Adoption of these pronouncements, SFAS Nos. 114 and 118, had no
impact on the Company's consolidated financial statements including the level of
the allowance for credit losses.
OTHER REAL ESTATE -- Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at the lesser of
the outstanding loan balance or the fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in the net gain/loss and
carrying costs of other real estate.
NONREFUNDABLE FEES AND COSTS ASSOCIATED WITH LENDING ACTIVITIES -- Loan
origination fees are recognized over the life of the related loan as an
adjustment to yield using the interest method.
Generally, loan commitment fees are deferred, except for certain retrospectively
determined fees, and recognized as an adjustment of yield by the interest method
over the related loan life or, if the commitment expires unexercised, recognized
in income upon expiration of the commitment.
NONPERFORMING LOANS AND PAST DUE LOANS -- Included in the nonperforming
loan category are loans which have been categorized by management as nonaccrual
because collection of interest is doubtful and loans which have been
restructured to provide a reduction in the interest rate or a deferral of
interest or principal payments. When the payment of principal or interest on a
loan is delinquent for 90 days, or earlier in some cases, the loan is placed on
nonaccrual status unless the loan is in the process of collection and the
underlying collateral fully supports the carrying value of the loan. If the
decision is made to continue accruing interest on the loan, periodic reviews are
made to confirm the accruing status of the loan. When a loan is placed on
nonaccrual status, interest accrued during the current year prior to the
judgment of uncollectibility is charged to operations. Interest accrued during
prior periods is charged to allowance for credit losses. Generally, any payments
received on nonaccrual loans are applied first to outstanding loan amounts and
next to the recovery of charged-off loan amounts. Any excess is treated as
recovery of lost interest.
Restructured loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.
ALLOWANCE FOR CREDIT LOSSES -- The allowance for credit losses is a
valuation allowance available for losses incurred on loans. All losses are
charged to the allowance when the loss actually occurs or when a determination
is made that such a loss is probable. Recoveries are credited to the allowance
at the time of recovery.
Throughout the year, management estimates the probable level of losses to
determine whether the allowance for credit losses is adequate to absorb losses
in the existing portfolio. Based on these estimates, an amount is charged to the
provision for credit losses and credited to the allowance for credit losses in
order to adjust the allowance to a level determined to be adequate to absorb
losses.
Management's judgment as to the level of losses on existing loans involves
the consideration of current and anticipated economic conditions and their
potential effects on specific borrowers; an evaluation of the existing
relationships among loans, probable credit losses and the present level of the
allowance; results of examinations of the loan portfolio by regulatory agencies;
and management's internal review of the loan
F-9
<PAGE> 117
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portfolio. In determining the collectibility of certain loans, management also
considers the fair value of any underlying collateral. The amounts ultimately
realized may differ from the carrying value of these assets because of economic,
operating or other conditions beyond the Company's control.
Estimates of credit losses involve an exercise of judgment. While it is
possible that in the short term the Company may sustain losses which are
substantial in relation to the allowance for credit losses, it is the judgment
of management that the allowance for credit losses reflected in the consolidated
balance sheets is adequate to absorb probable losses that exist in the current
loan portfolio.
PREMISES AND EQUIPMENT -- Premises and equipment are carried at cost less
accumulated depreciation. Depreciation expense is computed principally using the
straight-line method over the estimated useful lives of the assets which range
from three to 30 years.
AMORTIZATION OF GOODWILL -- Goodwill is amortized using the straight-line
method over a period of 15 to 25 years. Goodwill is periodically assessed for
impairment.
INCOME TAXES -- Bancshares files a consolidated federal income tax return.
The Bank computes federal income taxes as if it filed a separate return and
remits to, or is reimbursed by, Bancshares based on the portion of taxes
currently due or refundable.
Deferred tax assets and liabilities are recognized for the estimated tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
STOCK-BASED COMPENSATION -- The Company accounts for its employee stock
options using the intrinsic value-based method and makes pro forma disclosures
of net income and earnings per share using the fair value-based method (Note
14).
STATEMENTS OF CASH FLOWS -- For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks as well as federal funds sold
that mature in three days or less.
RECLASSIFICATIONS -- Certain reclassifications have been made to 1997 and
1996 balances to conform to the current year presentation. All reclassifications
have been applied consistently for the periods presented.
EARNINGS PER SHARE -- SFAS No. 128, "Earnings Per Share," requires
presentation of basic and diluted earnings per share. Basic earnings per share
has been computed by dividing net income available to common shareholders by the
weighted average number of common shares outstanding for the reporting period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Net income per common share for all periods presented has
been calculated in accordance with SFAS 128. Outstanding stock options issued by
the Company represent the only dilutive effect reflected in diluted weighted
average shares.
F-10
<PAGE> 118
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table illustrates the computation of basic and diluted
earnings per share after effect of stock split (Note 17):
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------- ---------------------------------------------------
1999 1998 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
Per Per Per Per Per
Share Share Share Share Share
Amount Amount Amount Amount Amount Amount Amount Amount Amount Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.................. $2,937 $2,057 $4,460 $3,562 $2,711
Basic --
Weighted average shares
outstanding......... 5,177... $0.57 3,990 $0.52 4,116 $1.08 3,778 $0.94 3,513 $0.77
===== ===== ===== ===== =====
Diluted:
Weighted average shares
outstanding......... 5,177 3,990 4,116 3,778 3,513
Effect of dilutive
securities -- options... 200 90 193 86 47
------ ------ ------ ------ ------
Total................... $5,377 $0.55 $4,080 $0.50 $4,309 $1.04 $3,864 $0.92 $3,560 $0.76
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS -- Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" requires that all
components of comprehensive income and total comprehensive income be reported on
one of the following: (1) the statement of income, (2) the statement of
stockholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners (changes in paid-in capital)
and distributions to owners (dividends). The Company adopted this statement
effective January 1, 1998 and has elected to report comprehensive income in the
consolidated statements of stockholders' equity.
Other comprehensive income consists of unrealized gains and losses on
available for sale securities. For the year ended December 31, 1998, the change
in net unrealized loss on available for sale securities is reported in the
consolidated statement of stockholders' equity.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes new standards for public companies to report
information about their operating segments, products and services, geographic
areas and major customers. The statement is effective for financial statements
issued for periods beginning after December 15, 1997. The Company has adopted
SFAS No. 131 effective January 1, 1998. Adoption had no material effect on the
Consolidated Financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting standards for derivative
instruments and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. This statement is effective for periods beginning after June 15, 2000.
Management believes the implementation of this pronouncement will not have a
material effect on the Company's financial statements.
INTERIM FINANCIAL DATA -- The interim financial data and related notes for
the six month periods ended June 30, 1998 and 1999 included herein are
unaudited; however, in the opinion of management such interim financial data
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair representation of the results of the interim periods. The
operating results for interim periods may not be indicative of the results
expected for the full year.
F-11
<PAGE> 119
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
Effective October 1, 1998, the Company purchased $21.5 million in loans,
$66.1 million in deposits, and $292,000 in real property and fixed assets from
Union State Bank in East Bernard, Texas.
In connection with the purchase, the Company paid a cash premium of
approximately $4.3 million. This premium was recorded as goodwill and will be
amortized on a straight-line basis over 25 years. The acquisition was partially
financed with proceeds from the 1997 common stock issuance (see Note 17).
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired bank were recorded at
their fair values at the acquisition date.
The following summarized proforma information assumes the Union State Bank
acquisition had occurred on January 1, 1997:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1998 1997
---------- ----------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Net interest income........................... $15,204 $13,434
Net earnings.................................. 5,169 4,326
Earnings per share (diluted).................. 1.20 1.12
</TABLE>
On February 27, 1998, the Company purchased for cash certain assets and
liabilities and all deposits and related accrued interest payable of Community
State Bank in West Columbia. The Company acquired $103,000 in loans, and $5.9
million in deposits. The Company paid a cash premium of $250,000 which is being
amortized over fifteen years using the straight-line method. The acquisition was
accounted for using the purchase method of accounting.
During March 1997, the Company entered into a purchase and assumption
agreement with another bank to purchase certain assets and to assume certain
deposit accounts and related accrued interest payable of a branch located in
Angleton, Texas. Effective June 20, 1997, the Company purchased approximately
$723,000 in real property and fixed assets and assumed deposits, including
unpaid accrued interest, totaling approximately $29,370,000.
In connection with the purchase, the Company paid a cash premium of
approximately $1,990,000. This premium was recorded as goodwill and is being
amortized on a straight-line basis over 15 years. The acquisition was partially
financed with proceeds from the 1997 common stock issuance (see Note 17).
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired branch were recorded at
their fair values at the acquisition date.
During March 1996, the Company entered into a purchase and assumption
agreement with another bank to purchase certain assets and to assume certain
deposit accounts and related accrued interest payable of a branch located in Bay
City, Texas. Effective June 21, 1996, the Company purchased approximately
$10,600,000 in loans and $680,000 in real property and fixed assets and assumed
deposits, including unpaid accrued interest, totaling approximately $38,824,000.
In connection with the purchase, the Company paid a cash premium of
$1,750,000. This premium was recorded as goodwill and is being amortized on a
straight-line basis over 15 years. The acquisition was financed with proceeds
from a note payable to an unaffiliated bank (see Note 10).
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired branch were recorded at
their fair values at the acquisition date.
F-12
<PAGE> 120
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve Bank to maintain average
reserve balances. "Cash and due from banks" in the consolidated balance sheets
includes amounts so restricted of approximately $5,399,000 and $5,849,000 at and
December 31, 1998 and 1997.
4. SECURITIES
The amortized cost and fair value of debt securities are as follows:
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 91,468 $ 13 $1,618 $ 89,863 $ 89,863
States and political
subdivisions................... 3,976 128 -- 4,104 4,104
Collateralized mortgage
obligations.................... 10,270 407 20 10,657 10,657
Mortgage-backed securities....... 34,371 41 866 33,546 33,546
-------- ---- ------ -------- --------
Total............................ $140,085 $589 $2,504 $138,170 $138,170
======== ==== ====== ======== ========
HELD TO MATURITY
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 42,569 $156 $ 85 $ 42,640 $ 42,569
States and political
subdivisions................... 14,570 120 49 14,641 14,570
Collateralized mortgage
obligations.................... 223 -- -- 223 223
Mortgage-backed securities....... 26,149 87 163 26,073 26,149
-------- ---- ------ -------- --------
Total............................ $ 83,511 $363 $ 297 $ 83,577 $ 83,511
======== ==== ====== ======== ========
</TABLE>
F-13
<PAGE> 121
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 67,864 $ 285 $ 58 $ 68,091 $ 68,091
States and political
subdivisions................... 4,026 239 -- 4,265 4,265
Collateralized mortgage
obligations.................... 10,832 166 26 10,972 10,972
Mortgage-backed securities....... 30,578 98 176 30,500 30,500
-------- ------ ---- -------- --------
Total............................ $113,300 $ 788 $260 $113,828 $113,828
======== ====== ==== ======== ========
HELD TO MATURITY
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 60,739 $ 572 $ 2 $ 61,309 $ 60,739
States and political
subdivisions................... 15,022 376 3 15,395 15,022
Collateralized mortgage
obligations.................... 2,081 -- 3 2,078 2,081
Mortgage-backed securities....... 36,074 265 100 36,239 36,074
-------- ------ ---- -------- --------
Total............................ $113,916 $1,213 $108 $115,021 $113,916
======== ====== ==== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 19,988 $ 57 $ -- $ 20,045 $ 20,045
States and political
subdivisions................... 1,363 102 -- 1,465 1,465
Mortgage-backed securities....... 17,299 61 258 17,102 17,102
-------- ---- ---- -------- --------
Total............................ $ 38,650 $220 $258 $ 38,612 $ 38,612
======== ==== ==== ======== ========
HELD TO MATURITY
U.S. Treasury securities and
obligations of U.S.
government agencies......... $ 63,171 $245 $ 21 $ 63,395 $ 63,171
States and political
subdivisions................... 10,465 141 1 10,605 10,465
Collateralized mortgage
obligations.................... 8,749 19 15 8,753 8,749
Mortgage-backed securities....... 46,871 372 222 47,021 46,871
-------- ---- ---- -------- --------
Total............................ $129,256 $777 $259 $129,774 $129,256
======== ==== ==== ======== ========
</TABLE>
F-14
<PAGE> 122
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1998,
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.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less.................... $ 16,118 $ 16,230 $ 4,009 $ 4,026
Due after one year through five years...... 56,945 57,684 50,536 50,756
Due after five years through ten years..... 2,695 2,792 17,070 17,274
Due after ten years........................ -- -- 272 296
-------- -------- -------- --------
Subtotal................................... 75,758 76,706 71,887 72,412
Mortgage-backed securities and
collateralized mortgage obligations... 38,158 38,315 41,413 41,476
-------- -------- -------- --------
Total...................................... $113,916 $115,021 $113,300 $113,828
======== ======== ======== ========
</TABLE>
There were no sales of held to maturity or available for sale investments
in debt securities during 1998, 1997 and 1996.
The Company does not own securities of any one issuer (other than the U.S.
government and its agencies) for which aggregate adjusted cost exceeds 10% of
the consolidated shareholders' equity at December 31, 1998 and December 31,
1997. Securities with amortized costs of approximately $68,245,999 and
$61,303,319 and a fair value of approximately $68,698,655 and $61,146,428 at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes required or permitted by law.
5. LOANS
The loan portfolio consists of various types of loans made principally to
borrowers located in Southeast Texas and is classified by major type as follows
(rounded):
<TABLE>
<CAPTION>
June 30, December 31,
----------- --------------------
1999 1998 1997
----------- -------- --------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C>
Commercial and industrial......................... $ 18,699 $ 16,972 $ 11,611
Real estate:
Construction and land development............ 2,012 1,727 6,453
1-4 family residential....................... 96,853 88,139 53,625
Commercial mortgages......................... 25,238 22,240 16,277
Farmland..................................... 5,917 6,148 5,804
Multi-family residential..................... 1,405 1,090 937
Agriculture....................................... 18,578 14,107 6,359
Consumer.......................................... 19,753 20,711 20,498
-------- -------- --------
Total............................................. 188,455 171,134 121,564
Less unearned discount............................ 379 656 986
-------- -------- --------
Total............................................. $188,034 $170,478 $120,578
======== ======== ========
</TABLE>
F-15
<PAGE> 123
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes as of the dates indicated the loan portfolio
of the Company by type of loan:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------
After One
One Year Through After Five
or Less Five Years Years Total
-------- ---------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial......................... $10,354 $4,355 $2,263 $16,972
Construction and land development................. 1,707 20 1,727
------- ------ ------ -------
Total.............................. $12,061 $4,375 $2,263 $18,699
======= ====== ====== =======
Loans with a predetermined interest rate.......... $ 6,248 $2,879 $1,670 $10,797
Loans with a floating interest rate............... 5,813 1,496 593 7,902
------- ------ ------ -------
Total.............................. $12,061 $4,375 $2,263 $18,699
======= ====== ====== =======
</TABLE>
As discussed in Note 1, the Bank adopted SFAS No. 114 and 118 effective
January 1, 1995. Adoption of these statements had no impact on the Company's
financial statements including the level of the allowance for credit losses.
Instead, it resulted only in a reallocation of the existing allowance for credit
losses.
As of December 31, 1998 and 1997, loans outstanding to directors, officers
and their affiliates were approximately $2,231,000 and $2,432,000, respectively.
In the opinion of management, all transactions entered into between the Company
and such related parties have been, and are, in the ordinary course of business,
made on the same terms and conditions as similar transactions with unaffiliated
persons.
An analysis of activity with respect to these related-party loans is as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1998 1997
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Beginning balance........................................... $ 2,432 $ 3,210
New loans and reclassified related loans.................... 2,046 1,045
Repayments.................................................. (2,247) (1,823)
------- -------
Ending balance.............................................. $ 2,231 $ 2,432
======= =======
</TABLE>
6. NONPERFORMING LOANS AND PAST DUE LOANS
The Company had no nonaccrual, 90 days or more past due, or restructured
loans at June 30, 1999 (unaudited). The Company had $5,000 in nonaccrual loans
and no 90 days or more past due, or restructured loans at December 31, 1998.
F-16
<PAGE> 124
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ALLOWANCE FOR CREDIT LOSSES
An analysis of activity in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------- ------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ----
(Unaudited)
) (Dollars in thousands
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.................... $1,850 $1,016 $1,016 $ 923 $753
Balance acquired with acquisition.......... -- -- 661 -- --
Addition -- provision charged to
operations............................ 130 145 239 190 230
Net charge-offs:
Loans charged off................ (19) (55) (81) (130) (73)
Loan recoveries.................. 52 8 15 33 13
------ ------ ------ ------ ----
Total net charge-offs........................... 33 (47) (66) (97) (60)
------ ------ ------ ------ ----
Balance at end of period........................ $2,013 $1,114 $1,850 $1,016 $923
====== ====== ====== ====== ====
</TABLE>
8. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1998 1997
-------- --------
(Dollars in thousands)
<S> <C> <C>
Land............................................. $1,131 $ 935
Buildings........................................ 5,599 4,766
Furniture, fixtures and equipment................ 2,551 2,164
Construction in progress......................... 32 388
------ ------
Total............................................ 9,313 8,253
Less accumulated depreciation.................... 3,208 2,723
------ ------
Premises and equipment, net...................... $6,105 $5,530
====== ======
</TABLE>
9. DEPOSITS
Included in interest-bearing deposits are certificates of deposit in
amounts of $100,000 or more. These certificates and their remaining maturities
at June 30, 1999 and December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31,
June 30, -----------------
1999 1998 1997
----------- ------- -------
(Unaudited)
)(Dollars in thousands
<S> <C> <C> <C>
Three months or less.......................... $17,887 $ 5,835 $ 1,567
Greater than three through six months......... 8,842 9,603 3,370
Greater than six through twelve months........ 12,207 21,296 11,992
Thereafter.................................... 4,046 6,097 6,226
------- ------- -------
Total......................................... $42,982 $42,831 $23,155
======= ======= =======
</TABLE>
F-17
<PAGE> 125
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense for certificates of deposit in excess of $100,000 was
approximately $593,000, $1,492,000 and $1,264,000 and $1,291,000 for the six
months ended June 30, 1999 (unaudited) and the years ended December 31, 1998,
1997, and 1996, respectively.
The Company has no brokered deposits and there are no major concentrations
of deposits.
10. NOTE PAYABLE AND OTHER BORROWINGS
NOTE PAYABLE -- During December 1997, Bancshares entered into an agreement
with a bank to borrow up to $8,000,000 under a reducing, revolving line of
credit (the "Line"). The purpose of the Line is to provide funding for potential
acquisitions in the future. The maximum amount available under the Line is
reduced by $1,142,857 each year beginning December 1998 with all amounts due and
payable on December 31, 2004. The Line bears interest, payable quarterly, at the
Federal Funds Rate plus 2.75%. The Line is collateralized by 100% of the issued
and outstanding common shares of Holdings and the Bank. At December 31, 1998 and
1997, Bancshares had no outstanding borrowings under the Line. During 1997,
Bancshares paid off the outstanding balance under a similar agreement (the "Old
Line") with a bank.
OTHER BORROWINGS -- At December 31, 1998, Federal Home Loan Bank ("FHLB")
advances totaled $2,435,000 with a floating interest rate of 5.55%. There were
advances at December 31, 1997 of $2,800,000.
The FHLB line of credit agreement matures May 14, 1999. The advances under
the FHLB line of credit are secured by a blanket pledge of the Bank's
one-to-four family mortgages.
11. INTEREST RATE RISK
The Company is principally engaged in providing real estate, consumer and
commercial loans, with interest rates that are both fixed and variable. These
loans are primarily funded through short-term demand deposits and longer-term
certificates of deposit with variable and fixed rates. The fixed real estate
loans are more sensitive to interest rate risk because of their fixed rates and
longer maturities.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company is a party to various
financial instruments with off-balance-sheet risk to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The contract or notional amounts of these
instruments reflect the extent of the Company's involvement in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The following is a summary of the various financial instruments entered
into by the Company:
<TABLE>
<CAPTION>
December 31,
June 30, -----------------
1999 1998 1997
----------- ------- -------
(Unaudited)
)(Dollars in thousands
<S> <C> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit................ $18,325 $19,698 $11,856
Standby letters of credit................... 360 233 315
</TABLE>
F-18
<PAGE> 126
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, approximately $12.9 million of commitments to extend
credit have fixed rates ranging from 6.65% to 11.75%. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being fully drawn
upon, the total commitment amounts disclosed above do not necessarily represent
future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Company evaluates customer creditworthiness on a case-by-case basis.
The amount of collateral obtained, if considered necessary by the Company upon
extension of credit, is based on management's credit evaluation of the customer.
13. INCOME TAXES
The components of the provision for federal income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Current.................................................. $2,106 $1,634 $1,340
Deferred................................................. (77) (48) (100)
------ ------ ------
Total.................................................... $2,029 $1,586 $1,240
====== ====== ======
</TABLE>
The provision for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate on income as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Taxes calculated at statutory rate....................... $2,206 $1,750 $1,343
Increase (decrease) resulting from:
Tax-exempt interest............................ (275) (251) (258)
Amortization of goodwill....................... 54 57 57
Other, net..................................... 44 30 98
------ ------ ------
Total.................................................... $2,029 $1,586 $1,240
====== ====== ======
</TABLE>
F-19
<PAGE> 127
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets --
Allowance for credit losses............................ $ 284,000 $225,000
Other.................................................. 4,000 --
--------- --------
Total deferred tax assets................................... 288,000 225,000
--------- --------
Deferred tax liabilities:
Accretion on investments............................... $ 206,000 $189,000
Bank premises and equipment............................ 192,000 24,000
Unrealized loss on available for sale investment
securities........................................ 179,000.. 13,000
Other.................................................. -- 7,000
--------- --------
Total deferred tax liabilities.............................. 577,000 233,000
--------- --------
Net deferred tax liabilities................................ $(289,000) $ (8,000)
========= ========
</TABLE>
14. STOCK INCENTIVE PROGRAM
During 1995 the Company's Board of Directors approved a stock option plan
(the "Plan") for executive officers and key associates to purchase common stock
of Bancshares. On May 31, 1995, the Company granted 260,000 options, after stock
split, (see Note 17) which vest over a ten-year period beginning on the date of
grant. Ten percent of the options vest each year, however no options may be
exercised until the optionee has completed five years of employment after the
date of grant. The options were granted at an average exercise price of $4.40
(after stock split). Compensation expense was not recognized for the stock
options because the options had an exercise price approximating the fair value
of Bancshares' common stock at the date of grant. The maximum number of options
available for grant under the Plan is 340,000 (after stock split).
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
(Amounts in thousands)
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Options Price Options Price Options Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
period........................... 260,000 $4.40 260,000 $4.40 260,000 $4.40
Options granted.................. 60,000 6.25 -- -- -- --
------- ----- ------- ----- ------- -----
Options outstanding, end of
period......................... 320,000 $4.71 260,000 $4.40 260,000 $4.40
======= ===== ======= ===== ======= =====
</TABLE>
There were no options granted, exercised, forfeited, or expired during 1997
and 1996. At December 31, 1998, 1997 and 1996, there were no options that were
exercisable under the Plan. On February 10, 1998, the Company granted 60,000
options under the Plan. The options were granted at an exercise price of $6.25
(after stock split). Compensation expense was not recorded for the stock options
because the exercise price approximated the fair value of common stock at the
date of grant.
On the grant date, the weighted-average fair value of the stock options
granted in 1995 was $.39. The weighted-average remaining contractual life of
options outstanding at December 31, 1997 was 7.42 years. The
F-20
<PAGE> 128
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value of each stock option was estimated using an option-pricing model with
the following assumptions used: risk-free interest rate of 6.49%; dividend yield
of 4.54%; and an expected life of 6.5 years.
If compensation expense had been recorded based on the fair value at the
grant date for awards consistent with SFAS No. 123, the Company's net income
would have been $4,449,936, $3,555,480, and $2,704,040 for the years ended
December 31, 1998, 1997, and 1996, respectively. Diluted earnings per share
would have be $1.03, $0.92 and $0.80 for the years ended December 31, 1998, 1997
and 1996, respectively.
15. PROFIT SHARING PLAN
The Company has adopted a profit sharing plan pursuant to Section 401(k) of
the Internal Revenue Code whereby participants may contribute up to 15% of their
compensation. Matching contributions are made at the discretion of the Company.
Such matching contributions were approximately $112,000, $87,000, and $72,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
16. COMMITMENTS
Leases -- A summary of noncancelable future operating lease commitments as of
December 31, 1998 follows:
<TABLE>
<S> <C>
1999............................................ $ 206,518
2000............................................ 221,839
2001............................................ 221,839
2002............................................ 222,739
2003............................................ 223,639
----------
Total........................................... $1,096,574
==========
</TABLE>
It is expected that in the normal course of business, expiring leases will
be renewed or replaced by leases on other property or equipment.
Rent expense under all noncancelable operating lease obligations aggregated
approximately $193,000 for the year ended 1998, $191,000 for the year ended
December 31, 1997 and $180,000 for the year ended December 31, 1996.
Litigation -- The Company has been named as a defendant in various legal
actions arising in the normal course of business. In the opinion of management,
after reviewing such claims with outside counsel, resolution of such matters
will not have a materially adverse impact on the consolidated financial
statements. Various lawsuits are pending against the Company.
17. SHAREHOLDERS' EQUITY
During 1998, the Company had an Initial Public Offering selling 1,182,517
shares. Net proceeds of $12,840,890 were used to fund general corporate
purposes, including support of balance sheet growth, future acquisitions and to
repay certain indebtedness incurred in the acquisition of Union State Bank.
On September 10, 1998, the Company effected a four for one common stock
split in the form of a common stock dividend (the "Stock Split"). All share and
per share information for common stock has been restated to reflect the Stock
Split. In September 1998, the Company increased the number of authorized shares
of common stock from 1,000,000 to 50,000,000 and authorized 20,000,000 shares of
preferred stock with a par value of $1.
During 1997, the Company sold 480,000 shares of common stock at $6.25 per
share, after stock split, which approximated the book value of the Company at
the time of the sale. Proceeds to the Company totaling
F-21
<PAGE> 129
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,000,000 were used to fund the acquisition of a branch (Note 2) and to repay
borrowings under a line of credit arrangement with a bank (Note 10).
Dividends paid by Bancshares and the Bank are subject to restrictions by
certain regulatory agencies. There was an aggregate of approximately $8,750,000
and $7,400,000 available for payment of dividends by Bancshares and by the Bank
to Bancshares, respectively, at December 31, 1998 under these restrictions.
Dividends paid by Bancshares during the years ended December 31, 1998 and 1997
were $1,056,517 and $574,536, respectively. Dividends paid by the Bank to
Bancshares during the years ended December 31, 1998 and 1997 were $995,000 and
$2,922,150, respectively.
18. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Any institution that
fails to meet its minimum capital requirements is subject to actions by
regulators that could have a direct material effect on the Company's and the
Bank's financial statements. Under the capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines based on the Bank's assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Company's and the Bank's capital amounts and the Bank's classification under the
regulatory framework for prompt corrective action are also subject to
qualitative judgements by the regulators about the components, risk weightings
and other factors.
To meet the capital adequacy requirements, the Company and the Bank must
maintain minimum capital amounts and ratios as defined in the regulations.
Management believes, as of December 31, 1998 and 1997, that the Company and the
Bank met all capital adequacy requirements to which they are subject.
At December 31, 1998, the most recent notification from the State of Texas
Department of Banking 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 have been no
conditions or events since that notification which management believes have
changed the Bank's category.
F-22
<PAGE> 130
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the Company's and the Bank's capital ratios
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
AS OF DECEMBER 31, 1998:
Total Capital
(to Risk Weighted
Assets)................... $33,248 19.08% $13,937 8.0% N/A N/A
Tier I Capital
(to Risk Weighted
Assets)................... $31,398 18.02% $ 6,969 4.0% N/A N/A
Tier I Capital
(to Average Assets)....... $31,398 7.58% $12,422 3.0% N/A N/A
AS OF DECEMBER 31, 1997:
Total Capital
(to Risk Weighted
Assets)................... $20,234 15.73% $10,293 8.0% N/A N/A
Tier I Capital
(to Risk Weighted
Assets)................... $19,218 14.94% $ 5,146 4.0% N/A N/A
Tier I Capital
(to Average Assets)....... $19,218 6.30% $ 9,151 3.0% N/A N/A
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BANK ONLY:
AS OF DECEMBER 31, 1998:
Total Capital
(to Risk Weighted
Assets).................. $22,516 12.93% $13,934 8.0% $17,417 10.0%
Tier I Capital
(to Risk Weighted
Assets).................. $20,666 11.87% $ 6,967 4.0% $10,450 6.0%
Tier I Capital
(to Average Assets)...... $20,666 5.00% $12,419 3.0% $20,698 5.0%
AS OF DECEMBER 31, 1997:
Total Capital
(to Risk Weighted
Assets).................. $20,056 15.59% $10,292 8.0% $12,865 10.0%
Tier I Capital
(to Risk Weighted
Assets).................. $19,040 14.80% $ 5,146 4.0% $ 7,719 6.0%
Tier I Capital
(to Average Assets)...... $19,040 6.13% $ 9,320 3.0% $15,533 5.0%
</TABLE>
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures of the estimated fair value amounts of financial instruments
have been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could
F-23
<PAGE> 131
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies could have a material effect on the estimated
fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS -- For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
SECURITIES -- For securities held as investments, fair value equals quoted
market price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
LOAN RECEIVABLES -- For certain homogeneous categories of loans (such as
some residential mortgages and other consumer loans), fair value is estimated by
discounting the future cash flows using the risk-free Treasury rate for the
applicable maturity, adjusted for servicing and credit risk. The carrying value
of variable rate loans approximates fair value because the loans reprice
frequently to current market rates.
DEPOSIT LIABILITIES -- The fair value of demand deposits, savings accounts
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
LONG-TERM DEBT AND OTHER BORROWINGS -- Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate the fair value of existing debt.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- The fair value of commitments to
extend credit and standby letters of credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreement and the present creditworthiness of the
counterparties.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................. $ 18,243 $ 18,243 $ 17,372 $ 17,372
Interest-bearing deposits in financial
institutions......................... 99 99 198 198
Held to maturity securities............... 113,916 115,021 129,256 129,774
Available for sale securities............. 113,828 113,828 38,612 38,612
Loans..................................... 170,478 186,874 120,578 129,601
Less allowance for loan losses............ (1,850) (1,850) (1,016) (1,016)
-------- -------- -------- --------
Total.......................................... $414,714 $432,215 $305,000 $314,541
======== ======== ======== ========
Financial liabilities:
Deposits.................................. $390,659 $391,590 $291,516 $291,779
Other borrowing........................... 2,437 2,437 2,800 2,800
-------- -------- -------- --------
Total.......................................... $393,096 $394,027 $294,316 $294,579
======== ======== ======== ========
</TABLE>
The differences in fair value and carrying value of commitments to extend
credit and standby letters of credit were not material at December 31, 1998 and
1997.
The fair value estimates presented herein are based on pertinent
information available to management as of the dates indicated. Although
management is not aware of any factors that would significantly affect the
F-24
<PAGE> 132
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
20. PARENT COMPANY ONLY FINANCIAL STATEMENTS
PROSPERITY BANCSHARES, INC.
(PARENT COMPANY ONLY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash.............................................. $10,688 $ 153
Investment in subsidiaries........................ 25,323 19,066
Goodwill, net..................................... 5,380 5,593
Other assets...................................... 49 11
------- -------
TOTAL............................................. $41,440 $24,823
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Note payable
Accrued interest payable and other
liabilities................................ $ 5 $ 5
------- -------
Total liabilities.................. 5 5
------- -------
SHAREHOLDERS' EQUITY:
Common stock................................. 5,176 3,993
Capital surplus.............................. 16,477 4,818
Retained earnings............................ 19,452 16,049
Unrealized losses on available for sale
securities, net of tax.................. 348 (24)
Less treasury stock, at cost (3,576 shares at
December 31, 1998 and 1997,
respectively)........................... (18) (18)
------- -------
Total shareholders' equity......... 41,435 24,818
------- -------
TOTAL............................................. $41,440 $24,823
======= =======
</TABLE>
F-25
<PAGE> 133
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROSPERITY BANCSHARES, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING INCOME:
Dividends from subsidiaries....................... $ 995 $2,922 $ 661
OPERATING EXPENSE:
Interest expense.................................. 24 120 203
Amortization of goodwill.......................... 463 392 248
Other expenses.................................... 69 66 49
------ ------ ------
Total operating expense................. 556 578 500
------ ------ ------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES............ 439 2,344 161
FEDERAL INCOME TAX BENEFIT............................. 136 137 86
------ ------ ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES.......................... 575 2,481 247
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES....... 3,885 1,081 2,464
------ ------ ------
NET INCOME............................................. $4,460 $3,562 $2,711
====== ====== ======
</TABLE>
F-26
<PAGE> 134
PROSPERITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROSPERITY BANCSHARES, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 4,460 $ 3,562 $ 2,711
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of
subsidiaries................................ (3,885) (1,081) (2,464)
Amortization of goodwill...................... 463 392 248
Increase in other assets...................... (38) (6) (2)
Increase (decrease) in other liabilities...... 4 (33)
------- ------- -------
Total adjustments........................ (3,460) (691) (2,251)
------- ------- -------
Net cash flows provided by operating
activities............................. 1,000 2,871 460
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premiums paid for branch acquisitions.............. (250) (1,990) (1,750)
Capital contribution to subsidiary................. (2,000)
------- ------- -------
Net cash flows used in investing
activities............................. (2,250) (1,990) (1,750)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit........................ (2,000) (3,267) (1,517)
Proceeds from line of credit....................... 2,000 3,266
Issuance of common stock........................... 12,842 3,000
Payments of cash dividends......................... (1,057) (574) (351)
Sale (purchase) of treasury stock.................. 1 (19)
------- ------- -------
Net cash flows (used in) provided by
financing activities................... 11,785 (840) 1,379
------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 10,535 41 89
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 153 112 23
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $10,688 $ 153 $ 112
======= ======= =======
</TABLE>
21. SUBSEQUENT EVENT (UNAUDITED)
On October 1, 1999, the Company acquired South Texas Bancshares, Inc.
F-27
<PAGE> 135
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,200,000 TRUST PREFERRED SECURITIES
PROSPERITY CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER TRUST PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED BY
PROSPERITY BANCSHARES, INC.
---------------------
HOWE BARNES INVESTMENTS, INC.
---------------------
, 1999
---------------------
UNTIL , (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 136
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses incurred by the Registrant in connection
with the sale and distribution of the securities being registered are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 3,336
National Association of Securities Dealers, Inc. filing
fee....................................................... $ 1,700
Nasdaq National Market listing fee.......................... $ 18,500
Printing and mailing expenses............................... $ 30,000
Legal fees and expenses of counsel for the Registrant....... $ 50,000
Accounting fees and expenses................................ $ 13,000
Blue sky filing fees and expenses (including legal fees and
expenses)................................................. $ 1,000
Transfer Agent fees......................................... $ 3,500
Trustee fees and expenses................................... $ 7,500
Miscellaneous............................................... $ 6,464
--------
Total............................................. $135,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Prosperity's Articles of Incorporation and Bylaws require Prosperity to
indemnify officers and directors of Prosperity to the fullest extent permitted
by Article 2.02-1 of the Business Corporation Act of the State of Texas (the
"TBCA"). The Articles of Incorporation and Bylaws of Prosperity are filed as
Exhibit 3.1 and 3.2 to the Registration Statement. Generally, Article 2.02-1 of
the TBCA permits a corporation to indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person was or is a director or officer if it is determined that such person
(i) conducted himself in good faith, (ii) reasonably believed (a) in the case of
conduct in his official capacity as a director or officer of the corporation,
that his conduct was in the corporation's best interests, and/or (b) in other
cases, that his conduct was at least not opposed to the corporation's best
interests, and (iii) in the case of any criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. In addition, the TBCA requires a
corporation to indemnify a director or officer for any action that such director
or officer is wholly successfully in defending on the merits.
Prosperity's Articles of Incorporation provide that a director of
Prosperity will not be liable to the corporation for monetary damages for an act
or omission in the director's capacity as a director, except to the extent not
permitted by law. Texas law does not permit exculpation of liability in the case
of (i) a breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) an act or omission not in good faith that involves
intentional misconduct or a knowing violation of the law, (iii) a transaction
from which a director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv) an
act or omission for which the liability of the director is expressly provided by
statute, or (v) an act related to an unlawful stock repurchase or dividend.
Pursuant to the Underwriting Agreement, a form of which is filed as Exhibit
1.1 to this Registration Statement, the Underwriter has agreed to indemnify the
directors, officers and controlling persons of Prosperity against certain civil
liabilities that may be incurred in connection with this Offering, including
certain liabilities under the Securities Act.
Prosperity may provide liability insurance for each director and officer
for certain losses arising from claims or changes made against them while acting
in their capabilities as directors or officers of Registrant, whether or not
Registrant would have the power to indemnify such person against such liability,
as permitted by law.
II-1
<PAGE> 137
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 2, 1997, Prosperity issued 480,000 shares of its common stock to
certain individuals at $6.25 per share. Each sale was for cash and was made
pursuant to the registration exemption provided by Section 3(a)(11) of the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement for the Trust Preferred
Securities
2.1 -- Agreement and Plan of Reorganization by and between
Prosperity Bancshares, Inc. and South Texas Bancshares,
Inc. dated June 17, 1999 (incorporated herein by
reference to Exhibit 2.1 to Prosperity's Form 10-Q for
the quarter ended June 30, 1999)
2.2 -- Agreement and Plan of Reorganization dated June 5, 1998
by and among Prosperity, First Prosperity Bank and Union
State Bank (incorporated herein by reference to Exhibit
10.4 to Prosperity's Registration Statement on Form S-1
(Registration No. 333-63267) (the "Registration
Statement"))
3.1 -- Amended and Restated Articles of Incorporation of
Prosperity (incorporated herein by reference to Exhibit
3.1 to the Registration Statement)
3.2 -- Amended and Restated Bylaws of Prosperity (incorporated
herein by reference to Exhibit 3.2 to the Registration
Statement)
4.1 -- Form of Indenture by and between Prosperity Bancshares,
Inc. and First Union Trust Company, National Association
4.2 -- Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.1)
4.3 -- Certificate of Trust
4.4 -- Trust Agreement
4.5 -- Form of Amended and Restated Trust Agreement
4.6 -- Form of Trust Preferred Securities Certificate (included
as an exhibit to Exhibit 4.5)
4.7 -- Form of Trust Preferred Securities Guarantee Agreement
4.8 -- Form of Agreement of Expense and Liabilities (included as
an exhibit to Exhibit 4.5)
5.1 -- Opinion of Bracewell & Patterson, L.L.P. as to the
legality of the securities being registered
5.2 -- Opinion of Richards, Layton & Finger, P.A.
8.1 -- Opinion of Bracewell & Patterson, L.L.P. as to certain
tax matters
10.1 -- Prosperity Bancshares, Inc. 1995 Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 to the
Registration Statement)
10.2 -- Prosperity Bancshares, Inc. 1998 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.2 to the
Registration Statement)
10.3 -- Employment Agreements (incorporated herein by reference
to Exhibit 10.3 to the Registration Statement)
</TABLE>
II-2
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4 -- Loan Agreement dated December 27, 1997 between Prosperity
and Norwest Bank Minnesota, National Association
(incorporated herein by reference to Exhibit 10.5 to the
Registration Statement)
12.1 -- Calculations of ratios of earnings to fixed charges
21.1 -- Subsidiaries of Prosperity (incorporated herein by
reference to Exhibit 21 to the Registration Statement)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Bracewell & Patterson, L.L.P. (included in the
opinion to be filed as Exhibit 5.1)
23.3 -- Consent of Richards, Layton & Finger, P.A. (included in
the opinion to be filed as Exhibit 5.2)
23.4 -- Consent of Bracewell & Patterson, L.L.P. (included in the
opinion to be filed as Exhibit 8.1)
24.1 -- Powers of Attorney (included as part of Signature Pages)
25.1 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of First Union Trust
Company, National Association, as trustee under the
Indenture
25.2 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of First Union Trust
Company, National Association, as trustee under the Trust
Agreement
25.3 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of First Union Trust
Company, National Association, as trustee under the
Guarantee Agreement
</TABLE>
(b) Financial Statement Schedules
None.
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
and, therefore, have been omitted.
ITEM 17. UNDERTAKINGS
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer, or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, 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.
(i) The undersigned Registrants hereby undertake that:
(1) 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 Registrants pursuant to Rule 424(b)(1) or
II-3
<PAGE> 139
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act 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.
(j) The undersigned Registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
the Act.
II-4
<PAGE> 140
SIGNATURES
Prosperity. Pursuant to the requirements of the Securities Act of 1933, as
amended, Prosperity has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas on the 21st day of October, 1999.
PROSPERITY BANCSHARES, INC.
(Registrant)
By: /s/ TRACY T. RUDOLPH
----------------------------------
Tracy T. Rudolph
Chairman of the Board and
President
Prosperity Capital Trust I. Pursuant to the requirements of the Securities
Act of 1933, as amended, Prosperity Capital Trust I has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas on the 21st day of
October, 1999.
PROSPERITY CAPITAL TRUST I
(Registrant)
By: /s/ DAVID ZALMAN
----------------------------------
David Zalman
Trustee
By: /s/ TRACY T. RUDOLPH
----------------------------------
Tracy T. Rudolph
Trustee
By: /s/ DAVID HOLLAWAY
----------------------------------
David Hollaway
Trustee
II-5
<PAGE> 141
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Tracy T. Rudolph and David Zalman, with full power to each of them to act
without the other, the undersigned's true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for the undersigned and in
the undersigned's name, place and stead, in any and all capacities (until
revoked in writing), to sign this Registration Statement and any and all
amendments (including post-effective amendments) thereto, to file the same,
together with all exhibits thereto and documents in connection therewith, with
the Securities and Exchange Commission, to sign any and all applications,
registration statements, notices and other documents necessary or advisable to
comply with the applicable state securities authorities, granting unto said
attorney-in-fact and agent, or his or their substitute or substitutes, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, thereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE 21ST DAY OF OCTOBER, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ TRACY T. RUDOLPH Chairman of the Board and President (Principal
- ----------------------------------------------------- Executive Officer)
Tracy T. Rudolph
/s/ DAVID HOLLAWAY Chief Financial Officer (Principal Financial
- ----------------------------------------------------- Officer/ Principal Accounting Officer)
David Hollaway
/s/ HARRY BAYNE Director
- -----------------------------------------------------
Harry Bayne
/s/ JAMES A. BOULIGNY Director
- -----------------------------------------------------
James A. Bouligny
/s/ J. T. HERIN Director
- -----------------------------------------------------
J. T. Herin
/s/ CHARLES M. SLAVIK Director
- -----------------------------------------------------
Charles M. Slavik
/s/ HARRISON STAFFORD Director
- -----------------------------------------------------
Harrison Stafford
/s/ ROBERT STEELHAMMER Director
- -----------------------------------------------------
Robert Steelhammer
/s/ DAVID ZALMAN Director
- -----------------------------------------------------
David Zalman
</TABLE>
II-6
<PAGE> 142
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement for the Trust Preferred
Securities
2.1 -- Agreement and Plan of Reorganization by and between
Prosperity Bancshares, Inc. and South Texas Bancshares,
Inc. dated June 17, 1999 (incorporated herein by
reference to Exhibit 2.1 to Prosperity's Form 10-Q for
the quarter ended June 30, 1999)
2.2 -- Agreement and Plan of Reorganization dated June 5, 1998
by and among Prosperity, First Prosperity Bank and Union
State Bank (incorporated herein by reference to Exhibit
10.4 to Prosperity's Registration Statement on Form S-1
(Registration No. 333-63267) (the "Registration
Statement"))
3.1 -- Amended and Restated Articles of Incorporation of
Prosperity (incorporated herein by reference to Exhibit
3.1 to the Registration Statement)
3.2 -- Amended and Restated Bylaws of Prosperity (incorporated
herein by reference to Exhibit 3.2 to the Registration
Statement)
4.1 -- Form of Indenture by and between Prosperity Bancshares,
Inc. and First Union Trust Company, National Association
4.2 -- Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.1)
4.3 -- Certificate of Trust
4.4 -- Trust Agreement
4.5 -- Form of Amended and Restated Trust Agreement
4.6 -- Form of Trust Preferred Securities Certificate (included
as an exhibit to Exhibit 4.5)
4.7 -- Form of Trust Preferred Securities Guarantee Agreement
4.8 -- Form of Agreement of Expense and Liabilities (included as
an exhibit to Exhibit 4.5)
5.1 -- Opinion of Bracewell & Patterson, L.L.P. as to the
legality of the securities being registered
5.2 -- Opinion of Richards, Layton & Finger, P.A.
8.1 -- Opinion of Bracewell & Patterson, L.L.P. as to certain
tax matters
10.1 -- Prosperity Bancshares, Inc. 1995 Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 to the
Registration Statement)
10.2 -- Prosperity Bancshares, Inc. 1998 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.2 to the
Registration Statement)
10.3 -- Employment Agreements (incorporated herein by reference
to Exhibit 10.3 to the Registration Statement)
10.4 -- Loan Agreement dated December 27, 1997 between Prosperity
and Norwest Bank Minnesota, National Association
(incorporated herein by reference to Exhibit 10.5 to the
Registration Statement)
12.1 -- Calculation of ratios of earnings to fixed charges
21.1 -- Subsidiaries of Prosperity (incorporated herein by
reference to Exhibit 21 to the Registration Statement)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Bracewell & Patterson, L.L.P. (included in the
opinion to be filed as Exhibit 5.1)
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.3 -- Consent of Richards, Layton & Finger, P.A. (included in
the opinion to be filed as Exhibit 5.2)
23.4 -- Consent of Bracewell & Patterson, L.L.P. (included in the
opinion to be filed as Exhibit 8.1)
24.1 -- Powers of Attorney (included as part of Signature Pages)
25.1 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of First Union Trust
Company, National Association, as trustee under the
Indenture
25.2 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of First Union Trust
Company, National Association, as trustee under the Trust
Agreement
25.3 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of First Union Trust
Company, National Association, as trustee under the
Guarantee Agreement
</TABLE>
<PAGE> 1
EXHIBIT 1.1
PROSPERITY BANCSHARES, INC.
1,200,000 ___% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER TRUST PREFERRED SECURITY)
UNDERWRITING AGREEMENT
__________, 1999
Howe Barnes Investments, Inc.
As Representative of the several Underwriters named in Schedule A
135 South LaSalle Street
Chicago, Illinois 60603
Ladies and Gentlemen:
1. Introductory. Prosperity Bancshares, Inc., a Texas corporation (the
"Company"), and its subsidiary, Prosperity Capital Trust I (the "Trust" and,
together with the Company, the "Offerors"), a statutory business trust
organized under the Delaware Business Trust Act (the "Delaware Act"), propose,
subject to the terms and conditions stated herein, to issue and sell to the
several underwriters named in Schedule A (the "Underwriters"), who are acting
severally and not jointly, an aggregate of 1,200,000 of the Trust's ___%
Cumulative Trust Preferred Securities (liquidation amount $10 per security)
representing undivided beneficial interests in the assets of the Trust (the
"Trust Preferred Securities"). The Offerors propose that the Trust issue the
Trust Preferred Securities pursuant to a Trust Agreement, as amended and
restated among First Union Trust Company, National Association, as Property
Trustee and Delaware Trustee, the administrative trustees named therein (the
"Administrative Trustees") and the Company (the "Trust Agreement"). The Trust
Preferred Securities will be guaranteed by the Company with respect to
distributions and payments upon liquidation, redemption and otherwise pursuant
to a Guarantee Agreement (the "Guarantee Agreement") between the Company and
First Union Trust Company, National Association, as trustee (the "Guarantee
Trustee"). The proceeds of the sale of the Trust Preferred Securities will be
combined with the proceeds from the sale by the Trust to the company of the
Trust's common securities (the "Common Securities") and will be used to
purchase ___% junior subordinated debentures (the "Debentures") issued by the
Company pursuant to an indenture (the "Indenture") between the Company and
First Union Trust Company, National Association, as trustee (the "Indenture
Trustee").
The Offerors have prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder (collectively, the "Act"), and
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), a
registration statement on Form S-1 (File Nos. _________ and __________)
including a prospectus, relating to the Trust Preferred Securities, the
Debentures and the Guarantee Agreement. The registration statement, as amended
at the time when it became or becomes effective, including all financial
schedules (if any) and exhibits thereto, and all of the information
<PAGE> 2
(if any) deemed to be part of the registration statement at the time of its
effectiveness pursuant to Rule 430A under the Act is hereinafter referred to as
the "Registration Statement". The prospectus in the form first provided to the
Underwriters by the Offerors in connection with the offering and sale of the
Trust Preferred Securities (whether or not required to be filed pursuant to
Rule 424(b) under the Act is hereinafter referred to as the "Prospectus,"
except that if any revised prospectus shall be provided to the Underwriters by
the Offerors for use in connection with the offering of the Trust Preferred
Securities that differs from the Prospectus (whether of not any such revised
prospectus is required to be filed by the Offerors pursuant to Rule 424(b)),
the term "Prospectus" shall refer to the revised prospectus from and after the
time it is first provided to the Underwriters for such use. Each preliminary
prospectus included in the Registration Statement prior to the time it became
or becomes effective is herein referred to as a "Preliminary Prospectus".
The Offerors hereby confirm their agreement with the Underwriters as
follows:
2. Representations and Warranties of the Offerors. The Offerors
jointly and severally represent and warrant to, and agree with, the several
Underwriters as of the date hereof and as of the Closing Date (as hereinafter
defined) that:
(a) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to
the proposed offering of the Trust Preferred Securities nor
instituted or threatened any proceedings for that purpose.
The Registration Statement, on the date it was or is declared
effective by the Commission, each Preliminary Prospectus, on
the date of the filing thereof with the Commission, and the
Prospectus and any amendment or supplement thereto, on the
date of filing thereof with the Commission (or if not filed,
on the date provided by the Offerors to the Underwriters in
connection with the offering and sale of the securities) and
at the Closing Date conformed or will conform with the
requirements of the Act, the Rules and Regulations and the
Trust Indenture Act and the rules and regulations thereunder.
The Registration Statement, on the date it was or is declared
effective by the Commission, upon the filing or first
delivery to the Underwriters of the Prospectus (or any
supplement to the Prospectus) and at the Closing Date did not
or will not contain an untrue statement of material fact or
omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
each Preliminary Prospectus; and on the date of the filing
thereof with the Commission, and the Prospectus and any
amendment or supplement thereto, on the date of filing
thereof with the Commission (or if not filed, on the date
provided by the Offerors to the Underwriters in connection
with the offering and sale of the Securities) and at the
Closing Date did not and will not include an untrue statement
of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided that the foregoing shall not
2
<PAGE> 3
apply to statements in or omissions from the Registration
Statement and the Prospectus made or omitted in reliance
upon, and in conformity with, information relating to the
Underwriters furnished in writing to the Offerors by or on
behalf of the Underwriters with your consent expressly for
use therein. The Offerors hereby acknowledge for all purposes
under this Agreement that (A) the statements set forth under
the caption "Underwriting" in the Prospectus and (B) the
stabilization legend on page __ of the Prospectus constitute
the only written information furnished to the Offerors by or
on behalf of the Underwriters for use in the preparation of
the Registration Statement or the Prospectus or any amendment
or supplement thereto.
(b) No action has been taken with respect to either Offeror, and,
to the best knowledge of the Offerors, no statute, rule,
regulation or order has been enacted, adopted or issued by
any governmental agency that suspends the effectiveness of
the Registration Statement, prevents or suspends the use of
any Preliminary Prospectus or the Prospectus or suspends the
sale of the Trust Preferred Securities in any jurisdiction
referred to in Section 4(g) hereof. No injunction,
restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued with
respect to either Offeror that might prevent the issuance of
the Trust Preferred Securities, suspend the effectiveness of
the Registration Statement, prevent or suspend the use of any
Preliminary Prospectus or the Prospectus or suspend the sale
of the Trust Preferred Securities in any jurisdiction
referred to in Section 4(g) hereof; and every request of the
Commission, or any securities authority or agency of any
jurisdiction, for additional information (to be included in
the Registration Statement or the Prospectus or otherwise)
has been complied with in all material respects.
(c) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Act with
full trust power and authority to own property and to conduct
its business as described in the Registration Statement and
Prospectus and to enter into and perform its obligations
under this Agreement, the Trust Preferred Securities, the
Common Securities and the Trust Agreement and is authorized
to do business in each jurisdiction in which such
qualification is required, except where the failure to so
qualify would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations
of the Offerors and the Subsidiaries (as hereinafter defined)
taken as a whole. The Trust has conducted and will conduct no
business other than the transactions contemplated by the
Trust Agreement and described in the Prospectus. The Trust is
not a party to or otherwise bound by any agreement other than
those described in the Prospectus. The Trust is and will be
classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a
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<PAGE> 4
corporation. The Trust is and will be treated as a
consolidated subsidiary of the Company pursuant to generally
accepted accounting principles.
(d) The Company has been duly organized and is validly existing
and in good standing under the laws of Texas and is duly
registered as a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended ("BHCA"),
supervised by the Board of Governors of the Federal Reserve
System ("FRB"). Except as otherwise noted in the financial
statements, the Company does not directly or indirectly own
any stock or other equity interest in any corporation,
partnership, joint venture, unincorporated association or
other entity other than First Prosperity Bank, a Texas state
bank (the "Bank") and Prosperity Holdings, Inc. ("Holdings")
(the Bank and Holdings being collectively referred to herein
as the "Subsidiaries"). Each Subsidiary has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation. Each of the Offerors and each Subsidiary has
the power and authority, corporate or otherwise, to own or
lease its properties and conduct its business as described in
the Prospectus, and is duly qualified to transact business in
all jurisdictions in which the conduct of its business or its
ownership or leasing of property requires such qualification
and the failure so to qualify would have a material adverse
effect on the business or condition, financial or otherwise,
of the Offerors and the Subsidiaries, taken as a whole; and
no proceeding of which the Offerors have knowledge has been
instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification. All outstanding shares
of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and
non-assessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, encumbrances and
security interests, except as otherwise noted to you. Except
as provided in the Registration Statement, no options,
warrants or other rights to purchase, agreements or other
obligations to issue, or other rights to convert any
obligations into, shares of capital stock or ownership
interests in any of the Subsidiaries are outstanding.
(e) The Company owns directly or indirectly 100 percent of the
issued and outstanding capital stock of each of its
Subsidiaries, free and clear of any claims, liens,
encumbrances or security interests and all of such capital
stock has been duly authorized and validly issued and is
fully paid and nonassessable.
(f) The issued and outstanding shares of capital stock of the
Company as set forth in the Prospectus have been duly
authorized and validly issued, are fully paid and
nonassessable, and conform to the description thereof
contained in the Prospectus.
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<PAGE> 5
(g) The Debentures have been duly authorized by the Company and
at the Closing Date will have been duly executed by the
Company and, when authenticated in the manner provided in the
Indenture and delivered against payment therefor as described
in the Prospectus, will constitute valid and binding
obligations of the Company, enforceable against the Company
in accordance with their terms, except as enforceability of
the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general equity principles,
will be in the form contemplated by, and entitled to the
benefits of, the Indenture and will conform in all material
respects to the statements relating thereto in the
Prospectus.
(h) The Common Securities have been duly authorized by the Trust
and, when issued and delivered by the Trust to the Company
against payment therefor as described in the Registration
Statement and Prospectus, will be validly issued and (subject
to the terms of the Trust Agreement) fully paid and
nonassessable undivided beneficial interests in the assets of
the Trust and will conform to all statements relating thereto
contained in the Prospectus. The issuance of the Common
Securities is not subject to preemptive or other similar
rights. At the Closing Date all of the issued and outstanding
Common Securities of the trust will be directly owned by the
Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(i) The Trust Preferred Securities have been duly authorized by
the Trust Agreement and, when issued and delivered pursuant
to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and
non-assessable undivided beneficial interests in the Trust,
will be entitled to the benefits of the Trust Agreement and
will in all material respects conform to the statements
relating thereto contained in the Prospectus. The issuance of
the Trust Preferred Securities is not subject to preemptive
or other similar rights. Holders of Trust Preferred
Securities will be entitled to the same limitation of
personal liability under Delaware law as extended to
stockholders of a private corporation for profit.
(j) The Indenture, the Trust Agreement, the Guarantee Agreement
and the Agreement as to Expenses and Liabilities (the
"Expense Agreement") are in substantially the respective
forms filed as exhibits to the Registration Statement.
(k) The Company's obligations under the Guarantee Agreement are
subordinate and junior in right of payment to all Senior
Indebtedness (as defined in the Indenture) of the Company.
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<PAGE> 6
(l) The Debentures are subordinate and junior in right of payment
to all Senior Indebtedness of the Company.
(m) Each of the Administrative Trustees is an employee of the
Company and has been duly authorized by the Company to
execute and deliver the Trust Agreement.
(n) Each of this Agreement, the Indenture, the Trust Agreement,
the Guarantee Agreement and the Expense Agreement has been
duly authorized, executed and delivered by the Company and/or
the Trust, as the case may be, and constitutes a legal, valid
and binding obligation of the Company and/or the Trust, as
the case may be, enforceable in accordance with its terms,
except as enforceability of the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by
general equity principles. Each Offeror has full power and
authority to enter into this Agreement, the Indenture, the
Trust Agreement, the Guarantee Agreement and the Expense
Agreement, as the case may be, and, in the case of the Trust,
to authorize, issue and sell the Trust Preferred Securities
as contemplated by this Agreement, and each of the Indenture
and the Trust Agreement has been duly qualified under the
Trust Indenture Act and will conform in all material respects
to the statements relating thereto in the Registration
Statement and the Prospectus.
(o) The execution, delivery and performance of this Agreement,
the Indenture, the Trust Agreement, the Guarantee Agreement
and the Expense Agreement and the consummation of the
transactions contemplated hereby or thereby will not, alone
or upon notice or the passage of time or both, (A) require
any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other
governmental body or third party (except such as may be
required under the Act and the securities or blue sky laws of
the various states or by the National Association of
Securities Dealers, Inc. ("NASD")), (B) result in the
creation or imposition of any lien, charge or encumbrance
upon any of the properties or assets of either Offeror
pursuant to the terms and provisions of any agreement, lease,
contract, permit, license, franchise agreement, mortgage,
loan agreement, debenture, note, deed of trust, bond,
indenture or other evidence of indebtedness or any other
instrument or obligation (collectively, "Obligations and
Instruments") to which any of them is a party or by which any
of them or any of their respective properties or assets is
bound or affected, (C) conflict with or constitute a breach
or default under any Obligation or Instrument to which either
Offeror is a party or by which either of them or any of their
respective properties or assets is bound (except for such
creation, conflict, breach or default as would not have a
material adverse effect upon the condition (financial or
otherwise) or results of operations of the Offerors and the
Subsidiaries taken as a whole), or conflict with or result in
a breach or
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<PAGE> 7
violation of any of the terms and provisions of the Company's
charter or by-laws, the Trust's Trust Agreement or its
Certificate of Trust, or (D) assuming compliance with the Act
and all applicable state securities or Blue Sky laws, violate
or conflict with any statute, judgment, decree, order, rule
or regulation (collectively, "Laws") applicable to the
Company or any of its properties or assets (except for such
violation or conflict as could not have a material adverse
effect upon the condition (financial or otherwise) or results
of operations of the Offerors and the Subsidiaries taken as a
whole). No action, suit or proceeding before any court or
arbitrator or any governmental body, agency or official
(domestic or foreign) is pending against or, to the best
knowledge of the Offerors, threatened against either Offeror,
that, if adversely determined, could reasonably be expected
to in any manner invalidate this Agreement, the Indenture,
the Trust Agreement or the Guarantee Agreement.
(p) The accountants who have expressed their opinions with
respect to certain of the financial statements and schedules
included in the Registration Statement are independent
accountants as required by the Act.
(q) The financial statements, together with the related notes and
schedules, contained in the Registration Statement and
Prospectus present fairly the consolidated financial
position, results of operations, shareholders' equity and
cash flows of the Company and its consolidated Subsidiaries
on the basis stated therein at the indicated dates and for
the indicated periods. Such financial statements have been
prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods
involved, and all adjustments necessary for a fair
presentation of results for such periods have been made,
except as otherwise stated therein. The selected financial
and statistical data included in the Registration Statement
present fairly the information shown therein on the basis
stated in the Registration Statement and have been compiled
on a basis consistent with the financial statements presented
therein.
(r) Neither the Company nor any Subsidiary is in violation of its
charter. The Trust is not in violation of the Trust Agreement
or its certificate of trust filed with the State of Delaware
on October __, 1999 (the "Certificate of Trust"). Neither
Offeror nor any Subsidiary is in default under any consent
decree, or in default with respect to any material provision
of any Obligation or Instrument to which it is a party; and
there does not exist any state of facts which constitutes an
event of default as defined in such documents or which, with
notice or lapse of time or both, would constitute such an
event of default, in each case, except for defaults which
neither singly nor in the aggregate are material to the
Offerors and the Subsidiaries taken as a whole.
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<PAGE> 8
(s) There are no material legal or governmental proceedings
pending, or to the Offerors' knowledge, threatened to which
either Offeror or any Subsidiary is or may be a party or of
which material property owned or leased by either Offeror or
any Subsidiary is or may be the subject, or related to
environmental or discrimination matters which are not
disclosed in the Prospectus.
(t) There are no holders of securities of the Company having
rights to registration thereof or preemptive rights to
purchase any of the Company's capital stock except as
disclosed in the Prospectus. Neither the filing of the
Registration Statement nor the offering or sale of the
Debentures or the Trust Preferred Securities as contemplated
by this Agreement gives rise to any rights for or relating to
the registration of any shares of capital stock of the
Company.
(u) The Offerors and the Subsidiaries have good and marketable
title to all the properties and assets reflected as owned in
the financial statements hereinabove described (or elsewhere
in the Prospectus), subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except those, if any,
reflected in such financial statements (or elsewhere in the
Prospectus) or which are not material to the Offerors and the
Subsidiaries taken as a whole. The Offerors and the
Subsidiaries hold their respective leased properties under
valid and binding leases.
(v) Neither Offeror has taken or will take, directly or
indirectly, any action designed to or which has constituted
or which might reasonably be expected to cause or result,
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise, in stabilization or
manipulation of the price of the Trust Preferred Securities.
(w) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or
supplemented, (A) there has not been any material adverse
change, or any development involving a prospective material
adverse change, in or affecting the condition, financial or
otherwise, of either Offeror or any Subsidiary, or the
business affairs, management, financial position,
shareholders' equity or results of operations of either
Offeror or any Subsidiary, whether or not occurring in the
ordinary course of business, (B) there has not been any
transaction not in the ordinary course of business entered
into by either Offeror or any of the Subsidiaries which is
material to the Offerors and the Subsidiaries, taken as a
whole, other than transactions described or contemplated in
the Registration Statement, (C) the Offerors and the
Subsidiaries have not incurred any material liabilities or
obligations, which are not in the ordinary course of business
or which could result in a material reduction in the future
earnings of the Offerors and the Subsidiaries, (D) the
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<PAGE> 9
Offerors and the Subsidiaries have not sustained any material
loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance, (E) there has
not been any change in the capital stock of the Company or
the Subsidiaries (other than upon the exercise of options and
warrants described in the Registration Statement), or any
material increase in the short-term or long-term debt
(including capitalized lease obligations) of the Offerors and
the Subsidiaries, taken as a whole, and (F) there has not
been any declaration or payment of any dividends or any
distributions of any kind with respect to the capital stock
of the Company or the Subsidiaries other than any dividends
or distributions described or contemplated in the
Registration Statement.
(x) There is no document or transaction of a character required
to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required.
(y) The Offerors and the Subsidiaries own and possess all right,
title and interest in and to, or have duly licensed from
third parties, all patents, patent rights, trade secrets,
inventions, know-how, trademarks, trade names, copyrights,
service marks and other proprietary rights ("Trade Rights")
material to the business of the Offerors and the Subsidiaries
taken as a whole. Neither of the Offerors nor any of the
Subsidiaries has received any notice of infringement,
misappropriation or conflict from any third party as to such
material Trade Rights which has not been resolved or disposed
of and neither of the Offerors nor any of the Subsidiaries
has infringed, misappropriated or otherwise conflicted with
material Trade Rights of any third parties, which
infringement, misappropriation or conflict would have a
material adverse effect upon the condition (financial or
otherwise) or results of operations of the Offerors and the
Subsidiaries taken as a whole.
(z) The conduct of the business of the Offerors and the
Subsidiaries is in compliance in all respects with applicable
federal, state, local and foreign Laws, except where the
failure to be in compliance would not have a material adverse
effect upon the condition (financial or otherwise) or results
of operations of the Offerors and the Subsidiaries taken as a
whole.
(aa) Each of the Offerors and each Subsidiary has filed all
necessary federal and state income and franchise tax returns
and has paid all taxes shown as due thereon, and there is no
tax deficiency that has been, or to the knowledge of the
Offerors might be, asserted against either Offeror or any
Subsidiary or any of their respective properties or assets
that would or could be expected to have a material adverse
effect upon the condition
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<PAGE> 10
(financial or otherwise) or results of operations of the
Offerors and the Subsidiaries taken as a whole.
(bb) The Offerors have filed an application to list the Trust
Preferred Securities on the Nasdaq National Market and have
received notification that the listing has been approved,
subject to notice of issuance of the Trust Preferred
Securities, as the case may be.
(cc) Neither of the Offerors nor any Subsidiary is an "investment
company", a company "controlled" by an "investment company"
or an "investment adviser" within the meaning of the
Investment Company Act of 1940, as amended ("Investment
Company Act").
(dd) The deposit accounts of the Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the fullest
extent provided by law. No proceeding for the termination of
such insurance is pending or is threatened. Neither of the
Offerors nor any Subsidiary has received or is subject to any
directive or order from the FDIC, the FRB the Texas
Department of Banking or any other regulatory authority to
make any material change in the method of conducting their
respective businesses that has not been complied with in all
material respects.
(ee) Neither of the Offerors nor any Subsidiary does any business,
directly or indirectly, with the government of Cuba or with
any person or entity located in Cuba.
(ff) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for
assets; (C) access to records is permitted only in accordance
with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(gg) Other than as contemplated by this Agreement and as disclosed
in the Registration Statement, neither Offeror has incurred
any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of
this Agreement or the consummation of the transactions
contemplated hereby.
(hh) No report or application filed by the Company or any of its
Subsidiaries with the FDIC or the FRB, as of the date it was
filed, contained an untrue statement of a material fact or
omitted to state a material fact required to
10
<PAGE> 11
be stated therein or necessary to make the statements therein
not misleading when made or failed to comply with the
applicable requirements of the FDIC or the FRB, as the case
may be.
(ii) The Offerors and the Subsidiaries hold such permits,
licenses, franchises and authorizations of governmental or
regulatory authorities or third parties ("Permits") as are
necessary to own, lease and operate their respective
properties and assets and to conduct their respective
businesses, except where the failure to have any such Permit
would not have a material adverse effect upon the condition
(financial or otherwise) or results of operations of the
Offerors and the Subsidiaries taken as a whole. The Offerors
and the Subsidiaries have fulfilled and performed all of
their respective material obligations with respect to such
Permits, and no event has occurred that allows, or after
notice or lapse of time or both, would allow revocation or
termination thereof or result in any other material
impairment of the rights of the holder of any such Permit.
(jj) Deloitte & Touche LLP, the accounting firm that has certified
or reviewed, or shall certify or review, the financial
statements and supporting schedules filed or to be filed with
the Commission as part of the Registration Statement and the
Prospectus, is an independent public accounting firm with
respect to the Offerors and the Subsidiaries as required by
the Act.
(kk) The Offerors have not distributed and will not distribute any
prospectus or other offering material in connection with the
offering and sale of the Trust Preferred Securities other
than any Preliminary Prospectus or the Prospectus or other
materials permitted by the Act to be distributed by the
Company.
(ll) The Offerors expect that the Trust Preferred Securities will
qualify as "tier 1" capital (as defined in 12 C.F.R. Part 325
and subject to the limitations set forth therein).
39. Purchase, Sale and Delivery of Trust Preferred Securities. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Trust agrees to issue
and sell to the Underwriters, and the Underwriters agree, severally and not
jointly, to purchase from the Trust, at a purchase price per Trust Preferred
Security of $10.00, the number of Trust Preferred Securities set forth opposite
the name of such Underwriter on Schedule A hereto. As compensation to the
Underwriters for their commitments hereunder and in view of the fact that the
proceeds of the sale of the Trust Preferred Securities (together with the
proceeds from the sale by the Trust to the Company of the Common Securities)
will be used to purchase the Debentures, the Company hereby agrees to pay at
the Closing Date to the Underwriters a commission per Trust Preferred Security
equal to $0.375 per Trust Preferred Security, or $450,000 in the aggregate.
At 9:00 A.M., Chicago Time, on the fourth business day, if permitted
under Rule 15c6-1 under the Exchange Act (or the third business day if required
under Rule 15c6-1 under the
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<PAGE> 12
Exchange Act or unless postponed in accordance with the provisions of Section
10) following the date the Registration Statement becomes effective, or such
other time not later than ten business days after such date as shall be agreed
upon by the Underwriters and the Offerors, the Offerors will deliver to you at
the offices of counsel for the Underwriters or through the facilities of The
Depository Trust Company for the accounts of the several Underwriters,
certificates representing the Trust Preferred Securities to be sold by them,
respectively, against payment of the purchase price therefor by delivery of
federal or other immediately available funds, by wire transfer or otherwise, to
the Company. Such time of delivery and payment is herein referred to as the
"Closing Date." The certificates for the Trust Preferred Securities so to be
delivered will be in such denominations and registered in such names as you
request by notice to the Offerors prior to 10:00 A.M., Chicago Time, on the
second business day preceding the Closing Date, and will be made available at
the Company's expense for checking and packaging by the Representative at 10:00
A.M., Chicago Time, on the business day preceding the Closing Date. Payment for
the Trust Preferred Securities so to be delivered shall be made at the time and
in the manner described above at the offices of counsel for the Underwriters.
You have advised the Offerors that each Underwriter has authorized you
to accept delivery of its Trust Preferred Securities, to make payment and to
receipt therefor. You, individually and not as the Representative of the
Underwriters, may make payment for any Trust Preferred Securities to be
purchased by any Underwriter whose funds shall not have been received by you by
the Closing Date for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from any obligation hereunder.
40. Covenants of the Company. The Offerors jointly and severally
covenant and agree that:
(a) They will, if the Registration Statement has not heretofore
become effective under the Act, file an amendment to the
Registration Statement or, if necessary pursuant to Rule 430A
under the Act, a post-effective amendment to the Registration
Statement, as soon as practicable after the execution and
delivery of this Agreement, and will use their best efforts
to cause the Registration Statement or such post-effective
amendment to become effective at the earliest possible time;
and the Offerors will comply fully and in a timely manner
with the applicable provisions of Rule 424(b) and Rule 430A
under the Act.
(b) They will advise you promptly and, if requested by you,
confirm such advice in writing, (i) when the Registration
Statement has become effective, if and when the Prospectus is
sent for filing pursuant to Rule 424 under the Act and when
any post-effective amendment to the Registration Statement
becomes effective, (ii) of the receipt of any comments from
the Commission that relate to the Registration Statement or
requests by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or
for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of
the
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<PAGE> 13
Registration Statement, or of the suspension of qualification
of the Trust Preferred Securities for offering or sale in any
jurisdiction, or the initiation or, to the best knowledge of
the Offerors, threat of any proceedings for such purpose by
the Commission or any state securities commission or other
regulatory authority, and (iv) of the happening of any event
or information becoming known during the period referred to
in paragraph (e) below that makes any statement of a material
fact made in the Registration Statement untrue or that
requires the making of any additions to or changes in the
Registration Statement (as amended or supplemented from time
to time) in order to make the statements therein not
misleading or that makes any statement of a material fact
made in the Prospectus (as amended or supplemented from time
to time) untrue or that requires the making of any additions
to or changes in the Prospectus (as amended or supplemented
from time to time) in order to make the statements therein,
not misleading; if at any time the Commission shall issue or
institute proceedings (or threaten to institute any such
proceedings) to issue any stop order suspending the
effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall
issue or institute proceedings (or threaten to institute
proceedings) to issue an order suspending the qualification
or exemption of the Securities under any state securities or
blue sky laws, the Offerors shall use best efforts to obtain
the withdrawal or lifting of such order at the earliest
possible time;
(c) They will furnish to you without charge one signed copy of
the Registration Statement as first filed with the Commission
and of each amendment to it, including all exhibits filed
therewith, and will furnish to you and each Underwriter
designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to
it, without exhibits, as you may reasonably request.
(d) They will not file any amendment or supplement to the
Registration Statement, whether before or after the time when
it becomes effective, or make any amendment or supplement to
the Prospectus of which you shall not previously have been
advised and provided a copy a reasonable period of time prior
to the filing thereof or to which you or your counsel shall
reasonably object, and they will prepare and file with the
Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or supplement to the
Prospectus that may be necessary or advisable in connection
with the distribution of the Securities by you in your or
your counsel's opinion, and will use best efforts to cause
the same to become effective as promptly as possible.
(e) Promptly after the Registration Statement becomes effective,
and from time to time thereafter for such period as a
prospectus is required by the Act to be delivered in
connection with the sales by an underwriter or a dealer (in
the
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<PAGE> 14
opinion of your counsel), they will furnish to each
Underwriter and dealer without charge as many copies of the
Prospectus (and any amendment or supplement to the
Prospectus) as such Underwriter or dealer may reasonably
request for the purposes contemplated by the Act, and the
Offerors consent to the use of the Prospectus and any
amendment or supplement thereto by any Underwriter or any
dealer, both in connection with the offering or sale of the
Securities and for such period of time thereafter as the
Prospectus is required by the Act to be delivered in
connection therewith.
(f) If during the period specified in paragraph (e) any event
shall occur or information become known as a result of which
in the opinion of your counsel it becomes necessary to amend
or supplement the Prospectus in order to make the statements
therein as of the date the Prospectus is delivered to a
purchaser, in light of the circumstances under which such
statements were made, not misleading, or it is necessary to
amend or supplement the Prospectus to comply with any law,
forthwith to prepare and, subject to paragraph (d) above,
they will file with the Commission at the sole expense of the
Company an appropriate amendment or supplement to the
Prospectus so that the statements of any material facts in
the Prospectus, as so amended and supplemented, will not when
it is so delivered, in light of the circumstances under which
such statements are made, be misleading, or so that the
Prospectus will comply with law and it will furnish to the
Underwriters and to such dealers as the Underwriters shall
specify, at the sole expense of the Company, such number of
copies thereof as such Underwriters or dealers may reasonably
request.
(g) Prior to any public offering of the Trust Preferred
Securities, they will cooperate with you and counsel for the
Underwriters in connection with the registration or
qualification of the Trust Preferred Securities for offer and
sale by the several Underwriters and by dealers under the
state securities or blue sky laws of such jurisdictions as
you may request (provided that the Offerors shall not be
obligated to qualify as foreign corporations in any
jurisdiction in which they are not so qualified or to take
any action which would subject them to general consent to
service of process in any jurisdiction in which they are not
now so subject), and the Offerors will continue such
qualification in effect so long as required by law for the
distribution of the Trust Preferred Securities and will file
such consents to service of process or other documents as may
be necessary in order to effect such registration or
qualification (provided that the Offerors shall not be
obligated to take any action that would subject it to general
consent to service of process in any jurisdiction in which
they are not now so subject);
(h) They will make generally available to their security holders,
as soon as it is practicable to do so, but in any event not
later than 18 months after the effective date of the
Registration Statement, an earnings statement (which
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<PAGE> 15
need not be audited) in reasonable detail, covering a period
of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earnings
statement shall satisfy the requirements of Section 1l(a) of
the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of this
Agreement, they will furnish to you a copy (i) as soon as
practicable after the filing thereof, of each report filed by
either of the Offerors with the Commission, any securities
exchange or the NASD; (ii) as soon as practicable after the
release thereof, of each material press release in respect of
either of the Offerors; (iii) as soon as available, of each
report of the Company mailed to shareholders; and (iv) as
soon as available, such other publicly available information
concerning the Offerors as you may reasonably request.
(j) They will use the net proceeds received by them from the sale
of the Trust Preferred Securities and the Debentures in the
manner specified in the Prospectus and will file such reports
with the Commission with respect to the application of the
proceeds therefrom as may be required in accordance with Rule
463 under the Act and will furnish you copies of any such
reports as soon as practicable after the filing thereof.
(k) If, at the time of effectiveness of the Registration
Statement, any information shall have been omitted therefrom
in reliance upon Rule 430A, then immediately following the
execution of this Agreement, they will prepare, and file or
transmit for filing with the Commission in accordance with
such Rule 430 and Rule 424(b), copies of an amended
Prospectus, or, if required by such Rule 430A, a
post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information
so omitted.
(l) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the Nasdaq
National Market.
13. Payment of Expenses. Whether or not the transactions contemplated
hereunder are consummated or this Agreement becomes effective as to all of its
provisions or is terminated, the Offerors agree to pay (i) all costs, fees and
expenses (other than legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the Underwriters) incurred in
connection with the performance of the Offerors' obligations hereunder,
including without limiting the generality of the foregoing, all fees and
expenses of legal counsel for the Offerors and of the Offerors' independent
accountants, all costs and expenses incurred in connection with the
preparation, printing, filing and distribution of the Registration Statement,
each Preliminary Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein
and this Agreement, (ii) all costs, fees and expenses (including legal fees and
disbursements not to exceed $5,000 of counsel for the
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<PAGE> 16
Underwriters) incurred by the Underwriters in connection with qualifying or
registering all or any part of the Trust Preferred Securities for offer and
sale under blue sky laws, including the preparation of a blue sky memorandum
relating to the Trust Preferred Securities and clearance of such offering with
the NASD; and (iii) all fees and expenses of the Property Trustee, the Delaware
Trustee and the Indenture Trustee, printing of the certificates for the Trust
Preferred Securities and all transfer taxes, if any, with respect to the sale
and delivery of the Trust Preferred Securities to the several Underwriters.
14. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Trust Preferred
Securities on the Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Offerors herein set forth as
of the date hereof and as of the Closing Date, to the accuracy of the
statements of officers or trustees of the Offerors made pursuant to the
provisions hereof, to the performance by the Offerors of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective either
prior to the execution of this Agreement or not later than
1:00 P.M., Chicago Time, on the first full business day after
the date of this Agreement, or such later time as shall have
been consented to by you but in no event later than 1:00
P.M., Chicago Time, on the third full business day following
the date hereof; and prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending or, to the
knowledge of the Offerors or you, shall be contemplated by
the Commission. If the Company has elected to rely upon Rule
430A, the information concerning the price-related
information shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) within the prescribed period
and the Offerors will provide evidence satisfactory to the
Representative of such timely filing (or a post-effective
amendment providing such information shall have been filed
and declared effective in accordance with the requirements of
Rules 430A and 424(b)).
(b) The Trust Preferred Securities shall have been qualified for
sale under the blue sky laws of such states as shall have
been specified by the Representative.
(c) The legality and sufficiency of the authorization, issuance
and sale of the Trust Preferred Securities hereunder, the
execution and delivery of this Agreement and all corporate
proceedings and other legal matters incident thereto, and the
form of the Registration Statement and the Prospectus (except
financial statements) shall have been approved by counsel for
the Underwriters exercising reasonable judgment, and no
Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of material
fact, or omits to state a fact that in your opinion is
material and is
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<PAGE> 17
required to be stated therein or is necessary to make the
statements therein not misleading.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any material change, or any
material development involving a prospective change, in or
affecting particularly the business or properties of the
Offerors or the Subsidiaries, whether or not arising in the
ordinary course of business, that, in your judgment, makes it
impractical or inadvisable to proceed with the public
offering or purchase of the Trust Preferred Securities as
contemplated hereby.
(e) There shall have been furnished to you, as Representative of
the Underwriters, on the Closing Date, except as otherwise
expressly provided below:
(i) An opinion of Bracewell & Patterson, L.L.P.,
Houston, Texas, counsel for the Company, addressed
to the Underwriters and dated the Closing Date, to
the effect that:
(1) The Company has been duly organized and is
validly existing and in good standing under the laws of
Texas. Each Subsidiary has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation. Each of the Offerors
and each Subsidiary has the power and authority, corporate or
otherwise, to own or lease its properties and conduct its
business as described in the Prospectus, and is duly
qualified to transact business in all jurisdictions in which
the conduct of its business or its ownership or leasing of
property requires such qualification and the failure so to
qualify would have a material adverse effect on the business
or condition, financial or otherwise, of the Offerors and the
Subsidiaries, taken as a whole.
(2) Each Offeror has all necessary power and
authority, corporate, trust or otherwise, to enter into and
perform this Agreement, the Indenture, the Trust Agreement,
the Guarantee Agreement and the Expense Agreement, as
applicable, and to effect the transactions contemplated
hereby or thereby. The performance of the Offerors'
respective obligations hereunder and under the Indenture, the
Trust Agreement, the Guarantee Agreement and the Expense
Agreement, as applicable, have been duly authorized by all
necessary action. This Agreement, the Indenture, the Trust
Agreement, the Guarantee Agreement and the Expense Agreement
have been duly executed and delivered by and on behalf of the
Trust and/or the Company, as applicable, and, assuming due
authorization, execution and delivery of such agreements by
the other parties thereto, constitute legal, valid and
binding agreements of the Trust and/or the Company, as
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<PAGE> 18
applicable, enforceable in accordance with their respective
terms, except as enforceability of the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general applicability
relating to or affecting creditors' rights generally and by
general equity principles. No approval, consent, order,
authorization, designation, declaration or filing by or with
any regulatory, administrative or other governmental body or,
to the best of such counsel's knowledge, after due inquiry,
third party, is necessary in connection with the execution
and delivery of this Agreement, the Indenture, the Trust
Agreement, the Guarantee Agreement or the Expense Agreement
and the consummation of the transactions contemplated herein
or therein or as contemplated by the Prospectus (other than
as may be required by the Trust Indenture Act, the NASD or as
required by state securities or blue sky laws, as to which
such counsel need express no opinion) except such as have
been obtained or made, with counsel specifying the same.
(3) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under
"Capitalization." All of the shares of outstanding capital
stock of the Company have been duly authorized and validly
issued, are fully paid and non-assessable and were not issued
in violation of any preemptive rights or, to the best of such
counsel's knowledge, other rights to subscribe for or
purchase securities. Except as set forth in the Registration
Statement and the Prospectus, to the best of such counsel's
knowledge, no options, warrants or other rights to convert
any obligation into, or exchange any securities for, shares
of capital stock or ownership interests in the Company are
outstanding.
(4) To the best of such counsel's knowledge, after
due inquiry, neither the filing of the Registration Statement
or any amendment thereto nor the offer and sale of the
Securities to the Underwriters as contemplated by this
Agreement gives rise to any rights, nor do any rights exist,
for or relating to the registration under the Act of any
securities of either Offeror.
(5) The Registration Statement has become effective
under the Act, the Prospectus has been filed as required by
this Agreement, if necessary, and to the best of such
counsel's knowledge: (a) after telephonic inquiry of the
Commission, no stop order suspending the effectiveness of the
Registration Statement has been issued, and (b) no
proceedings for that purpose are pending or have been
initiated or threatened by the Commission. The Registration
Statement (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant
to Rule 430A, if applicable), the Prospectus and each
amendment or supplement thereto (except for the financial
statements and other statistical or financial data included
therein, as to which such counsel need express no
18
<PAGE> 19
opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(6) The descriptions in the Registration Statement
and Prospectus of contracts, instruments and other documents
filed as exhibits to the Registration Statement, and the
description of legal and governmental proceedings, are
accurate in all material respects, and such counsel does not
know of any proceedings required to be described in the
Prospectus that are not described, or of any contracts or
documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that were not
described and filed as required.
(7) Neither the filing of the Registration Statement
or any amendment nor the execution and performance of this
Agreement, the Indenture, the Trust Agreement the Guarantee
Agreement or the Expense Agreement, nor the consummation of
the transactions contemplated herein or therein, will
contravene any of the provisions of, or result in a default
under (nor, to the best of such counsel's knowledge, has any
event occurred which with notice or lapse of time, or both,
would constitute a breach or default under), any Obligations
and Instruments to which the Trust or the Company is a party
or by which their property is bound (except for such
contravention or default which would not have a material
adverse effect on the business or condition, financial or
otherwise, of the Offerors and the Subsidiaries, taken as a
whole), or violate any of the provisions of the charter or
by-laws of the Company or the Certificate of Trust of the
Trust, or violate any Laws known to such counsel.
(8) Neither of the Offerors nor any Subsidiary is an
"investment company", a company "controlled" by an
"investment company" or an "investment adviser" within the
meaning of the Investment Company Act.
(9) The statements in the Prospectus under the
caption "Description of the Trust Preferred Securities,"
"Description of the Debentures," "Description of the
Guarantee" and "Relationship among the Trust Preferred
Securities, the Debentures and the Guarantee," insofar as
such statements constitute matters of law applicable to the
Offerors or summaries of documents, fairly present the
information required to be included therein in all material
respects.
(10) All of the issued and outstanding Common
Securities of the Trust are owned by the Company, free and
clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equitable right.
(11) Each of the Indenture, the Trust Agreement and
the Guarantee Agreement has been duly qualified under the
Trust Indenture Act.
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<PAGE> 20
(12) The Debentures are subordinate and junior in
right of payment to all Senior Indebtedness of the Company.
(13) No Tax Event, Capital Treatment Event or
Investment Company Event (each as defined in the Indenture)
has occurred.
(14) The statements set forth in the Prospectus
under the caption "Federal Income Tax Consequences"
constitute a fair and accurate summary of the matters
addressed therein, based upon current law and the assumptions
stated or referred to therein.
(15) To the best of such counsel's knowledge and
information after due inquiry, the Trust is not required to
be authorized to do business in any other jurisdiction, and
the Trust is not a party to or otherwise bound by any
agreement other than those described in the Prospectus.
In addition, such counsel shall state that they have
participated in conferences with officers and other
representatives of the Offerors, representatives of the
independent public accountants of the Company and
representatives of the Underwriters and their counsel, at
which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although
such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of
the statements contained in the Registration Statement and
the Prospectus (except as set forth above) and has not made
any independent check or verification thereof, on the basis
of the foregoing (relying as to materiality upon the
statements of officers and other representatives of the
Company), no facts have come to such counsel's attention that
lead such counsel to believe that either the Registration
Statement or any amendment (including any post-effective
amendment) thereto at the time such Registration Statement or
amendment became effective, and as of the Closing Date,
contained or contains an untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading, or that the Prospectus or any amendment or
supplement thereto as of their respective dates and as of the
Closing Date contained or contains an untrue statement of a
material fact or omitted or omits 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, except that such counsel need
express no opinion with respect to the financial statements,
schedules and other financial data included in the
Registration Statement or the Prospectus.
(ii) An opinion of __________, dated the Closing Date,
addressed to the Underwriters, counsel for the Property Trustee under
the Trust Agreement, the Indenture Trustee under the Indenture and the
Guarantee Trustee under the Guarantee Agreement, to the effect that:
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<PAGE> 21
(1) First Union Trust Company, National Association,
is duly incorporated and is validly existing in good standing
as a banking corporation under the laws of the State of
Delaware.
(2) First Union Trust Company, National Association
has the power and authority to execute, deliver and perform
its obligations under the Indenture, the Trust Agreement and
the Guarantee Agreement.
(3) Each of the Indenture, the Trust Agreement and
the Guarantee Agreement has been duly authorized, executed
and delivered by First Union Trust Company, National
Association, and constitutes a legal, valid and binding
obligation of it, enforceable against it in accordance with
their respective terms.
(4) The execution, delivery and performance by First
Union Trust Company, National Association of the Indenture,
Trust Agreement and the Guarantee Agreement do not conflict
with or constitute a breach of the charter or by-laws of
Bankers Trust Company or Bankers Trust (Delaware), as the
case may be.
(5) No consent, approval or authorization of, or
registration with or notice to, any governmental authority or
agency of the State of Delaware or the United States
governing the banking or trust powers of First Union Trust
Company, National Association is required for the execution,
delivery or performance by it of the Indenture, the Trust
Agreement or the Guarantee Agreement.
(iii) An opinion of Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special Delaware counsel to the Offerors, dated
the Closing Date, to the effect that:
(1) The Trust has been duly created and is validly
existing in good standing as a business trust under the
Delaware Act, and all filings required as of the date hereof
under the Delaware Act with respect to the creation and valid
existence of the Trust as a business trust have been made.
(2) Under the Trust Agreement and the Delaware Act,
the Trust has the trust power and authority to own property
and to conduct its business, all as described in the
Prospectus.
(3) The Trust Agreement constitutes a valid and
binding obligation of the Company and each of the Property
Trustee and the Administrative Trustees, and is enforceable
against the Company and each of the Property Trustee and the
Administrative Trustees in accordance with its terms.
(4) Under the Trust Agreement and the Delaware Act,
the Trust has the trust power and authority (i) to execute
and deliver, and to perform its obligations under, this
Agreement, and (ii) to issue, and to perform its
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<PAGE> 22
obligations under, this Agreement, and (iii) to issue, and to
perform its obligations under, the Trust Preferred Securities
and the Common Securities.
(5) Under the Trust Agreement and the Delaware Act,
the execution and delivery by the trust of this Agreement,
and the performance by it of its obligations hereunder, have
been duly authorized by all necessary trust action on the
part of the Trust.
(6) The Trust Preferred Securities and the Common
Securities have been duly authorized by the Trust Agreement
and are duly and validly issued and fully paid and
non-assessable undivided beneficial interests in the assets
of the Trust. The respective holders of the Trust Preferred
Securities and the Common Securities, as beneficial owners of
the Trust, will be entitled to the same limitation of
personal liability extended to stockholders of private
corporations for profit organized under the General
Corporation Law of the State of Delaware.
(7) Under the Trust Agreement and the Delaware Act,
the issuance of the Trust Preferred Securities and the Common
Securities is not subject to preemptive or similar rights.
(8) The issuance and sale by the Trust of the Trust
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, the consummation
by the Trust of the transactions contemplated by this
Agreement and compliance by the Trust with its obligations
under this Agreement do not violate (A) any of the provisions
of the Certificate of Trust or the Trust Agreement, or (B)
any applicable Delaware law or administrative regulation.
(iv) Such opinion of Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, Chicago, Illinois, counsel for the Underwriters,
dated the Closing Date, with respect to such matters as you may
reasonably require.
(v) A certificate of the chief executive officer and
the principal financial officer of the Company, dated the Closing
Date, to the effect that:
(1) the representations and warranties of the
Company set forth in Section 2 of this Agreement are true and
correct as of the date of this Agreement and as of the
Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date; and
(2) the Commission has not issued an order
preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been
issued; and to the best
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<PAGE> 23
knowledge of the respective signers, no proceedings for that
purpose have been instituted or are pending or contemplated
under the Act.
The delivery of the certificate provided for in this
subparagraph shall be and constitute a representation and warranty of
the Company as to the facts required in the immediately foregoing
clauses (1) and (2) of this subparagraph to be set forth in said
certificate.
(vi) A certificate of the Administrative Trustees,
dated the Closing Date, to the effect that:
(1) the representations and warranties of the
Company set forth in Section 2 of this Agreement are true and
correct as of the date of this Agreement and as of the
Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date; and
(2) the Commission has not issued an order
preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been
issued; and to the best knowledge of the respective signers,
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act.
The delivery of the certificate provided for in this
subparagraph shall be and constitute a representation and warranty of
the Trust as to the facts required in the immediately foregoing
clauses (1) and (2) of this subparagraph to be set forth in said
certificate.
(vii) In connection with the execution of this
Agreement and on the Closing Date, a "cold comfort" letter from
Deloitte & Touche LLP, dated as of each such date, in form and
substance satisfactory to you, with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus. There shall not have been
any change or decrease specified in the letters referred to in this
subparagraph which makes it impractical or inadvisable in the judgment
of the Representative to proceed with the public offering or purchase
of the Trust Preferred Securities as contemplated hereby.
(viii) Such further certificates and documents as the
Representative may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Barack Ferrazzano Kirschbaum Perlman & Nagelberg, counsel for the
Underwriters, which approval shall not be unreasonably withheld. The Offerors
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request.
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<PAGE> 24
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the Closing Date is not so satisfied, this Agreement
at your election will terminate upon notification to the Offerors without
liability on the part of any Underwriter or the Offerors, except for the
expenses to be paid or reimbursed by the Company pursuant to Sections 5 and 7
hereof and except to the extent provided in Section 9 hereof.
7. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Trust Preferred Securities on the Closing Date is not
consummated because any condition of the Underwriters' obligations hereunder is
not satisfied or because of any refusal, inability or failure on the part of
either Offeror to perform any agreement herein or to comply with any provision
hereof, unless such failure to satisfy such condition or to comply with any
provision hereof is due to the default or omission of any Underwriter, the
Offerors jointly and severally agree to reimburse you and the other
Underwriters upon demand for all out-of-pocket expenses (including reasonable
fees and disbursements of counsel) that shall have been reasonably incurred by
you and them in connection with the proposed purchase and the sale of the Trust
Preferred Securities. Any such termination shall be without liability of any
party to any other party except that the provisions of this Section, Section 5
and Section 9 shall at all times be effective and shall apply.
8. Effectiveness of Registration Statement. You and the Offerors will
use your and their best efforts to cause the Registration Statement to become
effective, if it has not yet become effective, and to prevent the issuance of
any stop order suspending the effectiveness of the Registration Statement and,
if such stop order be issued, to obtain as soon as possible the lifting
thereof.
9. Indemnification. (a) The Offerors jointly and severally agree to
indemnify and hold harmless each Underwriter, each officer and director thereof
and each person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such person may become subject
under the Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, including the information deemed to be part of
the Registration Statement at the time of effectiveness pursuant to Rule 430A,
if applicable, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such person for any legal or other expenses
reasonably incurred by such Underwriter or such person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Offerors will not be liable in any such case to the
extent that (i) any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Offerors by or
on behalf of any Underwriter through the Representative, specifically for use
therein; or (ii) if such statement or omission was contained
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<PAGE> 25
or made in any Preliminary Prospectus and corrected in the Prospectus and (1)
any such loss, claim, damage or liability suffered or incurred by any
Underwriter or person resulted from an action, claim or suit by any person who
purchased Trust Preferred Securities which are the subject thereof from such
Underwriter in the offering and (2) such Underwriter failed to deliver or
provide a copy of the Prospectus to such person at or prior to the confirmation
of the sale of such Trust Preferred Securities in any case where such delivery
is required by the 193 Act. In addition to their other obligations under this
Section 9(a), the Offerors agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in this Section 9(a), they will reimburse the
Underwriters on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Offerors'
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. This indemnity agreement will be in addition to any
liability which the Offerors may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Offerors and each of their trustees, officers and directors who signed the
Registration Statement, and each person, if any, who controls the Offerors
within the meaning of the Act or the Exchange Act, against any losses, claims,
damages or liabilities to which the Offerors, or any such person may become
subject under the Act, the Exchange Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto in reliance upon and in
conformity with Section 4 of this Agreement or any other written information
furnished to the Offerors by such Underwriter through the Representative
specifically for use in the preparation thereof; and will reimburse any legal
or other expenses reasonably incurred by the Offerors or any such person in
connection with investigating or defending any such loss, claim, damage,
liability or action. In addition to their other obligations under this Section
9(b), the Underwriters agree that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 9(b), they will reimburse the Offerors on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Offerors for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
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<PAGE> 26
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, or the indemnified and indemnifying
parties may have conflicting interests which would make it inappropriate for
the same counsel to represent both of them, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defense
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed such counsel in connection with the assumption of legal defense in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, approved by the Representative in
the case of paragraph (a) representing all indemnified parties not having
different or additional defenses or potential conflicting interest among
themselves who are parties to such action), (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability arising out of such proceeding.
(d) If the indemnification provided for in this Section is unavailable
to an indemnified party under paragraphs (a) or (b) hereof in respect of any
losses, claims, damages or liabilities referred to therein, then each
applicable 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 or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Offerors and
the Underwriters from the offering of the Trust 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 and
the Underwriters in
26
<PAGE> 27
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The respective relative benefits received by the Offerors and
the Underwriters shall be deemed to be in the same proportion in the case of
the Offerors as the total price paid to the Offerors for the Trust Preferred
Securities by the Underwriters (net of underwriting discount but before
deducting expenses), and in the case of the Underwriters as the underwriting
discount received by them bears to the total of such amounts paid to the
Offerors and received by the Underwriters as underwriting discount in each case
as contemplated by the Prospectus. The relative fault of the Offerors and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Offerors or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Offerors and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Trust Preferred Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section are several in proportion to their
respective underwriting commitments and not joint.
(e) The provisions of this Section shall survive any termination of
this Agreement.
10. Default of Underwriters. It shall be a condition to the agreement
and obligation of the Offerors to sell and deliver the Trust Preferred
Securities hereunder, and of each Underwriter to purchase the Trust Preferred
Securities hereunder, that, except as hereinafter in this paragraph provided,
each of the Underwriters shall purchase and pay for all Trust Preferred
Securities agreed to be purchased by such Underwriter hereunder upon tender to
the Representative of all such Trust Preferred Securities in accordance with
the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Trust Preferred Securities hereunder on the Closing
Date and the aggregate number of Trust Preferred Securities which such
defaulting Underwriter or Underwriters agreed but failed to purchase does not
exceed 10 percent of the total number of Trust Preferred Securities which the
Underwriters are obligated to purchase on the Closing Date, the Representative
may make arrangements satisfactory to the Offerors for the purchase of such
Trust Preferred Securities by other persons, including any of the Underwriters;
but if no such arrangements are made by such date, the nondefaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the
27
<PAGE> 28
Trust Preferred Securities which such defaulting Underwriters agreed but failed
to purchase on such date. If any Underwriter or Underwriters so default and the
aggregate number of Trust Preferred Securities with respect to which such
default or defaults occur is more than the above percentage and arrangements
satisfactory to the Representative and the Offerors for the purchase of such
Trust Preferred Securities by other persons are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of
any nondefaulting Underwriter or the Offerors, except for the expenses to be
paid by the Offerors pursuant to Section 5 hereof and except to the extent
provided in Section 9 hereof.
In the event that Trust Preferred Securities to which a default
relates are to be purchased by the nondefaulting Underwriters or by another
party or parties, the Representative or the Company shall have the right to
postpone the Closing Date for not more than seven business days in order that
the necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
11. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof, this Agreement may be
terminated by you prior to the Closing Date, if (i) trading in securities on
the New York Stock Exchange shall have been suspended or minimum prices shall
have been established on such exchange, (ii) a banking moratorium shall have
been declared by Texas or United States authorities, (iii) there shall have
been any change in financial markets or in political, economic or financial
conditions which, in the opinion of the Representative, either renders it
impracticable or inadvisable to proceed with the offering and sale of the Trust
Preferred Securities on the terms set forth in the Prospectus or materially and
adversely affects the market for the Trust Preferred Securities, or (iv) there
shall have been an outbreak of major armed hostilities between the United
States and any foreign power which in the opinion of the Representative makes
it impractical or inadvisable to offer or sell the Trust Preferred Securities.
Any termination pursuant to this Section 11 shall be without liability on the
part of any Underwriter to the Offerors or on the part of the Offerors to any
Underwriter (except for expenses to be paid or reimbursed pursuant to Section 5
hereof and except to the extent provided in Section 9 hereof).
12. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Offerors and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter or the Offerors or
any of its or their trustees, partners, principals, members, officers or
directors or any controlling person and will survive delivery of and payment
for the Trust Preferred Securities sold hereunder.
13. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters will be mailed, delivered or telegraphed and confirmed
to you c/o Howe Barnes Investments, Inc., 135 South LaSalle Street, Chicago,
Illinois 60603, Attention: Paul A. O'Connor; if sent to
28
<PAGE> 29
the either of the Offerors will be mailed, delivered or telegraphed and
confirmed to the such Offeror at its principal offices.
14. Successors. This Agreement and the Pricing Agreement will inure to
the benefit of and be binding upon the parties hereto and their respective
successors, personal representatives and assigns, and to the benefit of the
officers and directors and controlling persons referred to in Section 11, and
no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Trust Preferred Securities
as such from any of the Underwriters merely by reason of such purchase.
15. Partial Unenforceability. If any section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
section, paragraph or provision hereof.
16. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
17. Counterparts. This 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.
29
<PAGE> 30
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Offerors and the several
Underwriters including you, all in accordance with its terms.
Very truly yours,
PROSPERITY BANCSHARES, INC.
By
-----------------------------------
Name:
Title:
PROSPERITY CAPITAL TRUST I
By
-----------------------------------
Name:
Title: Administrative Trustee
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
HOWE BARNES INVESTMENTS, INC.
Acting as Representative of the several
Underwriters named in Schedule A
By
---------------------------------
Name: Paul A. O'Connor
Title: First Vice President
30
<PAGE> 31
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF TRUST
PREFERRED SECURITIES
UNDERWRITER TO BE PURCHASED
----------- --------------------
<S> <C>
Howe Barnes Investments, Inc.
TOTAL 1,200,000
=========
</TABLE>
1
<PAGE> 1
EXHIBIT 4.1
INDENTURE
BY AND BETWEEN
PROSPERITY BANCSHARES, INC.
AND
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
AS TRUSTEE
% SUBORDINATED DEBENTURES DUE 2029
----
DATED AS OF , 1999
----------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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.............................................................10
Section 2.1 Designation and Principal Amount......................................................10
Section 2.2 Maturity..............................................................................10
Section 2.3 Form and Payment......................................................................10
Section 2.4 Intentionally Left Blank..............................................................11
Section 2.5 Interest..............................................................................11
Section 2.6 Execution and Authentications.........................................................12
Section 2.7 Registration of Transfer and Exchange.................................................12
Section 2.8 Temporary Debentures..................................................................13
Section 2.9 Mutilated, Destroyed, Lost or Stolen Debentures.......................................14
Section 2.10 Cancellation..........................................................................15
Section 2.11 Benefit of Indenture..................................................................15
Section 2.12 Authentication Agent..................................................................15
ARTICLE III
REDEMPTION OF DEBENTURES................................................................................16
Section 3.1 Redemption............................................................................16
Section 3.2 Special Event Redemption..............................................................16
Section 3.3 Optional Redemption by Company........................................................16
Section 3.4 Notice of Redemption..................................................................17
Section 3.5 Payment Upon Redemption...............................................................18
Section 3.6 No Sinking Fund.......................................................................18
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD....................................................................18
Section 4.1 Extension of Interest Payment Period..................................................18
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
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
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
Section 5.9 Waiver of Usury, Stay or Extension Laws...............................................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.................................................................24
Section 6.3 Reports by the Company................................................................24
Section 6.4 Reports by the Trustee................................................................25
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT.....................................................................................25
Section 7.1 Events of Default.....................................................................25
Section 7.2 Collection of Indebtedness and Suits for Enforcement by Trustee.......................27
Section 7.3 Application of Moneys Collected.......................................................28
Section 7.4 Limitation on Suits...................................................................28
Section 7.5 Rights and Remedies Cumulative; Delay or Omission not Waiver..........................29
Section 7.6 Control by Debentureholders...........................................................29
Section 7.7 Undertaking to Pay Costs..............................................................30
Section 7.8 Direct Action; Right of Set-Off.......................................................30
ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE....................................................................31
Section 8.1 Form of Debenture.....................................................................31
Section 8.2 Original Issue of Debentures..........................................................31
ARTICLE IX
CONCERNING THE TRUSTEE..................................................................................31
Section 9.1 Certain Duties and Responsibilities of the Trustee....................................31
Section 9.2 Notice of Defaults....................................................................32
Section 9.3 Certain Rights of Trustee.............................................................33
Section 9.4 Trustee Not Responsible for Recitals, etc.............................................34
Section 9.5 May Hold Debentures...................................................................34
Section 9.6 Moneys Held in Trust..................................................................34
Section 9.7 Compensation and Reimbursement........................................................35
Section 9.8 Reliance on Officers' Certificate.....................................................35
Section 9.9 Disqualification: Conflicting Interests...............................................35
Section 9.10 Corporate Trustee Required; Eligibility...............................................36
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.11 Resignation and Removal; Appointment of Successor.....................................36
Section 9.12 Acceptance of Appointment by Successor................................................37
Section 9.13 Merger, Conversion, Consolidation or Succession to Business...........................38
Section 9.14 Preferential Collection of Claims Against the Company.................................38
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS.........................................................................38
Section 10.1 Evidence of Action by Holders.........................................................38
Section 10.2 Proof of Execution by Debentureholders................................................39
Section 10.3 Who May be Deemed Owners..............................................................39
Section 10.4 Certain Debentures Owned by Company Disregarded.......................................40
Section 10.5 Actions Binding on Future Debentureholders............................................40
ARTICLE XI
SUPPLEMENTAL INDENTURES.................................................................................40
Section 11.1 Supplemental Indentures Without the Consent of Debentureholders.......................40
Section 11.2 Supplemental Indentures with Consent of Debentureholders..............................41
Section 11.3 Effect of Supplemental Indentures.....................................................42
Section 11.4 Debentures Affected by Supplemental Indentures........................................42
Section 11.5 Execution of Supplemental Indentures..................................................42
ARTICLE XII
SUCCESSOR CORPORATION...................................................................................43
Section 12.1 Company May Consolidate, etc..........................................................43
Section 12.2 Successor Corporation Substituted.....................................................43
Section 12.3 Evidence of Consolidation, etc. to Trustee............................................44
ARTICLE XIII
SATISFACTION AND DISCHARGE..............................................................................44
Section 13.1 Satisfaction and Discharge of Indenture...............................................44
Section 13.2 Discharge of Obligations..............................................................45
Section 13.3 Deposited Moneys to be Held in Trust..................................................45
Section 13.4 Payment of Monies Held by Paying Agents...............................................45
Section 13.5 Repayment to Company..................................................................45
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS...........................................................................................46
Section 14.1 No Recourse...........................................................................46
ARTICLE XV
MISCELLANEOUS PROVISIONS................................................................................46
Section 15.1 Effect on Successors and Assigns......................................................46
Section 15.2 Actions by Successor..................................................................46
Section 15.3 Surrender of Company Powers...........................................................47
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
Section 15.4 Notices...............................................................................47
Section 15.5 Governing Law.........................................................................47
Section 15.6 Treatment of Debentures as Debt.......................................................47
Section 15.7 Compliance Certificates and Opinions..................................................47
Section 15.8 Payments on Business Days.............................................................48
Section 15.9 Conflict with Trust Indenture Act.....................................................48
Section 15.10 Counterparts..........................................................................48
Section 15.11 Separability..........................................................................48
Section 15.12 Assignment............................................................................48
Section 15.13 Acknowledgment of Rights..............................................................49
ARTICLE XVI
SUBORDINATION OF DEBENTURES.............................................................................49
Section 16.1 Agreement to Subordinate..............................................................49
Section 16.2 Default on Senior Debt, Subordinated Debt or
Additional Senior Obligations.........................................................49
Section 16.3 Liquidation; Dissolution; Bankruptcy..................................................50
Section 16.4 Subrogation...........................................................................51
Section 16.5 Trustee to Effectuate Subordination...................................................52
Section 16.6 Notice by the Company.................................................................52
Section 16.7 Rights of the Trustee; Holders of Senior Indebtedness.................................53
Section 16.8 Subordination may not be Impaired.....................................................53
</TABLE>
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<PAGE> 6
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
SECTION OF
TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED INDENTURE
- ------------------- ---------
<S> <C>
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
</TABLE>
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed
to be a part of the Indenture.
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<PAGE> 7
INDENTURE
INDENTURE, dated as of __________, 1999, between PROSPERITY BANCSHARES,
INC., a Texas corporation (the "Company") and FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association with its principal place of
business in the State of Delaware (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 2029
(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, Prosperity Capital Trust I, a Delaware statutory business
trust (the "Trust"), has offered to the public up to $12,000,000 aggregate
liquidation amount of its Trust 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 $380,000 aggregate
liquidation amount of its Common Securities (as defined herein), in up to
$12,380,000 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:
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<PAGE> 8
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section 1.1 and shall include the
plural as well as the singular. All other terms used in this Indenture that are
defined in the Trust Indenture Act, or that are by reference in the Trust
Indenture Act defined in the Securities Act (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in the Trust Indenture Act and in the Securities
Act as in force at the date of the execution of this instrument. All accounting
terms used herein and not expressly defined shall have the meanings assigned to
such terms in accordance with Generally Accepted Accounting Principles.
"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
______________, 2004.
"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, (i) 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; (ii) 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; (iii) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (iv) a partnership in which the specified Person is a
general partner; (v) any officer or director of the specified Person; and (vi)
if the specified Person is an individual, any entity of which the specified
Person is an officer, director or general partner.
-2-
<PAGE> 9
"Authenticating Agent" means an authenticating agent with respect to
the Debentures appointed by the Trustee pursuant to Section 2.12.
"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 or any other duly designated officers of
the Company.
"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 New York, New York or Wilmington, Delaware are authorized or
required by law, executive order or regulation to close, or a day on which the
Corporate Trust Office of the Trustee or the Property Trustee is closed for
business.
"Capital Treatment Event" means the receipt by the Company and the
Trust of an Opinion of Counsel, rendered by a law firm having a recognized
national bank regulatory practice, to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the date of issuance of the Trust Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
of impairment of the Company's ability to treat the Trust 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 in effect and applicable to the Company; provided, however,
that the Trust or the Company shall have requested and received such an 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 such event.
"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.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with the Trust Preferred Securities;
provided, however, that upon the occurrence of
-3-
<PAGE> 10
an Event of Default, the rights of holders of Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and otherwise
are subordinated to the rights of holders of Trust Preferred Securities.
"Company" means Prosperity Bancshares, Inc., a corporation duly
organized and existing under the laws of the State of Texas, 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 One Rodney Square,
920 King Street, 1st Floor, Wilmington, Delaware 19801, 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.
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"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Trust Agreement.
"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, as amended,
as in effect at the date of execution of this instrument.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting
principles as are generally accepted at the time of any computation required
hereunder.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof.
"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, means the date specified in the Debenture or in an
indenture supplemental hereto with
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respect to the Debentures as the fixed date on which an installment of interest
with respect to the Debentures is due and payable.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust and the
Company of an Opinion of Counsel, rendered by a law firm having a recognized
national tax and securities law practice, to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
shall be considered an "investment company" that is required to be registered
under the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after the date of original issuance of the Trust Preferred Securities
under the Trust Agreement; provided, however, that the Trust or the Company
shall have requested and received such an 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 such event.
"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 Chief
Executive Officer, President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
that is delivered to the Trustee in accordance with the terms hereof. Each such
certificate shall include the statements provided for in Section 15.7, if and to
the extent required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing of independent,
outside legal 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 (i) 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; (ii) Debentures or portions thereof for
the payment or redemption of which moneys or Governmental Obligations in the
necessary amount shall have been deposited in trust with the Trustee or with any
paying agent (other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as its own paying
agent); provided, however, that if such Debentures or portions of such
Debentures are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as in Article III provided, or
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provision satisfactory to the Trustee shall have been made for giving such
notice; and (iii) 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; provided, however, that in determining whether the holders of the
requisite percentage of Debentures have given any request, notice, consent or
waiver hereunder, Debentures held by the Company or any Affiliate of the Company
shall not be included; provided, further, that the Trustee shall be protected in
acting upon any request, notice, consent or waiver unless a Responsible Officer
of the Trustee shall have actual knowledge that the holder of such Debenture is
the Company or an Affiliate thereof.
"Person" means any individual, corporation, partnership, trust, 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.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Redemption Price" shall have the meaning set forth in Section 3.2.
"Responsible Officer" when used with respect to the Trustee means any
officer within the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture, including any vice
president, any assistant vice president, any assistant secretary 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 corporate trust matter is referred because of
his or her knowledge of and familiarity with the particular subject.
"Scheduled Maturity Date" means ______________, 2029.
"Securities Act," means the Securities Act of 1933, as amended, as in
effect at the date of execution of this instrument.
"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
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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 16.2.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to Senior Debt of the Company (other than the Debentures); provided, however,
that Subordinated 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, (v) Debt which constitutes Senior Debt
and (vi) any Debt of the Company under debt securities (and guarantees in
respect of these debt securities) initially issued to any trust, or a trustee of
a trust, partnership or other entity affiliated with the Company that is,
directly or indirectly, a financing vehicle of the Company in connection with
the issuance by that entity of preferred securities or other securities which
are intended to qualify for Tier 1 capital treatment.
"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 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; (iii) any limited partnership of which such Person or any
of its Subsidiaries is a general partner; and (iv) any limited liability
company, a majority of the membership interests of which are held by such person
or one or more of its Subsidiaries.
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"Tax Event" means the receipt by the Company and the Trust of an
Opinion of Counsel, rendered by a law firm having a recognized national tax and
securities practice, to the effect that, as a result of any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Trust Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or shall be within 90 days after the
date of such Opinion of Counsel, subject to United States federal income tax
with respect to income received or accrued on the Debentures; (ii) interest
payable by the Company on the Debentures is not, or within 90 days after the
date of such Opinion of Counsel, shall not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes; or (iii) the
Trust is, or shall be within 90 days after the date of such Opinion of Counsel,
subject to more than a de minimis amount of other taxes, duties, assessments or
other governmental charges; provided, however, that the Trust or the Company
shall have requested and received such an 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 Prosperity Capital Trust I, a Delaware statutory business
trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of __________, 1999, of the Trust.
"Trust Preferred Securities" means undivided beneficial interests in
the assets of the Trust which rank pari passu with Common Securities issued by
the Trust; provided, however, that upon the occurrence of an Event of Default,
the rights of holders of Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise are
subordinated to the rights of holders of Trust Preferred Securities.
"Trust 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 Trust Preferred Securities.
"Trustee" means First Union Trust Company, National Association 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, as in
effect at the date of execution of this instrument.
"Trust Securities" means the Common Securities and Trust 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
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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 2029," limited in aggregate principal amount to
$12,380,000, 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 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.
(b) the Company may at any time before the day which is 90 days
before the Scheduled Maturity Date and after ______________, 2004, elect to
shorten the Maturity Date only once 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, policies or regulations of the
Federal Reserve.
(c) if the Company elects to accelerate the Maturity Date in
accordance with Section 2.2(b), the Company shall give notice to the Trustee and
the Trust (unless the Trust is not the holder of the Debentures, in which case
the Trustee will give notice to the holders of the Debentures) 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.
The Debentures shall be issued in fully registered certificated form
without interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee; provided,
however, that
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payment of interest may be made at the option of the Company by check mailed to
the holder at such address as shall appear in the Debenture Register or by wire
transfer to an account maintained by the holder as specified in the Debenture
Register, provided that the holder provides proper 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 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.
SECTION 2.4 INTENTIONALLY LEFT BLANK.
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 March 31, 2000 to the Person in whose name such
Debenture or any Predecessor Debenture is registered, at the close of business
on the regular record date 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) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day (and
without any reduction of interest or any other payment in respect of any such
acceleration), in each case with the same force and effect as if made on the
date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever 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.
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SECTION 2.6 EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its
President or one of its Vice Presidents, under its corporate seal, if any,
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 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 or a Vice President, or the Secretary or an Assistant
Secretary, of the Company (and any such signature shall be binding on 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. A Debenture shall not be valid until
authenticated manually by an authorized signatory of the Trustee, or by an
Authenticating Agent. Such signature shall be conclusive evidence that the
Debenture so authenticated has been duly authenticated and delivered hereunder
and that the holder is entitled to the benefits of this Indenture.
(b) 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 Chairman,
President 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.
(c) 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.
(d) 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 New York, New York or
Wilmington, Delaware or at the office of the Debenture Registrar, for other
Debentures and for a like aggregate principal amount in denominations of
integral multiples of $10, 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.
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(b) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose in New York, New York or Wilmington, Delaware
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 in
this Article II provided and which at all reasonable times shall be open for
inspection by the Trustee. The registrar for the purpose of registering
Debentures and transfer of Debentures as herein provided shall 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, the second paragraph of Section 3.5 and Section 11.4
not involving any transfer.
(d) The Company shall not be required (i) to issue, exchange or
register the transfer of any Debentures during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
less than all the Outstanding Debentures and ending at the close of business on
the day of such mailing; nor (ii) to register the transfer of or exchange any
Debentures or portions thereof called for redemption.
(e) Debentures may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Indenture. Any
transfer or purported transfer of any Debenture not made in accordance with this
Indenture shall be null and void.
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 New York, New York
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or Wilmington, Delaware and the Trustee shall authenticate and such office or
agency shall deliver in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures, unless the Company advises
the Trustee to the effect that definitive Debentures need not be executed and
furnished until further notice from the Company. Until so exchanged, the
temporary Debentures shall be entitled to the same benefits under this Indenture
as definitive Debentures authenticated and delivered hereunder.
SECTION 2.9 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, stolen or mutilated. 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 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
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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.
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, policies or
regulations 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,
policies or regulations of the Federal Reserve, if a Special Event has occurred
and is continuing, then, notwithstanding Section 3.3(a) but subject to Section
3.3(b), 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. 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
______________, 2004, 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
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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 Trust Preferred Securities issued by the Trust from the Nasdaq
National Market or any national securities exchange or other organization on
which the Trust Preferred Securities are then listed, the Company shall not be
permitted to effect such partial redemption and may only redeem the Debentures
in whole.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) In case the 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 will not result in the delisting of the Trust 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 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, pro rata or by lot or in such other
manner as it shall deem appropriate and fair in its discretion, the portion or
portions
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(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 Chairman, 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 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 3.3).
(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.
The Company shall have the right, at any time and from time to time
during the term of the Debentures so long as no Event of Default has occurred
and is continuing, to defer payments of
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interest by extending the interest payment period of such Debentures for a
period not exceeding 20 consecutive quarters (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall be due
and payable; provided that no Extended Interest Payment Period may extend beyond
the Maturity Date or end on a date other than an Interest Payment Date. To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 4.1, shall bear interest thereon at the Coupon Rate compounded
quarterly for each quarter of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment 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 Extended
Interest Payment Period. Before the termination of any Extended Interest Payment
Period, the Company may further extend such period so long as no Event of
Default has occurred and is continuing, 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 or end on a date other than an
Interest Payment Date. Upon the termination of any Extended Interest Payment
Period and upon the payment of all Deferred Interest then due, the Company may
commence a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended Interest
Payment Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extended Interest
Payment Period.
SECTION 4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Administrative Trustees, the
Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period 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 National Market
or other applicable self-regulatory organization or to holders of the Trust
Preferred Securities issued by the Trust, but in any event at least one Business
Day before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at
the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Debentures and the Trustee written notice of its
selection of such Extended Interest Payment Period 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 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 Extended Interest Payment Period permitted under Section 4.1.
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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 and be
continuing any Event of Default, then (a) the Company shall not, and will not
permit any Subsidiary to, declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (1) as a result of a
reclassification of its capital stock for another class of its capital stock or
(2) declarations or payments of dividends or distributions on capital stock by a
Subsidiary of the Company to the Company); (b) the Company shall not, and will
not permit any Subsidiary to, make any payment of interest, principal or
premium, if any, or repay, repurchase or redeem any debt securities issued by
the Company which rank pari passu with or junior to the Debentures; (c) the
Company shall not make any guarantee payment with respect to any guarantee by
the Company of the debt securities of any Subsidiary of the Company if such
guarantee ranks pari passu with or junior to the Debentures; provided, however,
that notwithstanding the foregoing the Company may make payments pursuant to its
obligations under the Trust Preferred Securities Guarantee; and (d) the Company
shall not redeem, purchase or acquire less than all of the outstanding
Debentures or any of the Trust 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, or shall cause to be maintained, an office or agency in New York, New
York or Wilmington, Delaware, 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 or
an Executive 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 New York, New York or Wilmington, Delaware where the Debentures may
be presented for registration or transfer and for exchange in the manner
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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 New York, New York or
Wilmington, Delaware for the purposes above mentioned. The Company shall give
the Trustee prompt written notice of any such designation or rescission thereof.
SECTION 5.3 PAYING AGENTS.
(a) The Company shall be the initial paying agent. If the Company shall
appoint one or more paying agents for the Debentures, other than the Trustee,
the Company shall cause each such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with the Trustee, subject
to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent
for the payment of the principal of or interest on
the Debentures (whether such sums have been paid to
it by the Company or by any other obligor of such
Debentures) in trust for the benefit of the Persons
entitled thereto;
(ii) that it shall give the Trustee 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
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Indenture or for any other purpose, pay, or direct any paying agent to pay, to
the Trustee all sums held in trust by the Company or such paying agent, such
sums to be held by the Trustee upon the same terms and conditions as those upon
which such sums were held by the Company or such paying agent; and, upon such
payment by any paying agent to the Trustee, such paying agent shall be released
from all further liability with respect to such money.
SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, shall appoint, in the manner provided in Section 9.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain outstanding,
consolidate with, or merge into, or merge into itself, or 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 any of its obligations under the
Trust 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, and will not permit any Subsidiary to, declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (1) as a result of a reclassification of its capital stock or (2)
declarations or payments of dividends or distributions on capital stock by a
Subsidiary of the Company to the Company); (b) the Company shall not, and will
not permit any Subsidiary to, make any payment of interest, principal or
premium, if any, or repay, repurchase or redeem any debt securities issued by
the Company which rank pari passu with or junior to the Debentures; (c) the
Company shall not 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 Debentures;
provided, however, that the Company may make payments pursuant to its
obligations under the Trust Preferred Securities Guarantee; and (d) the Company
shall not redeem, purchase or acquire less than all of the outstanding
Debentures or any of the Trust Preferred Securities.
SECTION 5.7 COVENANTS AS TO THE TRUST.
For so long as such Trust Securities of the Trust remain outstanding,
the Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the
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Company's ownership of the Common Securities; (ii) not voluntarily terminate,
wind up or liquidate the Trust, except upon prior approval of the Federal
Reserve if then so required under applicable capital guidelines, policies or
regulations of the Federal Reserve and use its reasonable efforts to cause the
Trust (a) to remain a business trust (and to avoid involuntary termination,
winding up or liquidation), 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 Trust Preferred Securities issued by the Trust upon a Dissolution Event,
the Company shall use its best efforts to list such Debentures on the Nasdaq
National Market or on such exchange or self regulatory organization as the Trust
Preferred Securities are then listed.
SECTION 5.8 COVENANTS AS TO PURCHASES.
Prior to ____________, 2004, the Company shall not purchase any
Debentures, in whole or in part, from the Trust.
SECTION 5.9 WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company shall not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any usury, stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performances of this Indenture, and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE VI
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 quarterly 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
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of any such request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished; provided, however, that,
in either case, no such list need be furnished if the Trustee shall be the
Debenture Registrar.
SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures received
by the Trustee in its capacity as registrar for the Debentures (if acting in
such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Debentureholders with respect to their rights
under this Indenture or under the Debentures.
SECTION 6.3 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee, within
15 days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) that the Company may be
required to file with the Commission pursuant to Section 13 or Section 15(d) of
the Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of such sections, then to file with the
Trustee and the Commission, in accordance with the rules and regulations
prescribed from time to time by the Commission, such of the supplementary and
periodic 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 or the applicable self- regulatory organization
as may be prescribed from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations, including Section 314(a)(4) of the Trust Indenture Act.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or the reputable over-night delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to subsections (a) and (b) of this Section
6.3 as may be required by rules and regulations prescribed from time to time by
the Commission.
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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 Sections 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 or applicable self-regulatory organization 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
applicable self-regulatory organization.
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, upon redemption,
by declaration or otherwise;
(iii) the Company fails to observe or perform any other of
its covenants or agreements with respect to the
Debentures for a period of 90 days after the date on
which written notice of such failure, requiring the
same to be remedied and stating that such notice is a
"Notice of Default" hereunder, shall have been given
to the Company by the Trustee, by registered or
certified mail, or to the Company and the Trustee by
the holders of at least 25% in principal amount of
the Debentures at the time Outstanding;
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(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (1) commences a voluntary case; (2)
consents to the entry of an order for relief against
it in an involuntary case; (3) consents to the
appointment of a Custodian of it or for all or
substantially all of its property; or (4) makes a
general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order
under any Bankruptcy Law that (1) is for relief
against the Company in an involuntary case; (2)
appoints a Custodian of the Company for all or
substantially all of its property; or (3) 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, wound-up its business or otherwise
terminated its existence except in connection with
(1) the distribution of Debentures to holders of
Trust Securities in liquidation of their interests in
the Trust; (2) the redemption of all of the
outstanding Trust Securities of the Trust; or (3)
certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debentures
then Outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have been
so declared due and payable, and before any judgment or decree for the payment
of the moneys due shall have been obtained or entered as hereinafter provided,
the holders of a majority in aggregate principal amount of the Debentures then
Outstanding hereunder, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest 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, to the extent that such payment is
enforceable under applicable law, upon overdue installments of interest, at the
rate per annum expressed in the Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under Section 9.6; and (ii) any
and all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms, shall
have been remedied or waived as provided in Section 7.6. No such rescission and
annulment shall extend to or shall affect any subsequent default or impair any
right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined
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adversely to the Trustee, then and in every such case the Company and the
Trustee shall be restored respectively to their former positions and rights
hereunder, and all rights, remedies and powers of the Company and the Trustee
shall continue as though no such proceedings had been taken.
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (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 90 Business 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 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 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 (to the extent that
payment of such interest is enforceable under applicable law 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 forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the
Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or other obligor upon
the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial proceedings
affecting the Company or the creditors or property of either, the Trustee shall
have power to intervene in such proceedings and take any action therein that may
be permitted by the court and shall (except as may be otherwise provided by law)
be entitled to file such proofs of claim and other papers and documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
holders of the Debentures allowed for the entire amount due and payable by the
Company under this Indenture at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same after the deduction of
the amount payable to the Trustee 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
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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, 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 or other assets collected by the Trustee pursuant to this
Article VII with respect to the Debentures shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys or other assets on account of principal or interest,
upon presentation of the Debentures, and notation thereon the payment, if only
partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.6;
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 set forth herein, 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
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as it may require against the costs, expenses and liabilities to be incurred
therein or thereby; (iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity, shall have failed to institute any such
action, suit or proceeding; and (v) during such 60 day period, the holders of a
majority in principal amount of the Debentures do not give the Trustee a
direction inconsistent with the request.
(b) Notwithstanding anything contained herein to the contrary or any
other provisions of this Indenture, the right of any holder of the Debentures to
receive payment of the principal of and interest on the Debentures, as therein
provided, on or after the respective due dates expressed in such Debenture (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures. For the protection and enforcement
of the provisions of this Section 7.4, each and every Debentureholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.9, 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 on 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
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not be in conflict with any rule of law or with this Indenture. Subject to the
provisions of Section 9.1, the Trustee shall have the right to decline to follow
any such direction if the Trustee in good faith shall, by a Responsible Officer
or Officers of the Trustee, determine that the proceeding so directed would
involve the Trustee in personal liability. The holders of a majority in
aggregate principal amount of the Debentures at the time Outstanding affected
thereby, determined in accordance with Section 10.4, may on behalf of the
holders of all of the Debentures waive any past default in the performance of
any of the covenants contained herein and its consequences, except (i) a default
in the payment of the principal of or interest on, any of the Debentures as and
when the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the holder of each
Outstanding Debenture affected; provided, however, that if the Debentures are
held by the Trust or a trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such waiver
or modification to such waiver; provided further, that if the consent of the
holder of each Outstanding Debenture is required, such waiver shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such waiver. Upon any such waiver, the default covered thereby
shall be deemed to be cured for all purposes of this Indenture and the Company,
the Trustee and the holders of the Debentures shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
SECTION 7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.7 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders holding more than 10% in aggregate principal amount of the
Outstanding Debentures, or to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on the Debentures, on
or after the respective due dates expressed in such Debenture or established
pursuant to this Indenture.
SECTION 7.8 DIRECT ACTION; RIGHT OF SET-OFF.
In the event that an 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 Debentures on the payment date on which such payment is due
and payable, then a holder of Trust Preferred Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
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holder of the principal of or interest on such Debentures having a principal
amount equal to the aggregate Liquidation Amount of the Trust Preferred
Securities of such holders (a "Direct Action"). In connection with such Direct
Action, the Company will have a right of set-off under this Indenture to the
extent of any payment made by the Company to such holder of the Trust Preferred
Securities with respect to such Direct Action.
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 to
this Indenture, attached hereto and incorporated herein by reference.
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of $12,380,000 may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication. The Trustee shall thereupon authenticate and deliver
said Debentures to or upon the written order of the Company, signed by its
President, or any Vice President and its Treasurer or an Assistant Treasurer,
without any further action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES OF THE 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 Person would
exercise or use under the circumstances in the conduct of its 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:
(i) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of
Default that may have occurred:
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(1) 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
(2) 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;
(ii) 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;
(iii) 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
(iv) none of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own
funds or otherwise incur personal financial liability
in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of
such funds or liability is not reasonably assured to
it under the terms of this Indenture or adequate
indemnity against such risk is not reasonably assured
to it.
SECTION 9.2 NOTICE OF DEFAULTS.
Within five business 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,
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however, that, except in the case 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 its President or any Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default or
an Event of Default, other than an Event of Default specified in Section
7.1(a)(i) or (ii), unless and until it receives 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 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
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under no liability for interest on any moneys received by it hereunder except
such as it may agree with the Company to pay thereon.
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 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, claim, action, suit, cost 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.
Such additional indebtedness shall be secured by a lien prior to that of the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Debentures.
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.
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SECTION 9.10 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures
issued hereunder which shall at all times be a corporation organized and doing
business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, and subject to supervision or examination by federal, state,
territorial, or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.10, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.10, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.11.
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee with respect to Debentures by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted 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 the Trustee shall
become incapable of acting, or shall be adjudged a
bankrupt or insolvent, or
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commence a voluntary bankruptcy proceeding, or a
receiver of the Trustee; or
(iii) 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.
(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.
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(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.
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.
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(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.
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.
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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 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:
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(a) to cure any ambiguity, defect, or inconsistency herein, in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place
of certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the
holders of all or any of the Debentures or to surrender any right or power
herein conferred upon the Company;
(e) to 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, only 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; or
(h) qualify or maintain the qualification of this Indenture under the
Trust Indenture Act. The Trustee is hereby authorized to join with the Company
in the execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise. Any supplemental indenture authorized by the provisions of this
Section 11.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Debentures at the time Outstanding, notwithstanding
any of the provisions of Section 11.2.
SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the holders
of not less than a majority in aggregate principal amount of the Debentures at
the time Outstanding, the Company, when authorized by Board Resolutions, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner not
covered by Section 11.1 the rights of the holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall without
the 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 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
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to any such supplemental indenture; provided further, that if the Debentures are
held by the Trust or a trustee of the Trust, such supplemental indenture shall
not be effective until the holders of a majority in liquidation preference of
Trust Securities of the Trust shall have consented to such supplemental
indenture; provided further, that if the consent of the holder of each
Outstanding Debenture is required, such supplemental indenture shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture. It shall not be necessary for the
consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article XI, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Company and the holders of Debentures shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Debentures then Outstanding.
SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Debentureholders
required to consent thereto as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion but
shall not be obligated to enter into such supplemental indenture. The Trustee,
subject to the provisions of 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.
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(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.
ARTICLE XII
SUCCESSOR CORPORATION
SECTION 12.1 COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, as the case may be, or its successor or successors as
an entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, the
Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, of the principal of and interest on all of
the Debentures, according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or into
which the Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia; and (iii) immediately after giving effect thereto, 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, in the case of the Company, the due
and punctual payment of the principal of and interest on all of the Debentures
Outstanding and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, as the case may be,
such successor corporation shall
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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).
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 and 9.7, that shall survive until the date of
maturity or redemption date, as the case may be, and Sections 9.7 and 13.5, that
shall survive to such date and thereafter, and the Trustee, on demand of
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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,
9.7 and 13.5 hereof that shall survive until such Debentures shall mature and be
paid. Thereafter, Sections 9.7 and 13.5 shall survive.
SECTION 13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee
pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available
for payment as due, either directly or through any paying agent (including the
Company acting as its own paying agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
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.
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ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 14.1 NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
corporation, either directly or through the Company or any such predecessor
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 corporation, or any of
them, because of the creation of the indebtedness hereby authorized, or under or
by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Debentures or implied therefrom; and that any and all
such personal liability of every name and nature, either at common law or in
equity or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Debentures or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issuance of such Debentures.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind their respective
successors and assigns, whether so expressed or not.
SECTION 15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
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SECTION 15.3 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority
of its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
SECTION 15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand that
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures to or on the Company may
be given or served by being deposited first class postage prepaid in a
post-office letterbox addressed (until another address is filed in writing by
the Company with the Trustee), as follows: Prosperity Bancshares, Inc., 3040
Post Oak Boulevard, Houston, Texas 77056, Attention: David Zalman. 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 Texas 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 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 (i) a statement that the
Person making such certificate or opinion has read such covenant or condition;
(ii) 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
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based; (iii) 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 (iv) a statement as to whether or not, in
the opinion of such Person, such condition or covenant has been complied with;
provided, however, that each such certificate shall comply with the provisions
of Section 314 of the Trust Indenture Act.
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 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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<PAGE> 55
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Trust Preferred Securities may, to the extent
permitted under applicable law, institute legal proceedings directly against the
Company to enforce such Property Trustee's rights under this Indenture without
first instituting any legal proceedings against such Property Trustee or any
other person or entity. Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing and such event is attributable to the failure of
the Company to pay interest or principal on the Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), the Company acknowledges that a holder of Trust Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Debentures having a principal
amount equal to the aggregate liquidation amount of the Trust Preferred
Securities of such holder on or after the respective due date specified in the
Debentures.
ARTICLE XVI
SUBORDINATION OF DEBENTURES
SECTION 16.1 AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on all
Debentures issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Debt, 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
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such Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that the holders of the Senior Indebtedness (or
their representative or representatives or a trustee) notify the 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, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness of the
Company, as the case may be, remaining unpaid to the extent necessary to pay
such Senior Indebtedness in full in money in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Indebtedness.
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(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness of the Company, as
the case may be, that may at the time be outstanding, provided that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment; and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 16.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 9.7.
SECTION 16.4 SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and interest
on the Debentures shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior Indebtedness by holders of
the Debentures or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XVI
are and are intended solely for the purposes of defining the relative rights of
the holders of the Debentures, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness of the
Company), and the holders of the Debentures, the obligation of the Company,
which is absolute and unconditional, to pay to the holders of the Debentures the
principal of and interest on the Debentures as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the holders of the Debentures and creditors of the
Company, as the case may be, other than the holders of Senior Indebtedness of
the Company, 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
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of the holders of such Senior Indebtedness in respect of cash, property or
securities of the Company, as the case may be, received upon the exercise of any
such remedy.
(c) Upon any payment or distribution of assets of the Company referred
to in this Article XVI, the Trustee, subject to the provisions of Article IX,
and the holders of the Debentures shall be entitled to conclusively rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the holders of the Debentures, for the purposes of ascertaining
the Persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XVI.
SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof
authorizes and directs the Trustee on such holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article XVI and appoints the Trustee such holder's attorney-in-fact for any
and all such purposes.
SECTION 16.6 NOTICE BY THE COMPANY.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI. Notwithstanding the
provisions of this Article XVI or any other 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
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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.
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior Indebtedness
of the Company to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
holders of the Debentures, without incurring 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,
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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.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
PROSPERITY BANCSHARES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, AS TRUSTEE
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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<PAGE> 62
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On the __ day of _______, 1999, before me personally came David Zalman
to me known, who, being by me duly sworn, did depose and say that he is the Vice
President of Company, one of the corporations described in and which executed
the above instrument; that he knows the corporate seal of said corporation; that
the seal affixed to the said instrument is such corporation seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
-------------------------------------
Notary Public
(seal) My Commission expires:
---------------
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<PAGE> 63
EXHIBIT A
(FORM OF FACE OF DEBENTURE)
PROSPERITY BANCSHARES, INC.
% SUBORDINATED DEBENTURE
----
DUE , 2029
---------------
No. -1- $
----------
CUSIP No.
------ --- --
Prosperity Bancshares, Inc., a Texas corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to, _________________________ or
registered assigns, the principal sum of _____________________________ ($) on
______________, 2029 (the "Stated Maturity"), and to pay interest on said
principal sum from ________ __, 1999, 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 March 31, 2000, at the rate of ____% per annum until the principal
hereof shall have become due and payable, and on any overdue principal and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum compounded 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) except that, if such
business day is in the next succeeding calendar year, payment of such interest
will be made on the immediately preceding business day, in each case, with the
same force and effect as if made on such date. The interest installment so
payable, and punctually paid or duly provided for, on any Interest Payment Date
shall,
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as provided in the Indenture, be paid to the person in whose name this Debenture
(or one or more Predecessor Debentures, as defined in said Indenture) is
registered at the close of business on the regular record date for such interest
installment, which shall be the close of business on the business day next
preceding such Interest Payment Date unless otherwise provided in the Indenture.
Any such interest installment not punctually paid or duly provided for shall
forthwith cease to be payable to the registered holders on such regular record
date and may be paid to the Person in whose name this Debenture (or one or more
Predecessor Debentures) is registered at the close of business on a special
record date to be fixed by the Trustee for the payment of such defaulted
interest, notice whereof shall be given to the registered holders of the
Debentures not less than 10 days prior to such special record date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Debentures may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Indenture. The principal of and the interest on this Debenture
shall be payable at the office or agency of the Trustee maintained for that
purpose in any coin or currency of the United States of America that at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the registered holder at such address as shall appear in the
Debenture Register. Notwithstanding the foregoing, so long as the holder of this
Debenture is the Property Trustee, the payment of the principal of and interest
on this Debenture shall be made at such place and to such account as may be
designated by the Trustee.
The Stated Maturity may be shortened at any time by the Company to any
date not earlier than ____________, 2004, subject to the Company having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve.
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.
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<PAGE> 65
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated , 1999.
-------- --
PROSPERITY BANCSHARES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Attest:
- ------------------------------
By:
- ------------------------------
Name:
- ------------------------------
Title:
A-3
<PAGE> 66
FORM OF CERTIFICATE OF AUTHENTICATION
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture.
Dated: , 1999
-------- --
First Union Trust Company, ------------------------------
National Association, as Trustee or Authentication Agent
By: By:
-------------------------------------- ---------------------------
Authorized Signatory
A-4
<PAGE> 67
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"), specified in the Indenture,
all issued or to be issued under and pursuant to an Indenture dated as of
_______ __, 1999 (the "Indenture") duly executed and delivered between the
Company and First Union Trust Company, National Association, 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.
Because of the occurrence and continuation of a Special Event, in
certain circumstances, this Debenture may become due and payable at the
principal amount together with any interest accrued thereon (the "Redemption
Price"). The Redemption Price shall be paid prior to 12:00 noon, Eastern
Standard Time, 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 ______________, 2004 (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
A-5
<PAGE> 68
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of each Debenture then outstanding and
affected thereby. The Indenture also contains provisions permitting the holders
of a majority in aggregate principal amount of the Debentures at the time
outstanding, on behalf of all of the holders of the Debentures, to waive any
past default in the performance of any of the covenants contained in the
Indenture, or established pursuant to the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any of the
Debentures. Any such consent or waiver by the registered holder of this
Debenture (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this
Debenture and of any Debenture issued in exchange herefor or in place hereof
(whether by registration of transfer or otherwise), irrespective of whether or
not any notation of such consent or waiver is made upon this 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.
Provided certain conditions are met, the Company shall have the right
at any time during the term of the Debentures and from time to time to extend
the interest payment period of such Debentures for up to 20 consecutive quarters
(each, an "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Debentures to the extent that payment of
such interest is enforceable under applicable law). Before the termination of
any such Extended Interest Payment Period, so long as no Event of Default shall
have occurred and be continuing, the Company may further extend such Extended
Interest Payment Period, provided that such Extended Interest Payment Period
together with all such further extensions thereof shall not exceed 20
consecutive quarters, extend beyond the Stated Maturity or end on a date other
than an Interest Payment Date. At the termination of any such Extended Interest
Payment Period and upon the payment of all accrued and unpaid interest and any
additional amounts then due and subject to the foregoing conditions, the Company
may commence a new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount shall be
issued to the designated transferee or transferees. No service charge shall be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any paying agent and the Debenture
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Debenture
A-6
<PAGE> 69
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
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.
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF TRUST OF
PROSPERITY CAPITAL TRUST I
THIS Certificate of Trust of Prosperity Capital Trust I (the "Trust")
is being duly executed and filed on behalf of the Trust by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. Section 3801 et seq.) (the "Act").
1. Name. The name of the business trust formed hereby is Prosperity
Capital Trust I.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington,
Delaware 19801, Attention: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust will be effective upon
filing.
IN WITNESS WHEREOF, the undersigned have duly executed this
Certificate of Trust in accordance with Section 3811(a)(1) of the Act.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Delaware Trustee
By: /s/ EDWARD L. TRUITT, JR.
----------------------------------------
Name: Edward L. Truitt, Jr.
Title: Vice President
/s/ DAVID ZALMAN
-------------------------------------------
DAVID ZALMAN, as Administrative Trustee
/s/ TRACY T. RUDOLPH
-------------------------------------------
TRACY T. RUDOLPH, as Administrative Trustee
/s/ DAVID HOLLAWAY
-------------------------------------------
DAVID HOLLAWAY, as Administrative Trustee
<PAGE> 1
EXHIBIT 4.4
TRUST AGREEMENT
OF
PROSPERITY CAPITAL TRUST I
THIS TRUST AGREEMENT is made as of October 13, 1999 (this "Trust
Agreement"), by and among Prosperity Bancshares, Inc., a Texas corporation, as
Depositor (the "Depositor"), First Union Trust Company, National Association, a
national banking association with its principal place of business in the State
of Delaware, as trustee (the "Delaware Trustee"), and David Zalman, Tracy T.
Rudolph and David Hollaway, as trustees (the "Administrative Trustees"; and
together with the Delaware Trustee, the "Trustees"). The Depositor and the
Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Prosperity Capital Trust
I" (the "Trust"), in which name the Trustees or the Depositor, to the extent
provided herein, may conduct the business of the Trust, make and execute
contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trustees the sum of $10. The Trustees hereby acknowledge receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustees hereby declare that they will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12 of
the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust Act"),
and that this document constitute the governing instrument of the Trust. The
Trustees are hereby authorized and directed to execute and file a certificate of
trust with the Delaware Secretary of State in such form as the Trustees may
approve.
3. The Depositor and the Trustees will enter into an amended and
restated Trust Agreement satisfactory to each such party and substantially in
the form to be included as an exhibit to the Registration Statement on Form S-1
(the "1933 Act Registration Statement") referred to below, or in such other form
as the Trustees and the Depositor may approve, to provide for the contemplated
operation of the Trust created hereby and the issuance of the Trust Preferred
Securities and Common Securities referred to therein. Prior to the execution and
delivery of such amended and restated Trust Agreement, the Trustees shall not
have any duties or obligations hereunder or with respect of the trust estate,
except as otherwise required by applicable law or as may be necessary to obtain
prior to such execution and delivery any licenses, consents or approvals
required by applicable law or otherwise. Notwithstanding the foregoing, the
Trustees may take all actions deemed proper as are necessary to effect the
transactions contemplated herein.
4. The Depositor and the Trustees hereby authorize and direct the
Depositor, as the sponsor of the Trust, and the Administrative Trustees, as
trustees of the Trust, acting singly or jointly, (i) to file with the Securities
and Exchange Commission (the "Commission") and to execute, in the case of the
1933 Act Registration Statement and 1934 Act Registration Statement (as herein
defined), on behalf of the Trust, (a) the 1933 Act Registration Statement,
including
<PAGE> 2
pre-effective or post-effective amendments to such Registration Statement,
relating to the registration under the Securities Act of 1933, as amended (the
"1933 Act"), of the Trust Preferred Securities of the Trust, (b) any preliminary
prospectus or prospectus supplement thereto relating to the Trust Preferred
Securities required to be filed pursuant to Rule 424 under the 1933 Act, and (c)
a Registration Statement on Form 8-A or other appropriate form (the "1934 Act
Registration Statement") (including all pre-effective and post-effective
amendments thereto) relating to the registration of the Trust Preferred
Securities of the Trust under Section 12(b) of the Securities Exchange Act of
1934, as amended; (ii) to file with the New York Stock Exchange or other
exchange, and execute on behalf of the Trust a listing application and all other
applications, statements, certificates, agreements and other instruments as
shall be necessary or desirable to cause the Trust Preferred Securities to be
listed on the New York Stock Exchange or such other exchange or quotation
system; (iii) to file and execute on behalf of the Trust such applications,
reports, surety bonds, irrevocable consents, appointments of attorney for
service of process and other papers and documents as shall be necessary or
desirable to register the Trust Preferred Securities under the securities or
"Blue Sky" laws of such jurisdictions as the Depositor, on behalf of the Trust,
may deem necessary or desirable; and (iv) to execute, deliver and perform on
behalf of the Trust an underwriting agreement with the Depositor and the
underwriter or underwriters of the Trust Preferred Securities of the Trust. In
the event that any filing referred to in clauses (i)- (iii) above is required by
the rules and regulations of the Commission, the New York Stock Exchange or
other exchange or quotation system, or state securities or Blue Sky laws to be
executed on behalf of the Trust by a trustee, the Administrative Trustees, in
their capacities as trustees of the Trust, are hereby authorized and directed to
join in any such filing and to execute on behalf of the Trust any and all of the
foregoing, it being understood that the Administrative Trustees, in their
capacities as trustees of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required by
the rules and regulations of the Commission, the New York Stock Exchange or
other exchange, or state securities or Blue Sky laws. In connection with all of
the foregoing, the Trustees, solely in their capacities as trustees of the
Trust, and the Depositor hereby constitute and appoint the Administrative
Trustees as the Depositor's true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for the Depositor or in the
Depositor's name, place and stead, in any and all capacities, to sign any and
all amendments (including all pre-effective and post-effective amendments) to
the 1933 Act Registration Statement and the 1934 Act Registration Statement and
to file the same, with all exhibits thereto, and any other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as the Depositor might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or his
respective substitute or substitutes, shall do or cause to be done by virtue
hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees of the Trust initially shall be four and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Depositor which
may increase or decrease the number of Trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware
<PAGE> 3
or, if not a natural person, an entity which has its principal place of business
in the State of Delaware. Subject to the foregoing, the Depositor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (with regard to conflict of
laws principles).
[SIGNATURE PAGE FOLLOWS]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
PROSPERITY BANCSHARES, INC.,
as Depositor
By: /s/ TRACY T. RUDOLPH
--------------------------------------
Name: Tracy T. Rudolph
Title: Prsident
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Delaware Trustee
By: /s/ EDWARD L. TRUITT, JR.
--------------------------------------
Name: Edward L. Truitt, Jr.
Title: Vice President
/s/ DAVID ZALMAN
-------------------------------------------
DAVID ZALMAN, as Administrative Trustee
/s/ TRACY T. RUDOLPH
-------------------------------------------
TRACY T. RUDOLPH, as Administrative Trustee
/s/ DAVID HOLLAWAY
-------------------------------------------
DAVID HOLLAWAY, as Administrative Trustee
<PAGE> 1
EXHIBIT 4.5
PROSPERITY CAPITAL TRUST I
AMENDED AND RESTATED TRUST AGREEMENT
among
PROSPERITY BANCSHARES, INC., as Depositor,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, as Property Trustee,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, as Delaware Trustee,
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
Dated as of __________, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I
DEFINED TERMS............................................................................................2
Section 101. Definitions............................................................................2
ARTICLE II
ESTABLISHMENT OF THE TRUST..............................................................................11
Section 201. Name..................................................................................11
Section 202. Office of the Delaware Trustee; Principal Place of Business...........................11
Section 203. Initial Contribution of Trust Property; Organizational Expenses.......................11
Section 204. Issuance of the Trust 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......................................12
Section 208. Assets of Trust.......................................................................16
Section 209. Title to Trust Property...............................................................16
ARTICLE III
PAYMENT ACCOUNT.........................................................................................16
Section 301. Payment Account.......................................................................16
ARTICLE IV
DISTRIBUTIONS; REDEMPTION...............................................................................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. Execution, Authentication and Delivery of Trust Securities
Certificates..........................................................................22
Section 503.A Global Trust Preferred Security.......................................................23
Section 504. Registration of Transfer and Exchange of Trust
Preferred Securities Certificates.....................................................24
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates....................25
Section 506. Persons Deemed Securityholders........................................................26
Section 507. Access to List of Securityholders' Names and Addresses................................26
Section 508. Maintenance of Office or Agency.......................................................26
Section 509. Appointment of Paying Agent...........................................................27
Section 510. Ownership of Common Securities by Depositor...........................................27
Section 511. Trust Securities Certificates.........................................................27
Section 512. Notices to Clearing Agency............................................................28
Section 513. Rights of Securityholders.............................................................28
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING...............................................................29
Section 601. Limitations on Voting Rights..........................................................29
Section 602. Notice of Meetings....................................................................30
Section 603. Meetings of Trust Preferred Securityholders...........................................30
Section 604. Voting Rights.........................................................................31
Section 605. Proxies, etc..........................................................................31
Section 606. Securityholder Action by Written Consent..............................................31
Section 607. Record Date for Voting and Other Purposes.............................................31
Section 608. Acts of Securityholders...............................................................32
Section 609. Inspection of Records.................................................................33
ARTICLE VII
REPRESENTATIONS AND WARRANTIES..........................................................................33
Section 701. Representations and Warranties of the Bank and the Property
Trustee...............................................................................33
Section 702. Representations and Warranties of the Delaware Bank and the
Delaware Trustee......................................................................34
Section 703. Representations and Warranties of Depositor...........................................35
ARTICLE VIII
TRUSTEES................................................................................................36
Section 801. Certain Duties and Responsibilities...................................................36
Section 802. Certain Notices.......................................................................38
Section 803. Certain Rights of Property Trustee....................................................38
Section 804. Not Responsible for Recitals or Issuance of Securities................................40
Section 805. May Hold Securities...................................................................40
Section 806. Compensation; Indemnity; Fees.........................................................40
Section 807. Corporate Property Trustee Required; Eligibility of Trustees..........................41
Section 808. Conflicting Interests.................................................................42
Section 809. Co-Trustees and Separate Trustee......................................................42
Section 810. Resignation and Removal; Appointment of Successor.....................................43
Section 811. Acceptance of Appointment by Successor................................................45
Section 812. Merger, Conversion, Consolidation or Succession to Business...........................45
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 813. Preferential Collection of Claims Against Depositor or Trust..........................46
Section 814. Reports by Property Trustee...........................................................46
Section 815. Reports to the Property Trustee.......................................................46
Section 816. Evidence of Compliance with Conditions Precedent......................................47
Section 817. Number of Trustees....................................................................47
Section 818. Delegation of Power...................................................................47
Section 819. Voting................................................................................48
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER.....................................................................48
Section 901. Termination Upon Expiration Date......................................................48
Section 902. Early Termination.....................................................................48
Section 903. Termination...........................................................................48
Section 904. Liquidation...........................................................................49
Section 905. Mergers, Consolidations, Amalgamations or Replacements
of the Trust..........................................................................50
ARTICLE X
MISCELLANEOUS PROVISIONS................................................................................51
Section 1001. Limitation of Rights of Securityholders...............................................51
Section 1002. Amendment.............................................................................51
Section 1003. Separability..........................................................................53
Section 1004. Governing Law.........................................................................53
Section 1005. Payments Due on Non-Business Day......................................................53
Section 1006. Successors............................................................................53
Section 1007. Headings..............................................................................53
Section 1008. Reports, Notices and Demands..........................................................54
Section 1009. Agreement not to Petition.............................................................54
Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act................................55
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture.......................55
EXHIBITS
Exhibit A Certificate of Trust
Exhibit B Form of Common Securities Certificate
Exhibit C Form of Expense Agreement
Exhibit D Form of Trust Preferred Securities Certificate
Exhibit E Form of Trust Preferred Securities Certificate of Authentication
Exhibit F Certificate of Depositary Agreement
</TABLE>
-iii-
<PAGE> 5
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Amended
Section of Trust Indenture and Restated
Act of 1939, as amended Trust Agreement
- ----------------------- ---------------
<S> <C>
310(a)(1)....................................................................... 807
310(a)(2) ...................................................................... 807
310(a)(3) ...................................................................... 807
310(a)(4)....................................................................... 207(a)(ii)
310(b) ......................................................................... 808
311(a) ......................................................................... 813
311(b) ......................................................................... 813
312(a) ......................................................................... 507
312(b) ......................................................................... 507
312(c) ......................................................................... 507
313(a) ......................................................................... 814(a)
313(a)(4) ...................................................................... 814(b)
313(b) ......................................................................... 814(b)
313(c).......................................................................... 1008
313(d) ......................................................................... 814(c)
314(a) ......................................................................... 815
314(b).......................................................................... Not Applicable
314(c)(1) ...................................................................... 816
314(c)(2) ...................................................................... 816
314(c)(3)....................................................................... Not Applicable
314(d) ......................................................................... Not Applicable
314(e) ......................................................................... 101, 816
315(a).......................................................................... 801(a), 803(a)
315(b).......................................................................... 802, 1008
315(c).......................................................................... 801(a)
315(d).......................................................................... 801, 803
316(a)(2)....................................................................... Not Applicable
316(b) ......................................................................... Not Applicable
316(c) ......................................................................... 607
317(a)(1)....................................................................... Not Applicable
317(a)(2)....................................................................... Not Applicable
317(b).......................................................................... 509
318(a........................................................................... 1010
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect the interpretation of any of its terms or provisions.
-iv-
<PAGE> 6
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ___________, 1999, among
(i) PROSPERITY BANCSHARES, INC., a Texas corporation (including any successors
or assigns, the "Depositor"), (ii) FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, a national banking association with its principal place of business
in the State of Delaware, as property trustee (the "Property Trustee" and, in
its separate corporate capacity and not in its capacity as Property Trustee, the
"Bank"), (iii) FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national
banking association with its principal place of business in the State of
Delaware, as Delaware trustee (the "Delaware Trustee," and, in its separate
corporate capacity and not in its capacity as Delaware Trustee, the "Delaware
Bank") (iv) Tracy T. Rudolph, an individual, David Zalman, an individual, and
David Hollaway, an individual, each of whose address is c/o Company (each an
"Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee, the Delaware Trustee and the Administrative Trustees referred
to collectively as the "Trustees"), and (v) the several Holders (as hereinafter
defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and Tracy T. Rudolph, David
Zalman and David Hollaway, each as an Administrative Trustee, have heretofore
duly declared and established a business trust pursuant to the Delaware Business
Trust Act by the entering into of that certain Trust Agreement, dated as of
October 13, 1999 (the "Original Trust Agreement"), and by the execution and
filing by the Delaware Trustee and the Administrative Trustees with the
Secretary of State of the State of Delaware of the Certificate of Trust, filed
on October 13, 1999, 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 Trust 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 as follows:
<PAGE> 7
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of Tracy T. Rudolph, David Zalman,
David Hollaway, solely in his 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 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.
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"Authenticating Agent" means an authenticating agent with respect to the
Trust 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
of the Depositor to have been duly adopted by the Depositor's Board of
Directors, or such committee of the Board of Directors or officers of the
Depositor to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on which
banking institutions in New York, New York or Wilmington, Delaware are
authorized or required by law, executive order or regulation to remain closed,
or a day on which the Property Trustee's Corporate Trust Office or the Corporate
Trust Office of the Debenture Trustee is closed for business.
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"Certificate of Depositary Agreement" means the agreement among Depositor,
Trust and DTC, as the initial Clearing Agency, dated as of the Closing Date,
substantially in the form attached as Exhibit F as the same may be amended and
supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the definition
of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC
shall be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank or 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, as amended.
"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.
"Company" means Prosperity Bancshares, Inc.
"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, shall be principally administered, which office at the date
hereof, in each such case, is located at One Rodney Square, 920 King Street, 1st
Floor, Wilmington, Delaware 19801, Attn: Corporate Trust Administration.
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
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"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section 1.1 of
the Indenture.
"Debenture Trustee" means First Union Trust Company, National Association,
a national banking association with its principal place of business in the State
of Delaware and any successor thereto, acting not in its individual capacity but
solely as trustee under the Indenture
"Debentures" means the $12,380,000 aggregate principal amount of the
Depositor ____% Subordinated Debentures due 2029, issued pursuant to the
Indenture.
"Definitive Trust Preferred Securities Certificates" means Trust Preferred
Securities Certificates issued in certified, fully registered form as provided
in Section 513.
"Delaware Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to
time.
"Delaware Trustee" means the 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 DTC 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.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
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(b) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days; or
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clause (b) or (c), above) and continuation
of such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the defaulting Trustee or
Trustees by the Holders of at least 25% in aggregate liquidation preference
of the Outstanding Trust 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, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit C, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in Section 4.1
of the Indenture.
"Global Trust Preferred Securities Certificate" means a Trust Preferred
Securities Certificate evidencing ownership of Global Trust Preferred
Securities.
"Global Trust Preferred Security" means a Trust Preferred Security, the
ownership and transfer of which shall be made through book entries by a Clearing
Agency as described herein.
"Guarantee" means the Trust Preferred Securities Guarantee Agreement
executed and delivered by the Depositor and First Union Trust Company, National
Association, as trustee, contemporaneously with the execution and delivery of
this Trust Agreement, for the benefit of the holders of the Trust Preferred
Securities, as amended from time to time.
"Indenture" means the Indenture, dated as of __________, 1999, between the
Depositor and the Debenture Trustee, as trustee, as amended or supplemented from
time to time.
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"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust and the Depositor
of an Opinion of Counsel, rendered by a law firm having a recognized national
tax and securities law practice, to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
shall be considered an "investment company" that is required to be registered
under the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after the date of original issuance of the Trust Preferred Securities
under this Trust Agreement; provided, however, that the Depositor or the Trust
shall have requested and received such an Opinion of Counsel with regard to such
matters within a reasonable period of time after the Depositor or the Trust
shall have become aware of the possible occurrence of any such event.
"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 an aggregate Liquidation Amount equal to the aggregate
principal amount of Debentures to be contemporaneously redeemed in accordance
with the Indenture and the proceeds of which shall be used to pay the Redemption
Price of such Trust Securities; and (b) with respect to a distribution of
Debentures to Holders of Trust Securities in connection with a termination or
liquidation of the Trust, Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the Holder to whom such Debentures
are distributed. Each Debenture distributed pursuant to clause (b) above shall
carry with it accrued interest in an amount equal to the accrued and unpaid
interest then due on such Debentures.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a termination 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 an
Executive Vice President and by the Treasurer or the Vice President--Finance or
the 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:
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(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent, outside
legal counsel for the Trust, the Property Trustee, the Delaware Trustee or the
Depositor, 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 Trust Preferred Securities, means,
as of the date of determination, all Trust Preferred Securities theretofore
executed and delivered under this Trust Agreement, except:
(a) Trust Preferred Securities theretofore canceled by the Property
Trustee or delivered to the Property Trustee for cancellation;
(b) Trust 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 Trust Preferred
Securities; provided that, if such Trust Preferred Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Trust Agreement; and
(c) Trust Preferred Securities which have been paid or in exchange for
or in lieu of which other Trust Preferred Securities have been executed and
delivered pursuant to Sections 504, 505, 511 and 513; provided, however,
that in determining whether the Holders of the requisite Liquidation Amount
of the Outstanding Trust Preferred Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Trust 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 Trust 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 Trust
Preferred Securities are owned by the
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Depositor, one or more of the Trustees and/or any such Affiliate. Trust
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 the Depositor or any
Affiliate of the Depositor.
"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.
"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, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Trust Securities is registered in the Securities Register; any such Person is
a beneficial owner within the meaning of the Delaware Business Trust Act.
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"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, as amended, as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939, as amended, is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Preferred Securities Certificate" means a certificate evidencing
ownership of Trust Preferred Securities, substantially in the form attached as
Exhibit D.
"Trust Preferred Security" means a preferred 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.
"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 trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Trust
Preferred Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Trust 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
__________, 1999, 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 continued hereby shall be known as "Prosperity Capital Trust I,"
as such name may be modified from time to time by the Administrative Trustees
following written notice to the Holders of Trust Securities and the other
Trustees, in which name the Trustees may engage in the transactions contemplated
hereby, make and execute contracts and other instruments on behalf of the Trust
and sue and be sued.
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o First
Union Trust Company, National Association, One Rodney Square, 920 King Street,
1st Floor, Wilmington, Delaware 19801, Attn: Corporate Trust Administration, or
such other address in the State of Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal executive office of the Trust is c/o Prosperity Bancshares, Inc., 3040
Post Oak Boulevard, Houston, Texas, 77056.
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 TRUST PREFERRED SECURITIES.
On __________, 1999, 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 502 and deliver in accordance
with the Underwriting Agreement, Trust Preferred Securities Certificates,
registered in the name of Persons entitled thereto in an aggregate amount of
1,200,000 Trust Preferred Securities having an aggregate Liquidation Amount of
$12,000,000 against receipt of the aggregate purchase price of such Trust
Preferred Securities of $12,000,000, which amount such Administrative Trustee
shall promptly deliver to the Property Trustee.
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SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE
OF DEBENTURES.
Contemporaneously with the execution and delivery of this Trust Agreement,
an Administrative Trustee, on behalf of the Trust, shall execute in accordance
with Section 502 and deliver to the Depositor, Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of Common
Securities having an aggregate Liquidation Amount of $380,000 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 $12,380,000,
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
$12,380,000.
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, advisable or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it shall hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative Trustees set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set
forth in paragraph (b) of this Section 207 and Article VIII, and in
accordance with the following provisions (i) and (ii), the Administrative
Trustees shall have the authority to enter into all transactions and
agreements determined by the Administrative Trustees to be appropriate in
exercising the authority, express or implied, otherwise granted to the
Administrative Trustees under this Trust Agreement, and to perform all acts
in furtherance thereof, including without limitation, the acts set forth in
the following provision (i) and the Property Trustee shall have the
authority to act, each as set forth below:
(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:
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(A) the issuance and sale of the Trust Securities and the
compliance with the Underwriting Agreement in connection
therewith;
(B) to cause the Trust to enter into, and to execute, deliver
and perform on behalf of the Trust, the Expense Agreement
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 Trust 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 Trust Preferred Securities
upon The Nasdaq National Market or such securities exchange
or exchanges as shall be determined by the Depositor, the
registration of the Trust Preferred Securities under the
Exchange Act, the compliance with the listing requirements
of the Nasdaq National Market or the applicable securities
exchange and the preparation and filing of all periodic and
other reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this
Trust Agreement;
(F) the appointment of a Paying Agent, authenticating agent and
Securities Registrar in accordance with this Trust
Agreement;
(G) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of
cancellation with the Secretary of State of the State of
Delaware;
(H) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory
business trust under the laws of the State of Delaware and
of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of
the Trust 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
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Agreement for the benefit of the Securityholders (without
consideration of the effect of any such action on any
particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power,
duty and authority to act on behalf of the Trust with respect to
the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the Securityholders in
respect of the Trust Securities in accordance with the terms
of this Trust Agreement;
(E) the exercise of all of the rights, powers and privileges of
a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust;
(I) after an Event of Default, the taking of any action
incidental to the foregoing as the Property Trustee may from
time to time determine is necessary or advisable to give
effect to the terms of this Trust Agreement and protect and
conserve the Trust Property for the benefit of the
Securityholders (without consideration of the effect of any
such action on any particular Securityholder);
(J) registering transfers of the Trust Securities in accordance
with this Trust Agreement; and
(K) except as otherwise provided in this Section 207(a)(ii), the
Property Trustee shall have none of the duties, liabilities,
powers or the authority of the Administrative Trustees set
forth in Section 207(a)(i).
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(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 Trust 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 Trust Preferred Securities,
the Debentures, and the Guarantee, including any amendments thereto;
(ii) the determination of the states in which to take appropriate
action to qualify or, register for sale all or part of the Trust
Preferred Securities and to do any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and advise
the Trustees of actions they must take on behalf of the Trust, and
prepare for execution and filing any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of
any such States;
(iii) the preparation for filing by the Trust and execution on
behalf of the Trust of an application to The Nasdaq National Market or
a national stock exchange or other organizations for listing upon
notice of issuance of any Trust 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 Trust Preferred
Securities under Section 12(b) or 12(g) of the Exchange Act, including
any amendments thereto;
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(v) the negotiation of the terms of, and the execution and
delivery of, the Underwriting Agreement providing for the sale of the
Trust 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 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 Trustees are authorized to take any action, not
inconsistent with applicable law or this Trust Agreement, that each of the
Depositor and the Trustees determines in their discretion to be necessary
or desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal
with respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust
Agreement. All monies and other property deposited or held from time to
time in the Payment Account shall be held by the Property Trustee in the
Payment Account for the exclusive benefit of the Securityholders and for
distribution as herein provided, including (and subject to) any priority of
payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with
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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 ________,
1999, and, except during any Extended Interest Payment Period with respect
to the Debentures, shall be payable quarterly in arrears on the last
calendar day of March, June, September and December of each year,
commencing on March 31, 2000. If any date on which a Distribution is
otherwise payable on the Trust Securities is not a Business Day, then the
payment of such Distribution shall be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day (and without any reduction of interest or any other payment in
respect of any such acceleration), in each case with the same force and
effect as if made on 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, and, as a practical matter, the Distributions on the
Trust Securities shall be payable at a rate of ____% per annum of the
Liquidation Amount of the Trust Securities. The amount of Distributions
payable for any full period shall be computed on the basis of a 360-day
year of twelve 30-day months. The amount of Distributions for any partial
period shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30-day months. During any Extended Interest Payment
Period with respect to the Debentures, Distributions on the Trust Preferred
Securities shall be deferred for a period equal to the Extended Interest
Payment Period. The amount of Distributions payable for any period shall
include the Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the
Property Trustee solely from the Payment Account and shall be payable on
each Distribution Date only to the extent that the Trust has funds on hand
and immediately available by 12:30 p.m. on each Distribution Date 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 record holders thereof as they
appear on the Securities Register for the Trust Securities on the relevant
record date, which shall be the Business Day immediately prior to the
relevant Distribution Date.
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SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the 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;
(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, except as provided in
Section 402(d); and
(vi) the place or places at which Trust Securities are to be
surrendered for the payment of the Redemption Price; and
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made
and the Redemption Price shall be payable on each Redemption Date only to
the extent that the Trust has immediately available funds then on hand and
available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Trust Preferred Securities, then, by 12:00 noon, New York City time, on
the Redemption Date, subject to Section 402(c), the Property Trustee,
subject to Section 402(c), shall, with respect to Trust Preferred
Securities held in global form, deposit with the Clearing Agency for such
Trust Preferred Securities, to the extent available therefor, funds
sufficient to pay the applicable Redemption Price and will give such
Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the Holders of the Trust Preferred Securities.
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With respect to Trust Securities that are not held in global form, the
Property Trustee, subject to Section 402(c), 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 record holders thereof upon surrender of their
Trust Preferred Securities Certificates. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Trust
Securities called for redemption shall be payable to the Holders of such
Trust Securities as they appear on the Register for the Trust Securities on
the relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit, (i) all rights of Securityholders holding Trust
Securities so called for redemption shall cease, except the right of such
Securityholders to receive the Redemption Price, (ii) such Securities shall
cease to be Outstanding, (iii) the Clearing Agency for the Trust Preferred
Securities or its nominee, as the registered Holder of the Global Trust
Preferred Securities Certificate, shall receive a registered global
certificate or certificates representing the Debentures to be delivered
upon such distribution with respect to Trust Preferred Securities held by
the Clearing Agency or its nominee, and (iv) any Trust Securities
Certificates not held by the Clearing Agency for the Trust Preferred
Securities or its nominee as specified in clause (iii) above will be deemed
to represent Debentures having a principal amount equal to the stated
Liquidation Amount of the Trust Securities represented thereby and bearing
accrued and unpaid interest in an amount equal to the accumulated and
unpaid Distributions on such Trust Securities until such certificates are
presented to the Securities Registrar for transfer or reissuance. In the
event that any date on which any Redemption Price is payable is not a
Business Day, then payment of the Redemption Price payable on such date
shall be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day (and
without any reduction of interest or any other payment in respect of any
such acceleration), in each case with the same force and effect as if made
on 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
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Amounts) among the Common Securities and the Trust Preferred Securities.
The particular Trust 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 Trust Preferred Securities not previously called for
redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $10 or an integral
multiple of $10 in excess thereof) of the Liquidation Amount of Trust
Preferred Securities of a denomination larger than $10. The Property
Trustee shall promptly notify the Securities Registrar in writing of the
Trust Preferred Securities selected for redemption and, in the case of any
Trust 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 Trust Preferred Securities shall relate, in the case of any
Trust Preferred Securities redeemed or to be redeemed only in part, to the
portion of the Liquidation Amount of Trust 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 Trust 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 Trust 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 Trust 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, Trust 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 record holder of Common Securities,
the Depositor, 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 Trust Preferred Securities
shall have been cured, waived or otherwise eliminated. Until any such Event
of Default under this Trust Agreement with respect to the Trust Preferred
Securities shall have been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the record holders of the
Trust Preferred Securities and not the record holder of the Common
Securities, and only the Holders of the Trust 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 Trust 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 Trust 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
forms 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 forms 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 (as defined in
Section 1.1 of the Indenture), 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 record holder of Trust Preferred
Securities shall be reduced by the amount of any corresponding payment such
Holder has directly received under the Indenture pursuant to Section 513(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.
The Trust 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, 511
and 513.
SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST SECURITIES
CERTIFICATES.
(a) On the Closing Date and on any date on which the underwriters
exercise their over-allotment option, as applicable (an "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 or its Treasurer without further corporate action by the
Depositor, in authorized denominations.
(b) A Trust 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 Trust
Securities Certificate has been authenticated under this Trust Agreement.
Each Trust Security Certificate shall be dated the date of its
authentication.
Upon the written order of the Trust signed by one of the Administrative
Trustees, the Property Trustee shall authenticate and make available for
delivery the Trust Securities Certificates.
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The Property Trustee may appoint an Authenticating Agent acceptable to the
Trust to authenticate the Trust Securities. An Authenticating Agent may
authenticate the Trust 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 Company or the Trust.
SECTION 503.A GLOBAL TRUST PREFERRED SECURITY.
(a) Any Global Trust Preferred Security issued under this Trust
Agreement shall be registered in the name of the nominee of the Clearing
Agency and delivered to such custodian therefor, and such Global Trust
Preferred Security shall constitute a single Trust Preferred Security for
all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, no
Global Trust Preferred Security may be exchanged for Trust Preferred
Securities registered in the names of persons other than the Depositary or
its nominee unless (i) the Depositary notifies the Debenture Trustee that
it is unwilling or unable to continue as a depositary for such Global Trust
Preferred Securities and the Depositor is unable to locate a qualified
successor depositary, (ii) the Depositor executes and delivers to the
Trustee a written order stating that it elects to terminate the book-entry
system through the Depositary or (iii) there shall have occurred and be
continuing a Debenture Event of Default.
(c) If a Trust Preferred Security is to be exchanged in whole or in
part for a beneficial interest in a Global Trust Preferred Security, then
either (i) such Global Trust Preferred Security shall be so surrendered for
exchange or cancellation as provided in this Article V or (ii) the
Liquidation amount thereof shall be reduced or increased by an amount equal
to the portion thereof to be so exchanged or cancelled, or equal to the
Liquidation Amount of such other Trust Preferred Securities to be so
exchanged for a beneficial interest therein, as the case may be, by means
of an appropriate adjustment made on the records of the Securities
Registrar, whereupon the Property Trustee, in accordance with the rules and
procedures of the Depositary for such Global Trust Preferred Security (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 Trust Preferred
Security by the Clearing Agency, accompanied by registration instructions,
the Administrative Trustees shall execute and the Property Trustee shall,
subject to Section 504(b) and as otherwise provided in this Article V,
authenticate and deliver any Trust Preferred Securities issuable in
exchange for such Global Trust 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 Trust Preferred Security executed, authenticated and
delivered upon registration of transfer of, or in exchange for or in lieu
of, a Global Trust Preferred Security or any portion thereof, whether
pursuant to this Article V or otherwise, shall be executed,
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authenticated and delivered in the form of, and shall be, a Global Trust
Preferred Security, unless such Global Trust Preferred Security is
registered in the name of a Person other than the Clearing Agency for such
Global Trust Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a
Global Trust Preferred Security, shall be considered the Holder of the
Trust Preferred Securities represented by such Global Trust Preferred
Security for all purposes under this Trust Agreement and the Trust
Preferred Securities, and owners of beneficial interests in such Global
Trust Preferred Security shall hold such interests pursuant to the
Applicable Procedures and, except as otherwise provided herein, shall not
be entitled to receive physical delivery of any such Trust 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 Trust Preferred Securities 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 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 Trust
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. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST PREFERRED
SECURITIES CERTIFICATES.
(a) The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and, subject to the
provisions of Section 503A, transfers and exchanges of Trust Securities
Certificates (herein referred to as the "Securities Register") in which the
registrar designated by the Depositor (the "Securities Registrar"), subject
to such reasonable regulations as it may prescribe, shall provide for the
registration of Trust Preferred Securities Certificates and Common
Securities Certificates (subject to Section 510 in the case of the Common
Securities Certificates) and registration of transfers and exchanges of
referred Securities Certificates as herein provided. The Property Trustee
shall be the initial Securities Registrar.
(b) Subject to the provisions of Section 503A, upon surrender for
registration of transfer of any Trust Preferred Securities Certificate at
the office or agency maintained pursuant to Section 508, 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 Trust 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 Trust Preferred Securities that have been
called for redemption. At the option of a record holder, Trust Preferred
Securities Certificates may be exchanged for other Trust Preferred
Securities
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Certificates in authorized denominations of the same class and of a like
aggregate Liquidation Amount upon surrender of the Trust Preferred
Securities Certificates to be exchanged at the office or agency maintained
pursuant to Section 508.
(c) Every Trust Preferred Securities Certificate presented or
surrendered for registration of transfer or exchange, subject to the
provisions of Section 503A, 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 Trust 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 Trust 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 Trust 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 Trust Preferred
Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Trust Preferred Securities being redeemed in
part.
(d) No service charge shall be made for any registration of transfer
or exchange of Trust Preferred Securities Certificates, subject to the
provisions of Section 503A, 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 Trust
Preferred Securities Certificates.
(e) Trust Preferred 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 Preferred
Security not made in accordance with this Trust Agreement shall be null and
void. A Trust Preferred Security that is not a Global Trust Preferred
Security may be transferred, in whole or in part, to a Person who takes
delivery in the form of another Trust Preferred Security that is not a
Global Trust Preferred Security as provided in Section 504(a). A beneficial
interest in a Global Trust Preferred Security may be exchanged for a Trust
Preferred Security that is not a Global Trust Preferred Security only as
provided in Section 503A.
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES.
If (a) any mutilated Trust Securities certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate; and (b) there shall be delivered to the Securities Registrar and
the Administrative Trustees such security or indemnity as may be required by
them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser,
the Administrative Trustees, or any one of them, on behalf of the Trust shall
execute 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
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Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section 505, the
Administrative Trustees or the Securities Registrar may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. Any duplicate Trust Securities Certificate issued
pursuant to this Section 505 shall constitute conclusive evidence of an
undivided beneficial interest in the assets of the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust Securities
Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent 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.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee (a) within five Business Days of each
record date, 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 508. MAINTENANCE OF OFFICE OR AGENCY.
The Administrative Trustees shall maintain, or cause to be maintained, in
The City of New York, New York or Wilmington, Delaware or other location
designated by the Administrative Trustees, an office or offices or agency or
agencies where Trust 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, First Union Trust Company, National Association, as the
principal corporate trust office for such purposes. The
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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 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Administrative Trustees may
revoke such power and remove the Paying Agent if such Trustees determine in
their sole discretion that the Paying Agent shall have failed to perform its
obligations under this Trust Agreement in any material respect. The Paying Agent
shall initially be the Property Trustee, and any co-paying agent chosen by the
Property Trustee, and acceptable to the Administrative Trustees and the
Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days written notice to the Administrative Trustees, 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 Agreement to the
Paying Agent shall include any co-paying agent unless the context requires
otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial and
record ownership of the Common Securities. To the fullest extent permitted by
law, any attempted transfer of the Common Securities (other than a transfer in
connection with a merger or consolidation of the Depositor into another
corporation pursuant to Section 12.1 of the Indenture) shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE."
SECTION 511. TRUST SECURITIES CERTIFICATES.
(a) Upon their original issuance, Trust Preferred Securities
Certificates shall be issued in the form of one or more fully registered
Global Trust Preferred Securities
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Certificates which will be deposited with or on behalf of the Clearing
Agency and registered in the name of the Clearing Agency's nominee. Unless
and until it is exchangeable in whole or in part for the Trust Preferred
Securities in definitive form, a global security may not be transferred
except as a whole by the Clearing Agency to a nominee of the Clearing
Agency or by a nominee of the Clearing Agency to the Clearing Agency or
another nominee of the Clearing Agency or by the Clearing Agency or any
such nominee to a successor of such Clearing Agency or a nominee of such
successor.
(b) 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 512. 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 Trust Preferred Securities
are represented by a Global Trust Preferred Securities Certificate, the Trustees
shall give all such notices and communications specified herein to be given to
the Clearing Agency, and shall have no obligations to provide notice to the
owners of the beneficial interest in the Global Trust Preferred Securities.
SECTION 513. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 209,
and the Securityholders shall not have any right or title therein other
than the undivided beneficial interest in the assets of the Trust conferred
by their Trust Securities and they shall have no right to call for any
partition or division of property, profits or rights of the Trust except as
described below. The Trust Securities shall be personal property giving
only the rights specifically set forth therein and in this Trust Agreement.
The Trust Securities shall have no preemptive or similar rights. When
issued and delivered to Holders of the Trust Preferred Securities against
payment of the purchase price therefor, the Trust Preferred Securities
shall be fully paid and nonassessable interests in the Trust. The Holders
of the Trust 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 Trust 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 Trust 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.
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(c) For so long as any Trust 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 Trust 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 principal of or interest on the Debentures having a
principal amount equal to the Liquidation Amount of the Trust Preferred
Securities of such Holders.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 512, 810 and
1002 and in the Indenture and as otherwise required by law, no record
Holder of Trust 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 on
behalf of the Trust, 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 Trust 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 Trust Preferred Securities. The Trustees shall not revoke any
action previously authorized or approved by a vote of the Holders of the
Outstanding Trust Preferred Securities, except by a subsequent vote of the
Holders of the Outstanding Trust Preferred Securities. The Property Trustee
shall notify each Holder of the Outstanding Trust 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 Trust 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
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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 Trust Preferred Securities, whether by way of amendment to
the Trust Agreement or otherwise; or (ii) the dissolution, winding-up or
termination of the Trust, other than pursuant to the terms of this Trust
Agreement, then the Holders of Outstanding Trust 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
Trust Preferred Securities. No amendment to this Trust Agreement may be
made if, as a result of such amendment, the Trust would cease to be
classified as a grantor trust or would be classified as an association
taxable as a corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Trust Preferred Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 1008 to each Trust 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 TRUST 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 Trust Preferred Securityholders
are entitled to vote upon the written request of the Trust Preferred
Securityholders of 25% of the Outstanding Trust 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 Trust Preferred Securityholders to vote on any matters as to which the
Trust Preferred Securityholders are entitled to vote.
(b) Trust Preferred Securityholders of record of 50% of the
Outstanding Trust 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
Trust Preferred Securityholders of record present, in person or by proxy,
holding more than a majority of the Trust Preferred Securities (based upon
their aggregate Liquidation Amount) held by the Trust Preferred
Securityholders of record present, either in person or by proxy, at such
meeting
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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 (with any fractional multiple
thereof rounded up or down as the case may be to the closest integral multiple)
in respect of any matter as to which such Securityholders are entitled to vote.
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy, shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
Only Holders of record shall be entitled to vote. When Trust Securities are held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Trust Securities, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a 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 more than a majority of all
outstanding Trust Securities (based upon their aggregate Liquidation Amount)
entitled to vote in respect of such action (or such larger proportion thereof as
shall be required by any express provision of this Trust Agreement) shall
consent to the action in writing (based upon their aggregate Liquidation
Amount).
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees or the Property Trustee 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.
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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 or owners in person or by an agent duly appointed in
writing; and, except as otherwise expressly provided herein, such action
shall become effective when such instrument or instruments are delivered to
an Administrative Trustee. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Securityholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Trust Agreement and
(subject to Section 801) conclusive in favor of the Trustees, if made in
the manner provided in this Section 608.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the
execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which any
Trustee receiving the same deems sufficient.
(c) The ownership of Trust Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind
every future Securityholder of the same Trust Security and the
Securityholder of every Trust Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustees or the Trust
in reliance thereon, whether or not notation of such action is made upon
such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount
of such Trust Security or by one or more duly appointed agents each of
which may do so pursuant to such appointment with regard to all or any part
of such liquidation amount.
(f) A Securityholder may institute a legal proceeding directly against
the Depositor under the Guarantee to enforce its rights under the Guarantee
without first
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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 at the principal
executive office of the Trust (as indicated in Section 202) by record holders of
the Trust Securities during normal business hours for any purpose reasonably
related to such record holder's interest as a record holder.
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 (in the case of a Successor Property Trustee, the term "Bank"
as used herein shall be deemed 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 national banking association with its principal
place of business in the State of Delaware or, with respect to a Successor
Property Trustee, a state chartered bank and trust company; 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 shall 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
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under, or result in the creation or imposition of, any Lien on any
properties included in the Trust Property pursuant to the provisions of,
any indenture, mortgage, credit agreement, license or other agreement or
instrument to which the Property Trustee or the Bank 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
Property Trustee or the Bank;
(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 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,
other than the filing of a Certificate of Trust with the Secretary of State
of the State of Delaware;
(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; and
(g) the Property Trustee is a Person eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE
DELAWARE TRUSTEE.
The Delaware Bank and the Delaware Trustee, each severally on behalf of and
as to itself, as of the date hereof, and each Successor Delaware Trustee at the
time of the Successor Delaware Trustee's acceptance of appointment as Delaware
Trustee hereunder (the term "Delaware Bank" being used to refer to such
Successor Delaware Trustee in its separate corporate capacity), hereby
represents and warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Delaware Bank is a national banking association with its
principal place of business in the State of Delaware, or, if a Successor
Delaware Trustee, is a Delaware banking corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all
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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 Delaware Trustee and constitutes the valid and legally
binding agreement of the Delaware 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 Delaware Trustee of
this Trust Agreement has been duly authorized by all necessary corporate or
other action on the part of the Delaware Trustee and does not require any
approval of stockholders of the Delaware Bank and such execution, delivery
and performance shall not (i) violate the Delaware 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 Delaware Bank or the
Delaware 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
Delaware Bank or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Delaware Bank or the Delaware
Trustee;
(e) neither the authorization, execution or delivery by the Delaware
Trustee of this Trust Agreement nor the consummation of any of the
transactions by the Delaware Trustee contemplated herein or therein
requires the consent or approval of, the giving of notice to, the
registration with or the taking of any other action with respect to any
governmental authority or agency under any existing federal law governing
the banking or trust powers of the Delaware Bank or the Delaware Trustee,
as the case may be, under the laws of the United States or the State of
Delaware, other than the filing of the Certificate of Trust with the
Secretary of State of the State of Delaware; and
(f) there are no proceedings pending or, to the best of the Delaware
Trustee's knowledge, threatened against or affecting the Delaware Bank or
the Delaware Trustee in any court or before any governmental authority,
agency or arbitration board or tribunal which, individually or in the
aggregate, would materially and adversely affect the Trust or would
question the right, power and authority of the Delaware Trustee to enter
into or perform its obligations as one of the Trustees under this Trust
Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
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(a) the Trust Securities Certificates issued on the Closing Date on
behalf of the Trust have been duly authorized and, shall have been, duly
and validly executed, issued and delivered by the Administrative Trustees
pursuant to the terms and provisions of, and in accordance with the
requirements of, this Trust Agreement and the Securityholders shall be, as
of such date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the
State of Delaware or any political subdivision thereof in connection with
the execution, delivery and performance by the Bank, 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 it. 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 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 or 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
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accordance with the terms hereof. 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 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
(d) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the negligence, default or misconduct of the
Administrative Trustees or the Depositor.
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SECTION 802. CERTAIN NOTICES.
(a) Within five 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 Extended Interest
Payment Period on the Debentures (unless such election shall have been
revoked) within the time specified for transmitting such notice to the
holders of the Debentures pursuant to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of
action; or (ii) in construing any of the provisions of this Trust Agreement
the Property Trustee finds the same ambiguous or inconsistent with other
provisions contained herein; or (iii) the Property Trustee is unsure of the
application of any provision of this Trust Agreement, then, except as to
any matter as to which the Trust 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;
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(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 offered to the Property
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, debenture, note or other evidence of indebtedness or other paper or
document, unless requested in writing to do so by one or more
Securityholders, but the Property Trustee may make such further inquiry or
investigation into such facts or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, provided that the Property Trustee shall be
responsible for its own negligence or recklessness with respect to
selection of any agent or attorney appointed by it hereunder;
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(j) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder the Property Trustee (i) may request 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 ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time 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), in the case of the Property Trustee, as set forth in
a written agreement between the Depositor and the Property Trustee;
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(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 of any kind or nature whatsoever, 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 for (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).
Each Trustee may claim a Lien or charge on Trust Property as a result of
any amount due and unpaid pursuant to this Section 806. The Property Trustee and
the Delaware Trustee may be the same Person.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has
a combined capital and surplus of at least $50,000,000. If any such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of its supervising or examining authority, then for the
purposes of this Section 807, the combined capital and surplus of such
Person shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the
Property Trustee with respect to the Trust Securities shall cease to be
eligible in accordance with the provisions of this Section 807, it shall
resign immediately in the manner and with the effect hereinafter specified
in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person
who is at least 21 years
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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
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
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Trustees specified hereunder, shall be exercised, solely by such
Trustees and not by such co-trustee or separate trustee.
(ii) The rights, powers, duties and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Property Trustee or by the Property
Trustee and such co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or separate
trustee, except to the extent that under any law of any jurisdiction
in which any particular act is to be performed, the Property Trustee
shall be incompetent or unqualified to perform such act, in which
event such rights, powers, duties and obligations shall be exercised
and performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor,
may accept the resignation of or remove any co-trustee or separate
trustee appointed under this Section 809, and, in case a Debenture
Event of Default has occurred and is continuing, the Property Trustee
shall have the power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the
Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution,
delivery and performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to
any co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property
Trustee or any other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of any act
of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant Trustee")
and no appointment of a successor Trustee pursuant to this Article VIII
shall become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant
Trustee may resign at any time with respect to the Trust Securities by
giving written notice thereof to the
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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 or 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 Trust 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.
(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 Trust Preferred Securityholders, by Act of the
Securityholders of a majority in Liquidation Amount of the Trust Preferred
Securities then Outstanding delivered to the retiring Relevant Trustee,
shall promptly appoint a successor Relevant Trustee or Trustees with
respect to the Trust Securities and the Trust, and such successor Trustee
shall comply with the applicable requirements of Section 811. If an
Administrative Trustee shall resign, be removed or become incapable of
acting as Administrative Trustee, at a time when a Debenture Event of
Default shall have occurred and be continuing, the Common Securityholder,
by Act of the Common Securityholder delivered to an Administrative Trustee,
shall promptly appoint a successor Administrative Trustee or Administrative
Trustees with respect to the Trust Securities and the Trust, and such
successor Administrative Trustee or Administrative Trustees shall comply
with the applicable requirements of Section 811. If no successor Relevant
Trustee with respect to the Trust Securities shall have been so appointed
by the Common Securityholder or the Trust 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 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
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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 and confirm to, and to vest in, each successor Relevant Trustee
all the rights, powers, trusts and duties of the retiring Relevant Trustee
with respect to the Trust Securities and the Trust and upon the execution
and delivery of such instrument the resignation or removal of the retiring
Relevant Trustee shall become effective to the extent provided therein and
each such successor Relevant Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Relevant Trustee with respect to the Trust
Securities and the Trust; but, on request of the Trust or any successor
Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer
and deliver to such successor Relevant Trustee all Trust Property, all
proceeds thereof and money held by such retiring Relevant Trustee hereunder
with respect to the Trust Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust
shall execute any and all instruments for more fully and certainly vesting
in and confirming to such successor Relevant Trustee all such rights,
powers and trusts referred to in the immediately preceding paragraph, as
the case may be.
(c) No successor Relevant Trustee shall accept its appointment unless
at the time of such acceptance such successor Relevant Trustee shall be
qualified and eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Property Trustee, 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
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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) Not later than July 15 of each year commencing with July 15, 2000,
the Property Trustee shall transmit to all Securityholders in accordance
with Section 1008, and to the Depositor, a brief report dated as of May 15
with respect to:
(i) its eligibility under Section 807 or, in lieu thereof, if to
the best of its knowledge it has continued to be eligible under said
Section, a written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action
taken by the Property Trustee in the performance of its duties
hereunder which it has not previously reported and which in its
opinion materially affects the Trust Securities.
(b) In addition the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this
Trust Agreement as may be required pursuant to the Trust Indenture Act at
the times and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with The Nasdaq 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.
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.
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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
(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.
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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
TERMINATION, LIQUIDATION AND MERGER
SECTION 901. TERMINATION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on,
October 13, 2030 (the "Expiration Date") subject to distribution of the Trust
Property 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, subject to Depositor having received prior
approval of the Board of Governors of the Federal Reserve System if so
required under applicable guidelines, policies or regulations thereof) to
dissolve the Trust and distribute the Debentures to Securityholders in
exchange for the Trust Preferred Securities in accordance with Section 904;
(c) the redemption of all of the Trust Preferred Securities in
connection with the redemption of all of the Debentures (whether upon a
Debenture Redemption Date or the maturity of the Debenture); or
(d) an order for dissolution of the Trust shall have been entered by a
court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 904, or upon the
redemption of all of the Trust Securities pursuant to Section 402, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any
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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
Business Trust Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or (d)
of Section 902 occurs or upon the Expiration Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, to each Securityholder a Like
Amount of Debentures, subject to Section 904(d). Notice of liquidation
shall be given by the Property Trustee by first-class mail, postage
prepaid, mailed not later than 30 nor more than 60 days prior to the
Liquidation Date to each Holder of Trust Securities at such Holder's
address appearing in the Securities Register. All notices of liquidation
shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed
to represent a Like Amount of Debentures; 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 appropriate to effect the distribution of
Debentures in exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the
Liquidation Date, (i) the Trust Securities shall no longer be deemed to be
outstanding; (ii) certificates representing a Like Amount of Debentures
shall be issued to holders of Trust Securities Certificates upon surrender
of such certificates to the Administrative Trustees or their agent for
exchange; (iii) the Depositor shall use its reasonable efforts to have the
Debentures listed on the Nasdaq National Market or on such other securities
exchange or other organization as the Trust Preferred Securities are then
listed or traded; (iv) any Trust Securities Certificates not so surrendered
for exchange shall be deemed to represent a Like Amount of Debentures,
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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, wound-up or terminated, by the Property Trustee in such manner
as the Property Trustee determines. In such event, on the date of the
dissolution, winding-up or other termination 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, 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, winding-up or
termination, the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then, subject to the next succeeding sentence,
the amounts payable by the Trust on the Trust Securities shall be paid on a
pro rata basis (based upon Liquidation Amounts). The holder of the Common
Securities shall be entitled to receive Liquidation Distributions upon any
such dissolution, winding-up or termination pro rata (determined as
aforesaid) with Holders of Trust Preferred Securities, except that, if a
Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a priority over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any 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 Trust
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 Trust Preferred Securities; or (b) substitutes for the
Trust Preferred Securities other securities having substantially the same terms
as the Trust Preferred Securities (the "Successor Securities) so long as the
Successor Securities rank the same as the Trust 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
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<PAGE> 56
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 Trust 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 Trust Preferred Securities (including any
Successor Securities) in any material respect; (v) such successor entity has a
purpose substantially identical to that of the Trust; (vi) 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
Trust 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 (vii) 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. Notwithstanding the foregoing, the Trust shall not, except
with the consent of holders of 100% in Liquidation Amount of the Trust 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.
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
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<PAGE> 57
questions arising under this Trust Agreement, that shall not be
inconsistent with the other provisions of this Trust Agreement; or (iii) to
modify, eliminate or add to any provisions of this Trust Agreement to such
extent as shall be necessary to ensure that the Trust shall be classified
for United States federal income tax purposes as a grantor trust at all
times that any Trust Securities are outstanding or to ensure that the Trust
shall not be required to register as an "investment company" under the
Investment Company Act; provided, however, that in the case of clause (ii),
such action shall not adversely affect in any material respect the
interests of any Securityholder, and any 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 of an "investment
company" under the Investment Company Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 603 or 606 hereof), this
Trust Agreement may not be amended to (i) change the amount or timing of
any Distribution on the Trust Securities or otherwise adversely affect the
amount of any Distribution required to be made in respect of the Trust
Securities as of a specified date; or (ii) restrict the right of a
Securityholder to institute suit for the enforcement of any such payment on
or after such date; notwithstanding any other provision herein, without the
unanimous consent of the Securityholders (such consent being obtained in
accordance with Section 603 or 606 hereof), this paragraph (c) of this
Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust
Agreement which would cause the Trust to fail or cease to qualify for the
exemption from status of an "investment company" under the Investment
Company Act or to fail or cease to be classified as a grantor trust for
United States federal income tax purposes.
(e) 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.
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<PAGE> 58
(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 EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES
THEREOF).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day which is a Business Day, except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (and without any reduction of interest
or any other payment in respect of any such acceleration), in each case with the
same force and effect as 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.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
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<PAGE> 59
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a Trust
Preferred Securityholder, to such Trust 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 Prosperity
Bancshares, Inc., 3040 Post Oak Boulevard, Houston, Texas 77056, Attention:
David Zalman, facsimile no.: (409) 543-1906. Any notice to Trust 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 another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware
19801, Attention: Corporate Trust Administration; (b) with respect to the
Delaware Trustee, to First Union Trust Company, National Association at the
above address; and (c) with respect to the Administrative Trustees, to them at
the address above for notices to the Depositor, marked "Attention:
Administrative Trustees of 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 one 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 or any of the Trustees 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 or such
Trustee against the Trust or the commencement of such action and raise the
defense that the Depositor or such Trustee has agreed in writing not to take
such action and should be stopped and precluded therefrom. The provisions of
this Section 1009 shall survive the termination of this Trust Agreement.
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<PAGE> 60
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.
The application of the Trust Indenture Act to this Trust Agreement shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE
OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 61
PROSPERITY BANCSHARES, INC.
By:
----------------------------------------
Tracy T. Rudolph
President
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, as Property
Trustee
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, as Delaware
Trustee
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-------------------------------------------
Tracy T. Rudolph, As Administrative Trustee
-------------------------------------------
David Zalman, As Administrative Trustee
-------------------------------------------
David Hollaway, As Administrative Trustee
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<PAGE> 62
EXHIBIT A
CERTIFICATE OF TRUST
OF
PROSPERITY CAPITAL TRUST I
THIS CERTIFICATE OF TRUST OF Prosperity Capital Trust I (the "Trust"),
dated October 13, 1999, is being duly executed and filed by First Union Trust
Company, National Association, a national banking association, Tracy T. Rudolph,
David Zalman and David Hollaway, each an individual, as trustees, to form a
business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et
seq.)(the "Act").
1. NAME. The name of the business trust formed hereby is Prosperity
Capital Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is First Union Trust Company, National
Association, One Rodney Square, 920 King Street, Wilmington, Delaware
19801, Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust will be effective upon
filing.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of Trust
in accordance with Section 3811(a)(1) of the Act.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, as Delaware
trustee
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
------------------------------------------------
Tracy T. Rudolph, as Administrative Trustee
------------------------------------------------
David Zalman, as Administrative Trustee
------------------------------------------------
David Hollaway, as Administrative Trustee
A-1
<PAGE> 63
EXHIBIT B
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number 1 Number of Common Securities _________
Certificate Evidencing Common Securities
of
Prosperity Capital Trust I
Common Securities
(liquidation amount $10 per Common Security)
PROSPERITY CAPITAL TRUST I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that PROSPERITY
BANCSHARES, INC. (the "Holder") is the registered owner of _______________
(_______) common securities of the Trust representing undivided beneficial
interests in the assets of the Trust and designated the ____% Common Securities
(liquidation amount $10 per Common Security) (the "Common Securities"). In
accordance with Section 510 of the Trust Agreement (as defined below), the
Common Securities are not transferable and any attempted transfer hereof shall
be void. The designations, rights, privileges, restrictions, preferences, and
other terms and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and shall in
all respects be subject to the terms and provisions of, the Amended and Restated
Trust Agreement of the Trust dated as of, __________, 1999, as the same may be
amended from time to time (the "Trust Agreement"), including the designation of
the terms of the Common Securities as set forth therein. The Trust shall furnish
a copy of the Trust Agreement to the Holder without charge upon written request
to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
B-1
<PAGE> 64
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this ____ day of ___, 1999.
Prosperity Capital Trust I
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
B-2
<PAGE> 65
EXHIBIT C
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of
_________________ __, 1999, between PROSPERITY BANCSHARES, INC., a Texas
corporation (the "Company"), and PROSPERITY CAPITAL TRUST I, a Delaware business
trust (the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive ____% Subordinated Debentures (the "Debentures")
from, the Company and to issue and sell Prosperity Capital Trust I ___%
Cumulative Trust Preferred Securities (the "Trust 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 ________ __,
1999, 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
Trust 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 Trust Preferred Securities or other similar interests in the Trust the
amounts due such holders pursuant to the terms of the Trust 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.
C-1
<PAGE> 66
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 Trust 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 Trust Preferred Securities or any Beneficiary must restore
payment of any sums paid under the Trust Preferred Securities, under any
obligation, under the Trust Preferred Securities Guarantee Agreement dated the
date hereof by the Company and First Union Trust Company, National Association,
as guarantee trustee or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
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.
C-2
<PAGE> 67
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.
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 Trust Preferred Securities
of any series are outstanding, this Agreement shall not be modified or amended
in any manner adverse to such Beneficiary or to any of the holders of the Trust
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):
Prosperity Capital Trust I
c/o Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, Texas 77056
Facsimile No.: (409) 543-1906
Attention: David Zalman, Administrative Trustee
Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, Texas 77056
Facsimile No.: (713) 993-0765
Attention: Tracy T. Rudolph, President
SECTION 2.4 This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Delaware (without regard
to conflict of laws principles).
C-3
<PAGE> 68
THIS AGREEMENT is executed as of the day and year first above written.
PROSPERITY BANCSHARES, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
PROSPERITY CAPITAL TRUST I
By:
------------------------------------------
Name:
----------------------------------------
Title: Administrative Trustee
C-4
<PAGE> 69
EXHIBIT D
Certificate Number________ Number of Trust Preferred Securities _________
Certificate Evidencing Trust Preferred Securities
of
Prosperity Capital Trust I
____% Cumulative Trust Preferred Securities
(liquidation amount $10 per Trust Preferred Security)
CUSIP
Prosperity Capital Trust I, 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 _____% Cumulative Trust Preferred
Securities (liquidation amount $10 per Trust Preferred Security) (the "Trust
Preferred Securities"). The Trust Preferred Securities are transferable on the
books and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer as
provided in Section 504 of the Trust Agreement (as defined herein). The
designations, rights, privileges, restrictions, preferences, and other terms and
provisions of the Trust Preferred Securities are set forth in, and this
certificate and the Trust 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 _______ __, 1999, as the same
may be amended from time to time (the "Trust Agreement"), including the
designation of the terms of Trust Preferred Securities as set forth therein. The
Holder is entitled to the benefits of the Trust Preferred Securities Guarantee
Agreement entered into by Prosperity Bancshares, Inc., a Texas corporation, and
First Union Trust Company, National Association, as guarantee trustee, dated as
of __________, 1999, as the same may be amended from time to time (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.
D-1
<PAGE> 70
Unless the Certificate of Authentication has been manually executed by the
Authentication Agent, this certificate is not valid or effective.
IN WITNESS WHEREOF, the Administrative Trustees of the Trust have executed
this Certificate this ____ day of __________, 1999.
CERTIFICATE OF AUTHENTICATION: PROSPERITY CAPITAL TRUST I
This is one of the ____% Cumulative
Trust Preferred Securities
Referred to in the within mentioned By:
Amended and Restated Trust Agreement. ----------------------------------
Tracy T. Rudolph, as
Administrative Trustee
By:
----------------------------------
David Zalman, as
Administrative Trustee
By:
----------------------------------
David Hollaway, as
Administrative Trustee
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
as Authentication Agent and Registrar
By:
----------------------------------
AUTHORIZED SIGNATURE
D-2
<PAGE> 71
FORM OF REVERSE OF CERTIFICATE
The Trust will furnish without charge to any registered owner of Trust
Preferred Securities who so requests, a copy of the Trust Agreement and the
Guarantee. Any such request should be in writing and addressed to Prosperity
Capital Trust I, c/o Prosperity Bancshares, Inc., 3040 Post Oak Boulevard,
Houston, Texas 77056 or to the Registrar named on the face of this Certificate.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN CON - as tenants in common TEN ENT - as tenants in the entireties
JT TEN - as joint tenants with right of survival
UNIF GIFT MIN ACT - under Uniform Gift to Minors Act and not as tenants
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number of assignee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(insert address and zip code of assignee)
-1-
<PAGE> 72
the within Certificate and all rights and interests represented by the Trust
Preferred Securities evidenced thereby, and hereby irrevocably constitutes and
appoints attorney to transfer the said Trust Preferred Securities on the books
of the within-named Trust with full power of substitution in the premises.
Dated: Signature:
----------------------- ----------------------------
Note: The signature(s) to this
assignment must correspond with the
name(s) as written upon the face of
this Certificate in every particular,
without alteration or enlargement, or
any change whatever.
Signature(s) Guaranteed:
NOTICE: Signature(s) must be guaranteed by an "eligible guarantor institution"
that is a member or participant in a "signature guarantee program" (i.e., the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program).
-2-
<PAGE> 73
EXHIBIT E
FORM OF CERTIFICATE OF AUTHENTICATION
This is one of the ____% Cumulative Trust Preferred Securities referred to
in the within-mentioned Amended and Restated Trust Agreement.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, as
Authentication Agent and Registrar
By:
---------------------------------
AUTHORIZED SIGNATURE
<PAGE> 1
EXHIBIT 4.7
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
PROSPERITY BANCSHARES, INC.
AND
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
DATED AS OF __________, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION............................................ 1
Section 1.1. Definitions and Interpretation............................... 1
ARTICLE II
TRUST INDENTURE ACT....................................................... 5
Section 2.1. Trust Indenture Act; Application............................. 5
Section 2.2. Lists of Holders of Securities............................... 5
Section 2.3. Reports by the Trust Preferred Guarantee Trustee............. 5
Section 2.4. Periodic Reports to Trust Preferred Guarantee Trustee........ 5
Section 2.5. Evidence of Compliance with Conditions Precedent............. 6
Section 2.6. Events of Default; Waiver.................................... 6
Section 2.7. Event of Default; Notice..................................... 6
Section 2.8. Conflicting Interests........................................ 6
ARTICLE III
POWERS, DUTIES AND RIGHTS OF TRUST PREFERRED
GUARANTEE TRUSTEE......................................................... 7
Section 3.1. Powers and Duties of the Trust Preferred Guarantee Trustee... 7
Section 3.2. Certain Rights of Trust Preferred Guarantee Trustee.......... 8
Section 3.3. Not Responsible for Recitals or Issuance of Guarantee........ 10
ARTICLE IV
TRUST PREFERRED GUARANTEE TRUSTEE......................................... 10
Section 4.1. Trust Preferred Guarantee Trustee; Eligibility............... 10
Section 4.2. Appointment, Removal and Resignation of Trust
Preferred Guarantee Trustees................................. 11
ARTICLE V
GUARANTEE................................................................. 12
Section 5.1. Guarantee.................................................... 12
Section 5.2. Waiver of Notice and Demand.................................. 12
Section 5.3. Obligations not Affected..................................... 12
Section 5.4. Rights of Holders............................................ 13
Section 5.5. Guarantee of Payment......................................... 14
Section 5.6. Subrogation.................................................. 14
Section 5.7. Independent Obligations...................................... 14
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION................................. 14
Section 6.1. Limitation of Transactions................................... 14
Section 6.2. Ranking...................................................... 15
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VII
TERMINATION............................................................... 15
Section 7.1. Termination.................................................. 15
ARTICLE VIII
INDEMNIFICATION........................................................... 15
Section 8.1. Exculpation.................................................. 15
Section 8.2. Indemnification.............................................. 16
ARTICLE IX
MISCELLANEOUS............................................................. 16
Section 9.1. Successors and Assigns....................................... 16
Section 9.2. Amendments................................................... 16
Section 9.3. Notices...................................................... 16
Section 9.4. Benefit...................................................... 17
Section 9.5. Governing Law................................................ 17
</TABLE>
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<PAGE> 4
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Trust Section of
Indenture Act of Guarantee
1939, as amended Agreement
- ---------------- --------------
<S> <C>
310(a)............................................................. 1(a)
310(b)............................................................. 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)............................................................. 1(a)
318(b)............................................................. 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.
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<PAGE> 5
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Trust
Preferred Securities Guarantee"), dated as of __________, 1999, is executed and
delivered by PROSPERITY BANCSHARES, INC., a Texas corporation (the "Guarantor"),
and FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking
association, as trustee (the "Trust Preferred Guarantee Trustee"), for the
benefit of the Holders (as defined herein) from time to time of the Trust
Preferred Securities (as defined herein) of Prosperity Capital Trust I, a
Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of __________, 1999, 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 1,200,000 preferred securities, having an
aggregate liquidation amount of $12,000,000, designated the ____% Cumulative
Trust Preferred Securities (the "Trust Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Trust Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Trust Preferred Securities Guarantee, to pay to the
Holders of the Trust 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
Trust Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Trust Preferred
Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION.
In this Trust Preferred Securities Guarantee, unless the context
otherwise requires:
(a) capitalized terms used in this Trust 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 Trust Preferred Securities Guarantee have the same meaning when used in
this Trust Preferred Securities Guarantee, unless otherwise defined in this
Trust Preferred Securities Guarantee;
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<PAGE> 6
(c) a term defined anywhere in this Trust Preferred Securities
Guarantee has the same meaning throughout;
(d) all references to "the Trust Preferred Securities Guarantee" or
"this Trust Preferred Securities Guarantee" are to this Trust Preferred
Securities Guarantee as modified, supplemented or amended from time to time;
(e) all references in this Trust Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this Trust Preferred
Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Trust Preferred Securities Guarantee, unless otherwise defined in
this Trust Preferred Securities Guarantee or unless the context otherwise
requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday, Sunday, a day on
which federal or state banking institutions in New York, New York or Wilmington,
Delaware are authorized or required by law, executive order or regulation to
close or a day on which the Corporate Trust Office of the Trust Preferred
Guarantee Trustee is closed for business.
"Trust Preferred Guarantee Trustee" means First Union Trust Company,
National Association, until a Successor Trust Preferred Guarantee Trustee has
been appointed and has accepted such appointment pursuant to the terms of this
Trust Preferred Securities Guarantee and thereafter means each such Successor
Trust Preferred Guarantee Trustee.
"Corporate Trust Office" means the office of the Trust Preferred
Guarantee Trustee at which the corporate trust business of the Trust Preferred
Guarantee Trustee shall, at any particular time, be principally administered,
which office at the date of execution of this Agreement is located at One Rodney
Square, 920 King Street, 1st Floor, Wilmington, Delaware 19801, Attention:
Corporate
Trust Administration.
"Covered Person" means any Holder or beneficial owner of Trust
Preferred Securities.
"Debentures" means the ____% Subordinated Debentures due __________,
2029, of the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means Prosperity Bancshares, Inc., issuer of the
Debentures under the Indenture.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Trust Preferred Securities Guarantee.
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<PAGE> 7
"Guarantor" means Prosperity Bancshares, Inc., a Texas corporation.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Trust Preferred Securities, to the
extent not paid or made by the Trust: (i) any accumulated and unpaid
Distributions (as defined in the Trust Agreement) that are required to be paid
on such Trust Preferred Securities, to the extent the Trust shall have funds
available therefor, (ii) the redemption price, including all accumulated and
unpaid Distributions to the date of redemption (the "Redemption Price"), to the
extent the Trust has funds available therefor, with respect to any Trust
Preferred Securities called for redemption by the Trust, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Debentures to the Holders in
exchange for Trust Preferred Securities as provided in the Trust Agreement), the
lesser of (a) the aggregate of the liquidation amount and all accumulated and
unpaid Distributions on the Trust 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 Trust Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Trust Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Trust Preferred Guarantee Trustee or any of
their respective Affiliates.
"Indemnified Person" means the Trust Preferred Guarantee Trustee, any
Affiliate of the Trust Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Trust Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of __________, 1999, among the
Debenture Issuer and First Union Trust Company, National Association, as
trustee, and any indenture supplemental thereto pursuant to which certain
subordinated debt securities of the Debenture Issuer are to be issued to the
Property Trustee of the Trust.
"Liquidation Amount" means the stated value of $10 per Trust Preferred
Security.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
"List of Holders" has the meaning provided therefor in Section 2.2(a)
hereof.
"Majority in liquidation amount of the Trust Preferred Securities"
means the Holders of more than 50% of the Liquidation Amount of all of the Trust
Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two authorized officers of such Person, at least one of
whom shall be the principal executive officer, principal financial officer,
principal accounting officer, treasurer or any vice president of such
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<PAGE> 8
Person. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Trust 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.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Trust Preferred
Guarantee Trustee, any officer within the Corporate Trust Office of the Trust
Preferred Guarantee Trustee with direct responsibility for the administration of
this Trust Preferred Securities Guarantee, including any vice-president, any
assistant vice-president, any assistant secretary or other officer or assistant
officer of the Trust 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 Trust Preferred Guarantee Trustee" means a successor Trust
Preferred Guarantee Trustee possessing the qualifications to act as Trust
Preferred Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
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<PAGE> 9
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Trust Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of this Trust
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 Trust 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 Trust Preferred Guarantee Trustee is not also
acting in the capacity of the Property Trustee under the Trust Agreement, the
Guarantor shall cause to be provided to the Trust Preferred Guarantee Trustee
with a list, in such form as the Trust Preferred Guarantee Trustee may
reasonably require, of the names and addresses of the Holders of the Trust
Preferred Securities ("List of Holders") as of the date (i) within five (5)
Business Days after the last day of March, June, September and December, 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 Trust 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 caused to
have been given to the Trust Preferred Guarantee Trustee by the Guarantor. The
Trust Preferred Guarantee Trustee may destroy any List of Holders previously
given to it on receipt of a new List of Holders.
(b) The Trust 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 TRUST PREFERRED GUARANTEE TRUSTEE.
On or before July 15 of each year, the Trust Preferred Guarantee
Trustee shall provide to the Holders of the Trust 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 Trust Preferred Guarantee Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO TRUST PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Trust Preferred Guarantee Trustee
such documents, reports and information as required by Section 314 (if any) and
the compliance certificate required
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<PAGE> 10
by Section 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Trust Preferred Guarantee Trustee
such evidence of compliance with any conditions precedent, if any, provided for
in this Trust 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 Trust Preferred
Securities may, by vote, on behalf of the Holders of all of the Trust 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
Trust 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 Trust Preferred Guarantee Trustee shall, within five (5)
Business Days after the occurrence of an Event of Default, transmit by mail,
first class postage prepaid, to the Holders of the Trust Preferred Securities,
notices of all Events of Default actually known to a Responsible Officer of the
Trust Preferred Guarantee Trustee, unless such defaults have been cured before
the giving of such notice; provided, that, except in the case of a default by
Guarantor on any of its payment obligations, the Trust Preferred Guarantee
Trustee shall be protected in withholding such notice if and so long as a
Responsible Officer of the Trust Preferred Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Trust Preferred Securities.
(b) The Trust Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Trust Preferred Guarantee Trustee
shall have received written notice, or of which a Responsible Officer of the
Trust 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 Trust Preferred Securities Guarantee for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
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ARTICLE III
POWERS, DUTIES AND RIGHTS OF TRUST PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE TRUST PREFERRED GUARANTEE TRUSTEE.
(a) This Trust Preferred Securities Guarantee shall be held by the
Trust Preferred Guarantee Trustee for the benefit of the Holders of the Trust
Preferred Securities, and the Trust Preferred Guarantee Trustee shall not
transfer this Trust Preferred Securities Guarantee to any Person except a Holder
of Trust Preferred Securities exercising his or her rights pursuant to Section
5.4(b) or to a Successor Trust Preferred Guarantee Trustee on acceptance by such
Successor Trust Preferred Guarantee Trustee of its appointment to act as
Successor Trust Preferred Guarantee Trustee. The right, title and interest of
the Trust Preferred Guarantee Trustee shall automatically vest in any Successor
Trust 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 Trust Preferred
Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Trust Preferred Guarantee Trustee has occurred and is continuing, the Trust
Preferred Guarantee Trustee shall enforce this Trust Preferred Securities
Guarantee for the benefit of the Holders of the Trust Preferred Securities.
(c) The Trust 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 Trust Preferred Securities Guarantee, and no implied covenants
shall be read into this Trust Preferred Securities Guarantee against the Trust
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 Trust Preferred Guarantee Trustee, the Trust
Preferred Guarantee Trustee shall exercise such of the rights and powers vested
in it by this Trust 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 Trust Preferred Securities Guarantee shall be
construed to relieve the Trust 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 Trust Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Trust Preferred Securities Guarantee, and
the Trust Preferred Guarantee Trustee shall not be liable
except for the performance of such duties and obligations as
are specifically set forth in this Trust Preferred Securities
Guarantee, and no implied covenants or obligations shall
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<PAGE> 12
be read into this Trust Preferred Securities Guarantee against
the Trust Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Trust Preferred Guarantee Trustee, the Trust 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
Trust Preferred Guarantee Trustee and conforming to the
requirements of this Trust 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 Trust Preferred Guarantee Trustee, the Trust Preferred
Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of
this Trust Preferred Securities Guarantee;
(ii) the Trust Preferred Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible Officer
of the Trust Preferred Guarantee Trustee, unless it shall be proved
that the Trust Preferred Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was made;
(iii) the Trust 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 Trust Preferred Securities
relating to the time, method and place of conducting any proceeding for
any remedy available to the Trust Preferred Guarantee Trustee, or
exercising any trust or power conferred upon the Trust Preferred
Guarantee Trustee under this Trust Preferred Securities Guarantee; and
(iv) no provision of this Trust Preferred Securities Guarantee
shall require the Trust 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 Trust 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 Trust
Preferred Securities Guarantee or indemnity, reasonably satisfactory to
the Trust Preferred Guarantee Trustee, against such risk or liability
is not reasonably assured to it.
SECTION 3.2. CERTAIN RIGHTS OF TRUST PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Trust 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;
-8-
<PAGE> 13
(ii) any direction or act of the Guarantor contemplated by
this Trust Preferred Securities Guarantee shall be sufficiently
evidenced by an Officers' Certificate;
(iii) whenever, in the administration of this Trust Preferred
Securities Guarantee, the Trust Preferred Guarantee Trustee shall deem
it desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Trust 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 Trust 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 Trust 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 Trust Preferred Guarantee
Trustee shall have the right at any time to seek instructions
concerning the administration of this Trust Preferred Securities
Guarantee from any court of competent jurisdiction;
(vi) the Trust Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Trust Preferred Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Trust Preferred
Guarantee Trustee such security and indemnity, reasonably satisfactory
to the Trust Preferred Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Trust
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 Trust Preferred Guarantee Trustee; provided that, nothing contained
in this Section 3.2(a)(vi) shall be taken to relieve the Trust
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 Trust Preferred Securities Guarantee;
(vii) the Trust 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
Trust Preferred Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may
see fit;
(viii) the Trust 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,
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<PAGE> 14
custodians or attorneys, and the Trust 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 Trust Preferred Guarantee Trustee
or its agents hereunder shall bind the Holders of the Trust Preferred
Securities, and the signature of the Trust 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 Trust Preferred Guarantee Trustee to so act or as to
its compliance with any of the terms and provisions of this Trust
Preferred Securities Guarantee, both of which shall be conclusively
evidenced by the Trust Preferred Guarantee Trustee's or its agent's
taking such action;
(x) whenever in the administration of this Trust Preferred
Securities Guarantee the Trust 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 Trust
Preferred Guarantee Trustee (i) may request instructions from the
Holders of a Majority in liquidation amount of the Trust 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 Trust Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Trust 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 Trust 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 Trust Preferred Guarantee Trustee shall be construed
to be a duty.
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Trust Preferred Guarantee Trustee does not
assume any responsibility for their correctness. The Trust Preferred Guarantee
Trustee makes no representation as to the validity or sufficiency of this Trust
Preferred Securities Guarantee.
ARTICLE IV
TRUST PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. TRUST PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Trust Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
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(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted by
the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority
referred to above, then, for the purposes of this Section 4.1(a)(ii),
the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Trust Preferred Guarantee Trustee shall cease to
be eligible to so act under Section 4.1(a), the Trust Preferred Guarantee
Trustee shall immediately resign in the manner and with the effect set out in
Section 4.2(c).
(c) If the Trust Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Trust 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 TRUST PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(b), the Trust Preferred Guarantee Trustee
may be appointed or removed without cause at any time by the Guarantor.
(b) The Trust Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Trust Preferred Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Trust Preferred Guarantee Trustee and
delivered to the Guarantor.
(c) The Trust Preferred Guarantee Trustee appointed to office shall
hold office until a Successor Trust Preferred Guarantee Trustee shall have been
appointed or until its removal or resignation. The Trust Preferred Guarantee
Trustee may resign from office (without need for prior or subsequent accounting)
by an instrument in writing executed by the Trust Preferred Guarantee Trustee
and delivered to the Guarantor, which resignation shall not take effect until a
Successor Trust Preferred Guarantee Trustee has been appointed and has accepted
such appointment by instrument in writing executed by such Successor Trust
Preferred Guarantee Trustee and delivered to the Guarantor and the resigning
Trust Preferred Guarantee Trustee.
(d) If no Successor Trust 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 Trust Preferred Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Trust Preferred Guarantee Trustee.
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<PAGE> 16
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Trust Preferred Guarantee Trustee.
(e) No Trust Preferred Guarantee Trustee shall be liable for the acts
or omissions to act of any Successor Trust Preferred Guarantee Trustee.
(f) Upon termination of this Trust Preferred Securities Guarantee or
removal or resignation of the Trust Preferred Guarantee Trustee pursuant to this
Section 4.2, the Guarantor shall pay to the Trust Preferred Guarantee Trustee
all amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Trust), as and when due, regardless of any defense, right of set-off
or counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
SECTION 5.2. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Trust
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 Trust 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 Trust 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
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<PAGE> 17
of the Trust Preferred Securities or the extension of time for the performance
of any other obligation under, arising out of, or in connection with, the Trust
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 Trust 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 Trust Preferred
Securities;
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Trust 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 Trust Preferred Securities;
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. RIGHTS OF HOLDERS.
(a) Subject to Section 5.4(b), the Holders of a Majority in liquidation
amount of the Trust Preferred Securities have the right to direct the time,
method and place of conducting of any proceeding for any remedy available to the
Trust Preferred Guarantee Trustee in respect of this Trust Preferred Securities
Guarantee or exercising any trust or power conferred upon the Trust Preferred
Guarantee Trustee under this Trust Preferred Securities Guarantee.
(b) Any Holder of Trust Preferred Securities may institute and
prosecute a legal proceeding directly against the Guarantor to enforce its
rights under this Trust Preferred Securities Guarantee without first instituting
a legal proceeding against the Trust, the Trust Preferred Guarantee Trustee or
any other Person.
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<PAGE> 18
SECTION 5.5. GUARANTEE OF PAYMENT.
This Trust Preferred Securities Guarantee creates a guarantee of
payment and not of collection.
SECTION 5.6. SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Trust Preferred Securities against the Trust in respect of any amounts paid
to such Holders by the Guarantor under this Trust 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 Trust
Preferred Securities Guarantee, if, at the time of any such payment, any amounts
are due and unpaid under this Trust 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 Trust 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 Trust
Preferred Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1. LIMITATION OF TRANSACTIONS.
So long as any Trust Preferred Securities remain outstanding, if there
shall have occurred an Event of Default under this Trust Preferred Securities
Guarantee, an event of default under the Indenture, an event of default under
the Trust Agreement or during an Extended Interest Payment Period (as defined in
the Indenture), then (a) the Guarantor shall not, and will not permit any
Subsidiary to, declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (i) as a result of a
reclassification of its capital stock for another class of its capital stock or
(ii) declarations of payments of dividends or distributions of capital stock by
a Subsidiary of the Guarantor to the Guarantor); (b) the Guarantor shall not,
and will not permit any Subsidiary to, make any payment of interest or principal
on or repay, repurchase or redeem any debt securities issued by the Guarantor
which rank pari passu with or junior to the Debentures; (c) the Guarantor shall
not make any guarantee payments with respect to any guarantee by the Guarantor
of the debt securities of any Subsidiary of the Guarantor if such guarantee
ranks pari passu with or junior in interest to the
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<PAGE> 19
Debentures; and (d) the Guarantor shall not redeem, purchase or acquire less
than all of the outstanding Debentures or any of the Trust Preferred Securities.
SECTION 6.2. RANKING.
This Trust Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations,
as defined in the Indenture, of the Guarantor, to the extent and in the manner
set forth in the Indenture, and the applicable provisions of the Indenture will
apply, in all relevant respects, to the obligations of the Guarantor hereunder.
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION.
This Trust Preferred Securities Guarantee shall terminate (a) upon full
payment of the Redemption Price of all Trust Preferred Securities, (b) upon full
payment of the amounts payable in accordance with the Trust Agreement upon
liquidation of the Trust, or (c) upon distribution of the Debentures to the
Holders of the Trust Preferred Securities. Notwithstanding the foregoing, this
Trust Preferred Securities Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any Holder of Trust Preferred
Securities must restore payment of any sums paid under the Trust Preferred
Securities or under this Trust 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 Trust 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 Trust 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
-15-
<PAGE> 20
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 Trust 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
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 Trust Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Trust 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 Trust Preferred Securities then outstanding.
SECTION 9.2. AMENDMENTS.
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Trust Preferred Securities Guarantee may only be amended with
the prior approval of the Holders of at least a Majority in Liquidation Amount
of the Trust Preferred Securities. The provisions of Article VI of the Trust
Agreement with respect to meetings of Holders of the Trust Preferred Securities
apply to the giving of such approval.
SECTION 9.3. NOTICES.
All notices provided for in this Trust 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 Trust Preferred Guarantee Trustee, at the Trust
Preferred Guarantee Trustee's mailing address set forth below (or such other
address as the Trust Preferred Guarantee Trustee may give notice of to the
Holders of the Trust Preferred Securities):
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<PAGE> 21
First Union Trust Company, National Association
One Rodney Square
920 King Street, 1st Floor
Wilmington, Delaware 19801
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 Trust Preferred Securities):
Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, Texas 77056
Attention: David Zalman, Vice President
(c) If given to any Holder of Trust 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 Trust Preferred Securities Guarantee is solely for the benefit of
the Holders of the Trust Preferred Securities and, subject to Section 3.1(a), is
not separately transferable from the Trust Preferred Securities.
SECTION 9.5. GOVERNING LAW.
THIS TRUST PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF TEXAS.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 22
This Trust Preferred Securities Guarantee is executed as of the day and
year first above written.
PROSPERITY BANCSHARES, INC., as Guarantor
By:
--------------------------------------
Name:
------------------------------------
Its:
-------------------------------------
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, as
Trust Preferred Guarantee Trustee
By:
--------------------------------------
Name:
------------------------------------
Its:
-------------------------------------
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<PAGE> 1
EXHIBIT 5.1
[Bracewell & Patterson, L.L.P. letterhead]
October 21, 1999
Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, Texas 77056
Ladies and Gentlemen:
We have acted as counsel for Prosperity Bancshares, Inc., a Texas corporation
(the "Company") and Prosperity Capital Trust I, a Delaware statutory business
trust (the "Trust") in connection with the preparation of a Registration
Statement on Form S-1 (as amended or supplemented, the "Registration Statement")
filed by the Company and the Trust with the Securities and Exchange Commission
for the purpose of registering under the Securities Act of 1933, as amended,
trust preferred securities of the trust (the "Trust Preferred Securities"),
Junior Subordinated Debentures to be issued by the Company and the guarantee of
the Company pursuant to the Trust Preferred Securities Guarantee Agreement
(collectively, the "Offering").
In connection with this opinion, we have examined originals or copies of the
following:
(i) The Certificate of Trust (the "Certificate of Trust") of the
Trust as filed with the Secretary of State of the State of
Delaware on October 13, 1999;
(ii) The Trust Agreement of the Trust dated as of October 13, 1999
among the Company; First Union Trust Company, National
Association ("First Union"), as trustee (the "Delaware
Trustee"); and Tracy T. Rudolph, David Zalman and David
Hollaway, as administrative trustees (the "Administrative
Trustees");
(iii) A form of the Amended and Restated Trust Agreement, to be
entered into between the Company, the trustees of the Trust
named therein and the holders, from time to time, of the
undivided beneficial ownership interests in the assets of
such Trust (the "Trust Agreement");
<PAGE> 2
Prosperity Bancshares, Inc.
October 21, 1999
Page 2
(iv) The Registration Statement, including the form of prospectus
contained therein, relating to the Trust Preferred Securities
representing preferred undivided beneficial ownership
interest in the assets of the Trust;
(v) A form of the Trust Preferred Securities Certificate;
(vi) A form of the Trust Preferred Securities Guarantee to be
entered into between the Company and First Union, as
Guarantee Trustee (the "Guarantee");
(vii) A form of the Indenture to be entered into between the
Company and First Union, as Indenture Trustee (the
"Indenture");
(viii) The Articles of Incorporation of the Company, together with
all amendments thereto;
(ix) The Bylaws of the Company, as amended;
(x) Certain resolutions of the Board of Directors of the Company
(the "Board") related to the Offering;
(xi) A form of subordinated debenture to represent the
subordinated debentures approved by the Board (the
"Debentures");
(xii) A form of the Agreement as to Expenses and Liabilities to be
entered into between the Company and Trust (the "Expense
Agreement"); and
(xiii) Such other documents and records as we have deemed necessary
and relevant for the purposes hereof.
In addition, we have relied on certificates of public officials and officers of
the Company as to certain matters of fact relating to this opinion and have made
such investigations of law as we have deemed necessary and relevant as a basis
hereof. We have assumed the legal capacity of all natural persons, the
genuineness of all signatures, the authenticity of all documents and records
submitted to us as originals, the conformity to original documents and records
of all documents and records submitted to us as copies, and the truthfulness of
all statements of fact contained therein.
<PAGE> 3
Prosperity Bancshares, Inc.
October 21, 1999
Page 3
In addition, we have assumed that the Trust Agreement, the Guarantee, the
Indenture, the Debenture and the Expense Agreement (collectively, the "Operative
Documents") will be executed and delivered by the parties thereto, and when
executed, will be executed in substantially the form reviewed by us.
Based on the foregoing and subject to the limitations and assumptions set forth
herein, and having due regard for such legal considerations as we deem relevant,
we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas, with full
corporate power and authority to own, lease and operate its properties and
conduct its business as presently conducted and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
have a material adverse effect.
2. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12 Del.C.
Section 3801, et seq.
3. The Company has full corporate power and authority to enter into and
perform its obligations under the Operative Documents, and the performance of
the Company's obligations thereunder have been duly authorized by all necessary
corporate action of the Company and, when properly executed and delivered, the
Operative Documents, to and will, to our knowledge: (i) constitute legal, valid
and binding agreements of the Company enforceable in accordance with their
terms, except that rights to indemnity or contribution may be limited or denied
by applicable law and except as may be limited or denied by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
limiting the right to specific performance or other equitable relief; and (ii)
no consent, approval, authorization or other order or decree of any court,
regulatory or governmental body, arbitrator, administrative agency, or other
instrumentality of the United States or any other jurisdiction having
jurisdiction over the Company is necessary for the execution and delivery of the
Operative Documents in connection with the issuance or sale of the Debentures
pursuant to the Indenture and the Trust Agreement or the consummation by the
Company of any other transactions contemplated thereby.
<PAGE> 4
Prosperity Bancshares, Inc.
October 21, 1999
Page 4
4. The execution, delivery and performance of the Operative Documents
by the Company, will not, to our knowledge, contravene any of the provisions of,
or result in a default under: (i) the Articles of Incorporation or Bylaws of the
Company, or of any material contract, agreement, lease, franchise, license,
indenture, permit, loan agreement, deed of trust, or other evidence of
indebtedness or other instrument known to us and to which the Company is a party
or by which the Company or any of its material owned or leased properties is
bound; and (ii) will not violate any statute, ordinance, order, rule, decree or
regulation of any court, regulatory or governmental body, arbitrator,
administrative agency or other instrumentality of the United States or other
jurisdiction having jurisdiction over the Company or its properties.
The opinions set forth above are based on and limited to the law of the State of
Texas, the General Corporation Law of the State of Delaware and the relevant law
of the United States of America. Whenever our opinion is based on circumstances
"to our knowledge," we have relied exclusively on certificates of officers of
the Company and its subsidiaries (after discussing the contents thereof with
such officers) as to the existence or nonexistence of the circumstances upon
which our opinion is predicated. We have no reason to believe, however, that any
such certificate is untrue or inaccurate in any material respect.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement and to the reference to
us under the caption "Legal Matters" in the Prospectus forming a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. This opinion is being furnished
to you solely for your benefit in connection with the transactions set forth
above. It may not be relied upon by, nor a copy of it delivered to any other
party, without our prior written consent. This opinion is based upon our
knowledge of the law and facts as of the date hereof, and we assume no duty to
communicate with you with respect to any matter that comes to our attention
hereafter.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
Bracewell & Patterson, L.L.P.
/cam
<PAGE> 1
EXHIBIT 5.2
October 21, 1999
Prosperity Capital Trust I
c/o Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, TX 77056
Re: Prosperity Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Prosperity Bancshares,
Inc., a Texas corporation ("Prosperity"), and Prosperity Capital Trust I, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Trust Agreement of the Trust, dated as of October
13, 1999 (the "Original Trust Agreement"), among
Prosperity, First Union Trust Company, National
Association, a national banking association with its
principal place of business in the State of Delaware
("First Union"), as trustee (the "Delaware Trustee"),
and David Zalman, Tracy T. Rudolph and David
Holloway, as administrative trustees (the
"Administrative Trustees");
(b) A form of Amended and Restated Trust Agreement for
the Trust, among Prosperity, the Delaware Trustee,
First Union, as property trustee (the "Property
Trustee"), the Administrative Trustees, and the
holders, from time to time, of the undivided
beneficial ownership interests in the assets
<PAGE> 2
Prosperity Capital Trust I
October 21, 1999
Page 2
of such Trust (including Exhibits B and D thereto)
(the "Amended and Restated Trust Agreement;" and,
together with the Original Trust Agreement, the
"Trust Agreement");
(d) The Registration Statement (the "Registration
Statement") on Form S-1, including a preliminary
prospectus with respect to the Trust (the
"Prospectus"), relating to the Trust Preferred
Securities of the Trust representing preferred
undivided beneficial ownership interests in the
assets of the Trust (each, a "Trust Preferred
Security" and collectively, the "Trust Preferred
Securities"), filed by Prosperity and the Trust with
the Securities and Exchange Commission on October 21,
1999; and
(e) A Certificate of Good Standing for the Trust, dated
October 21, 1999, obtained from the Secretary of
State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (e) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (e) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that bears upon or is inconsistent with
the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement will constitute the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, that the Certificate of Trust is in full
force and effect and has not been amended and that the Trust Agreement will be
in full force and effect and will not be amended, (ii) except to the extent
provided in paragraph 1 below, the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us
<PAGE> 3
Prosperity Capital Trust I
October 21, 1999
Page 3
under the laws of the jurisdiction governing its creation, organization or
formation, (iii) the legal capacity of natural persons who are parties to the
documents examined by us, (iv) that each of the parties to the documents
examined by us has the power and authority to execute and deliver, and to
perform its obligations under, such documents, (v) the due authorization,
execution and delivery by all parties thereto of all documents examined by us,
(vi) the receipt by each Person to whom a Preferred Security is to be issued by
the Trusts (collectively, the "Preferred Security Holders") of a Preferred
Security Certificate for such Preferred Security and the payment for the
Preferred Security acquired by it, in accordance with the Trust Agreement and
the Registration Statement, and (vii) that the Preferred Securities are issued
and sold to the Preferred Security Holders in accordance with the Trust
Agreement and the Registration Statement. We have not participated in the
preparation of the Registration Statement or Prospectus and assume no
responsibility for their contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act, 12 Del.
C. Section 3801, et seq.
2. The Preferred Securities of the Trust have been duly
authorized by the Trust Agreement and will be duly and validly issued and,
subject to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition, we
hereby consent to the reference to us as local counsel under the headings "Legal
Matters" in the Prospectus. In giving
<PAGE> 4
Prosperity Capital Trust I
October 21, 1999
Page 4
the foregoing consents, we do not thereby admit that we come within the category
of Persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ RICHARDS, LAYTON & FINGER, P.A.
DKD/jmb
<PAGE> 1
EXHIBIT 8.1
[Bracewell & Patterson, L.L.P. letterhead]
October 21, 1999
Prosperity Bancshares, Inc.
Prosperity Capital Trust I
3040 Post Oak Boulevard
Houston, Texas 77056
Re: Prosperity Capital Trust I
Ladies and Gentlemen:
We have acted as counsel to Prosperity Bancshares, Inc., a Texas corporation
(the "Company"), and to Prosperity Capital Trust I, a Delaware business trust
(the "Trust"), in connection with the registration statement of the Company and
the Trust on Form S-1 (as amended or supplemented, the "Registration
Statement"), of which a preliminary prospectus (the "Prospectus") is a part,
filed by the Company and the Trust with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended. In that
connection, we have participated in preparation of the section set forth in the
Prospectus entitled "Federal Income Tax Consequences."
For the purposes of rendering this opinion, we have reviewed and relied upon the
Registration Statement; a form of Indenture to be entered into between the
Company and First Union Trust Company, National Association, a national banking
association (the "Indenture"); the Certificate of Trust of the Trust, as filed
with the office of the Secretary of State of the State of Delaware on October
13, 1999; a form of the Amended and Restated Trust Agreement to the Trust to be
entered into by the Company, the trustees of the Trust, and the holders, from
time to time, of the undivided beneficial ownership interests in the assets of
the Trust; and such other documents and instruments as we have deemed necessary
for the rendering of this opinion. In our examination of the relevant documents,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as copies, the authenticity of such copies and the
accuracy and completeness of all corporate records made available to us by the
Company and by the Trust.
<PAGE> 2
October 21, 1999
Page 2
Based solely upon our review of such documents, and upon such information as the
Company has provided to us (which we have not attempted to verify in any
respect), we are of the opinion that, under current federal income tax law:
1. The Trust will be classified as a grantor trust and not as an
association taxable as a corporation.
2. The Debentures (as defined in the Indenture) will be classified as
indebtedness of the Company, and the interest on the Debentures will
be deductible by the Company.
3. The statements set forth in the Prospectus under the caption "Federal
Income Tax Consequences" constitute a fair and accurate summary of the
matters addressed therein, based upon current law and the assumptions
stated therein.
Our opinion is limited to the federal income tax matters described above and
does not address any other federal income tax considerations or any state,
local, foreign, or other tax considerations. If any of the information upon
which we have relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby.
Moreover, our opinion is based on the Internal Revenue Code of 1986, as amended,
applicable Treasury regulations promulgated thereunder, and Internal Revenue
Service rulings, procedures, and other pronouncements published by the change,
and such change may be made with retroactive effect. We can give no assurance
that, after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion. This opinion is not binding
upon the Internal Revenue Service, and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement. We also consent to the
use of our name in the Prospectus under the heading "Federal Income Tax
Consequences." In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities and Exchange Commission thereunder. This opinion is being
furnished to you solely for your benefit in connection with the transactions set
forth above. It may not be relied upon by, nor a copy of it delivered to any
other party, without our prior written consent. This opinion is based upon our
<PAGE> 3
October 21, 1999
Page 3
knowledge of the law and facts as of the date hereof, and we assume no duty to
communicate with you with respect to any matter that comes to our attention
hereafter.
Very truly yours,
/s/ Bracewell & Patterson, L.L.P.
Bracewell & Patterson, L.L.P.
<PAGE> 1
EXHIBIT 12.1
PROSPERITY BANCSHARES, INC.
CALCULATION OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
As of June 30,
-----------------------
1999 1998
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Earnings before income taxes ......................................... $ 4,304 $ 2,996
Add: fixed charges .................................................. 6,165 4,748
---------- ----------
Earnings including interest expense on deposits (1) .................. 10,469 7,744
Less: interest expense on deposits .................................. 6,123 4,647
---------- ----------
Earnings excluding interest expense on deposits (2) .................. 4,346 3,097
Fixed charges:
Interest expense on deposits ....................................... 6,123 4,647
Interest expense on borrowings ..................................... 7 69
Interest expense on capital leases ................................. -- --
Portion of rents representative of interest factor ................. 35 32
---------- ----------
Fixed charges including interest expense on deposits (3) ............. 6,165 4,748
Less: interest expense on deposits .................................. 6,123 4,647
---------- ----------
Fixed charges excluding interest expense on deposits (4) ............. $ 42 $ 101
========== ==========
Ratio of earnings to fixed charges and preferred stock dividends:
Excluding interest expense on deposits ((2)/(4)) ................... 102.67x 30.66x
Including interest expense on deposits ((1)/(3)) ................... 1.70 1.63
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
As of the Years Ending December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earnings before income taxes ....................... $ 6,489 $ 5,148 $ 3,951 $ 3,102 $ 2,572
Add: fixed charges ................................ 10,192 9,124 7,983 6,964 5,417
---------- ---------- ---------- ---------- ----------
Earnings including interest expense on
deposits (1)...................................... 16,681 14,272 11,934 10,066 7,989
Less: interest expense on deposits ................ 9,993 8,858 7,720 6,749 5,188
---------- ---------- ---------- ---------- ----------
Earnings including interest expense on
deposits (2)...................................... 6,688 5,414 4,214 3,317 2,801
Fixed charges:
Interest expense on deposits ..................... 9,993 8,858 7,720 6,749 5,188
Interest expense on borrowings ................... 135 202 203 155 175
Interest expense on capital leases ............... -- -- -- -- --
Portion of rents representative of
interest factor .................................. 64 64 60 60 54
---------- ---------- ---------- ---------- ----------
Fixed charges including interest expense on
deposits (3) ..................................... 10,192 9,124 7,983 6,964 5,417
Less: interest expense on deposits ................ 9,993 8,858 7,720 6,749 5,188
---------- ---------- ---------- ---------- ----------
Fixed charges excluding interest expense on
deposits (4) ..................................... $ 199 $ 266 $ 263 $ 215 $ 229
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges and
preferred stock dividends:
Excluding interest expense on deposits
((2)/(4)) ........................................ 33.55x 20.38x 16.02x 15.43x 12.25x
Including interest expense on deposits
((1)/(3)) ........................................ 1.64 1.56 1.49 1.45 1.47
</TABLE>
-2-
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement No. 333-_________
of Prosperity Bancshares, Inc. and Prosperity Capital Trust I of our report
dated February 18, 1999, appearing in the Prospectus, which is part of such
Registration Statement.
We also consent to the references to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
October 21, 1999
<PAGE> 1
EXHIBIT 25.1
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) X
---
----------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States National Banking Association 56-1989961
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King St.
Wilmington, DE 19801
(Address of principal (Zip Code)
executive offices)
Same as above
(Name, address and telephone number, including
area code, of trustee's agent for service)
Prosperity Bancshares, Inc.
(Exact name of obligor as specified in its charter)
The State of Texas
(State or other jurisdiction of incorporation or organization)
74-2331986
(I.R.S. employer identification no.)
c/o
David Zalman
Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, Texas 77056
Fax (409) 543-1906
(Address, including zip code, of principal executive offices)
--------------------
<PAGE> 2
SUBORDINATED DEBENTURES
(Title of the Indenture securities)
------------------------------------------------
1. General information. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor and underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
2
<PAGE> 3
16. List of Exhibits.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union Trust Company,
National Association, as now in effect, which contain the authority to
commence business and a grant of powers to exercise corporate trust
powers.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the Articles of Association.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents
specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union Trust Company, National
Association, or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939 is included at Page 4 of this Form T-1
Statement.
7. A copy of the latest report of condition of the trustee published
pursuant to law or to the requirements of its supervising or examining
authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE> 4
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union Trust Company, National Association, a
national banking association organized and existing under the laws of the United
States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington, and State of Delaware, on the 19th
day of October, 1999.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
(trustee)
By: \s\ Edward L. Truitt, Jr.
----------------------------------------
Name: Edward L. Truitt, Jr.
Title: Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended, and in
connection with the proposed issuance by Prosperity Bancshares, Inc. of
Subordinated Debentures, First Union Trust Company, National Association, as the
trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
By: \s\ Edward L. Truitt, Jr.
----------------------------------------
Name: Edward L. Truitt, Jr.
Title: Vice President
Dated: October 19, 1999
4
<PAGE> 5
<TABLE>
<S> <C> <C>
Legal Title of Bank: First Union Trust Company, National Association Call Date: 12/31/98 FFIEC 032
Address: One Rodney Square, 1st Floor Page RC-1
City, State, Zip: Wilmington, DE 19801
FDIC Certificate #: 34465
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR JUNE 30, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
------------- ------------ -----------------
ASSETS
<S> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1) 0081 41 1.a.
b. Interest-bearing balances (2) 0071 0 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 7 2.b.
3. Federal funds sold and securities purchased under agreements to resell 1350 0 3.
4. Loans and lease financing receivables
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 258,689 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 0 4.b.
c. LESS: Allocated transfer risk reserve RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 258,689 4.d.
5. Trading assets (from Schedule RC-D) 3545 0 5.
6. Premises and fixed assets (including capitalized leases) 2145 0 6.
7. Other real estate owned (from Schedule RC-M) 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 213 0 8.
9. Customers' liability to this bank on acceptances outstanding 2155 0 9.
10. Intangible assets (from Schedule RC-M) 2143 0 10.
11. Other assets (from Schedule RC-F) 2160 3,648 11.
12. Total assets (sum of items 1 through 11) 2170 262,385 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: First Union Trust Company, National Association Call Date: 12/31/98 FFIEC 032
Address: One Rodney Square, 1st Floor Page RC-1
City, State, Zip: Wilmington, DE 19801
FDIC Certificate #: 34465
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
LIABILITIES Dollar Amount in Thousands Bil Mil Thou
------------- ------------ ------------
13. Deposits:
<S> <C> <C> <C>
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,
part I) RCON 2200 0 13.a.
(1) Noninterest-bearing (1) RCON 6631 0 13.a.(1)
(2) Interest-bearing RCON 6636 0 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E,
part II) RCFN 2200 0 13.b.
(1) Noninterest-bearing RCFN 6631 0 13.b.(1)
(2) Interest-bearing RCFN 6636 0 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 0 14.
15. a. Demand notes issued to the U.S. Treasury RCON 2840 0 15.a.
b. Trading liabilities (from Schedule RC-D) RCFD 3548 0 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less RCFD 2332 1,517 16.a.
b. With a remaining maturity of more than one year through three years RCFD A547 0 16.b.
c. With a remaining maturity of more than three years RCFD A548 0 16.c.
17. Not applicable
18. Bank's liability on acceptances executed and outstanding RCFD 2920 0 18.
19. Subordinated notes and debentures (2) RCFD 3200 0 19.
20. Other liabilities (from Schedule RC-G) RCFD 2930 10,929 20.
21. Total liabilities (sum of items 13 through 20) RCFD 2948 12,446 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus RCFD 3838 0 23.
24. Common stock RCFD 3230 200 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 413,719 25.
26. a. Undivided profits and capital reserves RCFD 3632 (163,980) 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities RCFD 8434 0 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) RCFD 3210 249,939 28.
29. Total liabilities and equity capital (sum of items 21 and 28) RCFD 3300 262,385 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996 CFD 6724 N/A M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work) 8 = No external
audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
6
<PAGE> 7
Charter No. _________
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this association shall be FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
SECOND. The main office of this association shall be in Wilmington,
Delaware. The business of this association will be limited to that of a national
trust bank. This association must obtain the prior written approval of the
Office of the Comptroller of the Currency ("OCC") before amending its Articles
of Association to expand the scope of its activities and services. Transfers of
this association's stock are subject to prior approval of a federal depository
institution regulatory agency. If no other agency approval is required, the
OCC's approval must be obtained before the transfers. In such cases where OCC
approval is required, the OCC will apply the definitions and standards of the
Change in Bank Control Act and the OCC's implementing regulation to ownership
changes in this association.
THIRD. The Board of Directors of this association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this association or a
minimum par market value or equity interest of $1,000 of stock in the bank
holding company controlling this association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
Board of Directors may designate, on the day of each year specified thereby in
the bylaws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this association entitled to vote for election of directors.
Nominations other than those made
<PAGE> 8
by or on behalf of the existing bank management shall be made in writing and be
delivered or mailed to the president of this association and to the OCC,
Washington, D.C., not less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the election of directors, provided, however,
that if less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the president of this association and
to the Comptroller of the Currency not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed.
Such notification shall contain the following information to the extent
known to the notifying shareholder:
o The name and address of each proposed nominee.
o The principal occupation of each proposed nominee.
o The total number of shares of capital stock of this
association that will be voted for each proposed nominee.
o The name and residence address of the notifying shareholder.
o The number of shares of capital stock of this association
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded
by the chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast
for each such nominee.
FIFTH. The authorized amount of capital stock of this association shall be
2,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
by the shareholders at the time the increase is authorized. The Board of
Directors will have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
This association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members president of
this
<PAGE> 9
association, who shall be chairperson of the Board of Directors, unless the
Board of Directors appoints another director to be the chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents and to
appoint a cashier and such other officers and employees as may be required to
transact the business of this association.
The Board of Directors shall have the power to:
o Define the duties of the officers and employees of this
association.
o Fix the salaries to be paid to the officers and employees.
o Dismiss officers and employees.
o Require bonds from officers and employees and to fix the
penalty thereof.
o Regulate the manner in which any increase of the capital of
this association shall be made.
o Manage and administer the business and affairs of this
association.
o Make all bylaws that it may be lawful for the Board of
Directors to make.
o Generally to perform all acts that are legal for a Board of
Directors to perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Wilmington, Delaware,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of the association to any other
location, without the approval of the shareholders.
EIGHTH. The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH. The Board of Directors of this association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least 10 days prior to the
date of the meeting to each shareholder of record at his address as shown upon
the books of this association.
<PAGE> 10
TENTH. Each director and executive officer of this association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of this association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of this association. Liabilities incurred by a
director or executive officer of this association in defending a proceeding
shall be paid by this association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
this association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this association who serves at the
request of this association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of this association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by this association, shall have the right to be indemnified by this association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of this association, or
of the corporation, partnership, joint venture, trust, enterprise, association
or plan being served by such person.
In the case of all persons except the directors and executive officers of
this association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of this
association. In the case of the directors and executive officers of this
association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "association" means First Union Trust Company, National Association and
its direct and indirect wholly-owned subsidiaries.
(b) "director" means an individual who is or was a director of this
association.
(c) "executive officer" means an officer of this association who by
resolution of the Board
<PAGE> 11
of Directors of this association has been determined to be an executive
officer of this association for purposes of Regulation O of the Federal
Reserve Board.
(d) "liability" means the obligation to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses, including counsel fees and
expenses, incurred with respect to a proceeding.
(e) "party" includes an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(f) "proceeding" means any threatened, pending, or completed claim, action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
This association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless this association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with this association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of this association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of this association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any other
rights to which a director, officer, or employee of this association may be
entitled under any statute, agreement, insurance policy, or otherwise.
This association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of this
association, or is or was serving at the request of this association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not this
association would have the power to indemnify such director, officer, or
employee against such liability, excluding insurance coverage
<PAGE> 12
for a formal order assessing civil money penalties against a director, officer
or employee of this association.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to this association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than this association, or (iii) to the extent that a
court of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of
November, 1996.
ORGANIZERS:
Kent S. Hathaway Keith D. Lembo
Robert L. Andersen Stephen J. Antal
Daniel Glassberg
<PAGE> 13
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
CHARTER CERTIFICATE
Whereas, satisfactory evidence has been presented to the Office of the
Comptroller of the Currency that FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, located in WILMINGTON, State of DELAWARE, has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------------
Deputy Comptroller for Multinational Banking
Charter Number 23201
<PAGE> 14
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
TRUST CERTIFICATE
Whereas, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, Charter
Number 23201, located in WILMINGTON, State of DELAWARE, being a National Banking
Association, organized under the statutes of the United States, has made
application for authority to act as fiduciary;
And whereas, applicable provisions of the statutes of the United
States authorize the granting of such authority;
Now, therefore, I hereby certify that the said association is
authorized to act in all fiduciary capacities by such statutes.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------------
Deputy Comptroller for Multinational Banking
<PAGE> 15
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
BYLAWS
AS AMENDED AND RESTATED MAY 27, 1997
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the
shareholders for the election of directors and transaction of whatever other
business may properly come before the meeting, shall be held at the Main Office
of the Association, or such other place as the Board of Directors may designate,
at 10:00 A.M., on the third Tuesday of February in each year, commencing with
the year 1997 or such other time within 90 days as may be set by the Board of
Directors. If, from any cause, an election of directors is not made on the said
day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of the law; and notice thereof shall be given in the manner herein.
Section 1.2. Special Meetings. Except as otherwise specifically
provided by statute, special meetings of the shareholders may be called for any
purpose at any time by the Board of Directors or by any one or more shareholders
owning, in the aggregate, not less than twenty-five percent of the stock of the
Association.
Section 1.3. Notice of Meetings. Notice of Annual and Special meetings
shall mailed, postage prepaid, at least ten days prior to the date thereof
provided for the annual meeting, addressed to each shareholder at his address
appearing on the books of the Association; but any
<PAGE> 16
failure to mail such notice, or any irregularity therein, shall not affect the
validity of such meeting, or of any of the proceedings thereat. A shareholder
may waive any such notice.
Section 1.4. Organization of Meetings. The Chairman shall preside at
all meetings of shareholders. In his absence, the President, or a director
designated by the Chairman shall preside at such meeting.
Section 1.5. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.6. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
2
<PAGE> 17
Section 2.2. Number. The Board shall consist of not less than five nor
more than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full Board or by resolution of the shareholders at any meeting thereof;
provided, however, that a majority of the full Board may not increase the number
of directors to a number which: (a) exceeds by more than two the number of
directors last elected by shareholders where such number was fifteen or less;
and (b) to a number which exceeds by more than four the number of directors last
elected by shareholders where such number was sixteen or more, but in no event
shall the number of directors exceed twenty-five.
Section 2.3. Organization Meeting. A meeting shall be held for the
purpose of organizing the new Board and electing and appointing officers of the
Association for the succeeding year on the day of the Annual Meeting of
Shareholders or as soon thereafter as practicable, and, in any event, within
thirty days thereof. If, at the time fixed for such meeting, there shall not be
a quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. Regular Meetings. The regular meetings of the Board shall
be held on such days and time as the directors may, by resolution, designate;
and written notice of any change thereof shall be sent to each member. When any
regular meeting of the Board falls upon a legal holiday, the meeting shall be
held on such other day as the Board may designate.
Section 2.5. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, or President, or at the request of three or
more directors. Each director
3
<PAGE> 18
shall be given notice of each special meeting, except the organization meeting,
at least one day before it is to be held by facsimile, telephone, telegram,
letter or in person. Any director may waive any such notice.
Section 2.6. Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned without further notice.
Section 2.7. Term of Office and Vacancy. Directors shall hold office
for one year and until their successors are elected and have qualified. No
person shall stand for election as a director of this Association if at the date
of his election he will have passed his seventieth birthday; provided, however,
this prohibition shall not apply to persons who are active officers of this
Association, an affiliate bank, or its parent corporation, or a former chief
executive officer of the Association. No person, who is not an officer or former
officer of this Association, an affiliate bank, or its parent corporation and
who has discontinued the principal position or activity the person held when
initially elected, shall be recommended to the shareholders for reelection;
provided, however, that exceptions may be made because of a change in principal
position or activity which would be compatible with continued service to this
Association. No person elected as a director may exercise any of the powers of
his office until he has taken the oath of office as prescribed by law. When any
vacancy occurs among the directors, the remaining members of the Board, in
accordance with the laws of the United States, may appoint a director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
4
<PAGE> 19
Section 2.8. Nominations. Nominations for election to the Board may be
made by the Executive Committee or by any stockholder of any outstanding class
of capital stock of the Association entitled to vote for the election of
directors.
Section 2.9. Communications Equipment. Any or all directors may
participate in a meeting of the Board by means of conference telephone or any
means of communication by which all persons participating in the meeting are
able to hear each other.
Section 2.10. Action Without Meeting. Any action required or permitted
to be taken by the Board or committee thereof by law, the Association's Articles
of Association, or these Bylaws may be taken without a meeting, if, prior or
subsequent to the action, all members of the Board or committee shall
individually or collectively consent in writing to the action. Each written
consent or consents shall be filed with the minutes of the proceedings of the
Board or committee. Action by written consent shall have the same force and
effect as a unanimous vote of the directors, for all purposes. Any certificate
or other documents which relates to action so taken shall state that the action
was taken by unanimous written consent of the Board or committee without a
meeting.
ARTICLE III
Committees of the Board
Section 3.1. Executive Committee. The Board may by resolution adopted
by a majority of the entire Board designate an Executive Committee consisting of
the Chairman of the Board, the President, and not less than two other directors.
Subject to the national banking laws and the Association's Articles of
Association, the Executive Committee may exercise all the
5
<PAGE> 20
powers of the Board of Directors with respect to the affairs of the Association,
except that the Executive Committee may not:
1. (a) exercise such powers while a quorum of the Board of
Directors is actually convened for the conduct of
business,
(b) exercise any power specifically required to be
exercised by at least a majority of all the
directors,
(c) act on matters committed by the Bylaws or resolution
of the Board of Directors to another committee of the
board, or
(d) amend or repeal any resolution theretofore adopted by
the Board of Directors which by its terms is
amendable or repealable only by the Board;
2. amend the Articles of Association or make, alter or repeal any
Bylaw of the Association;
3. elect or appoint any director, create or fill any vacancies in
the Board of Directors or remove any director, or authorize or
approve any change in the compensation of any officer of the
Association who is also a director of the Association;
4. authorize or approve issuance or sale or contract for sale of
shares of stock of the Association, or determine the
designation and relative rights, preferences and limitations
of a class or series of shares;
5. adopt an agreement of merger or consolidation, or submit to
shareholders any action that requires shareholder approval,
including any recommendation to the
6
<PAGE> 21
shareholders concerning the sale, lease or exchange of all or
substantially all the Association's property and assets, a
dissolution of the Association or a revocation of a previously
approved dissolution; or
6. authorize an expenditure by the Association in excess of $10
million for any one item or group of related items. The
committee shall hold regular meetings at such times as the
members shall agree and whenever called by the chairman of the
committee. A majority of the committee shall constitute a
quorum for the transaction of business. The committee shall
keep a record of its proceedings and shall report these
proceedings to the Board at the regular meetings thereof. The
committee shall serve as the nominating committee for
nominations to the Board.
Section 3.2. Chairman of the Executive Committee. The Board may
designate one of its members to be Chairman of the Executive Committee who shall
preside at the meetings thereof and shall perform such duties as the Board shall
assign to him from time to time.
Section 3.3. Audit Committee. The Board shall appoint a committee of
three or more persons exclusive of the officers of this Association which
committee shall be known as the Audit Committee. It shall be the duty of this
committee at least once in every twelve months to examine the affairs of the
Association, and determine whether it is in a sound and solvent condition and to
recommend to the Board such changes in the manner of doing business, etc., as
may seem to be desirable. The committee may cause such examination to be made in
its behalf and under its supervision by outside accountants and may also use the
services of any other persons either inside
7
<PAGE> 22
or outside the Association to assist in its work. The results of each
examination shall be reported in writing to the Board.
Section 3.4. Audit of Trust Department. The Audit Committee shall, at
least once during each calendar year and within fifteen months of the last such
audit make suitable audits of the Trust Department or cause suitable audits to
be made by auditors responsible only to the Board, and at such time shall
ascertain whether the department has been administered in accordance with law,
Part 9 of the Regulations of the Comptroller of the Currency, and sound
fiduciary principles. In lieu of such periodic audit the Audit Committee, at the
election of the Board, may conduct or cause to be conducted by auditors
responsible only to the Board an adequate continuous audit system adopted by the
Board. A written report of such periodic or continuous audit shall be made to
the Board.
Section 3.5. Other Committees. The Board may appoint from time to time
other committees composed of one or more persons each, for such purposes and
with such powers as the Board may determine. The Chairman of the Board shall
have the power to designate another person to serve on any committee during the
absence or inability of any member thereof so to serve.
Section 3.6. Directors' Emeritus. The Board may designate one or more
persons to serve as Director Emeritus. Such Director Emeritus shall have the
right to attend any and all meetings of the Board, but shall have no vote at
such meetings. A person designated as Director Emeritus may serve in that
capacity for a period of three years.
8
<PAGE> 23
Section 3.7. Alternate Committee Members. The Board may, from time to
time, appoint one or more, but no more than three persons to serve as alternate
members of a committee, each of whom shall be empowered to serve on that
committee in place of a regular committee member in the event of the absence or
disability of that committee member. An alternate committee member shall, when
serving on a committee, have all of the powers of a regular committee member.
Alternate committee members shall be notified of, and requested to serve at, a
particular meeting or meetings, or for particular periods of time, by or at the
direction of the chairman of the committee or the Chairman of the Board.
ARTICLE IV
Officers
Section 4.1. Officers. The officers of the Association may be a
Chairman of the Board, a Vice Chairman of the Board, one or more Chairmen or
Vice Chairmen (who shall not be required to be directors of the Association), a
President, one or more Vice Presidents, a Secretary, a Cashier or Treasurer, and
such other officers, including officers holding similar or equivalent titles to
the above in regions, divisions or functional units of the Association, as may
be appointed by the Board of Directors. The Chairman of the Board and the
President shall be members of the Board of Directors. Any two or more offices
may be held by one person, but no officer shall sign or execute any document in
more than one capacity.
4.2. Term of Office. The officers who are required by the articles of
association or the
9
<PAGE> 24
bylaws to be members of the Board shall hold their respective offices until the
Organization meeting of the Board following the annual meeting of shareholders
or until their respective successors shall have been elected, unless they shall
resign, become disqualified or be removed from office. Each other officer shall
hold office at the pleasure of the Board. Any officer may be removed at any time
by the Board.
Section 4.3. Chairman of the Board. The chairman of the board shall be
designated as Chairman of the Board. He shall preside at all meetings of the
stockholders and directors and he shall be a member of all committees of the
Board except the Audit Committee. He shall have such other powers and perform
such other duties as may be prescribed from time to time by the Board. He shall
be subject only to the direction and control of the Board.
Section 4.4. President. The president shall be the chief executive
officer of the Association and he shall be designated as President and Chief
Executive Officer. In the absence of the Chairman the President shall preside at
all meetings of the Board. The President shall be a member of each committee of
the Board except the Audit Committee. He shall have the powers and perform the
duties conferred or imposed upon the President by the national banking laws, and
he shall have such other powers and perform such other duties as nay from time
to time be imposed upon or assigned to him by the Board.
Section 4.5. Chief Financial Officer. The Chief Financial officer shall
have such title as may be designated by the Board and he shall be responsible
for all monies, funds and valuables of
10
<PAGE> 25
this Association, provide for the keeping of proper records of all transactions
of the Association, report to the Board at each regular meeting the condition of
the Association, submit to the Board, when requested, a detailed statement of
the income and expenses, be responsible for the conduct and efficiency of all
persons employed under him, and perform such other duties as may be from time to
time assigned to him by the Board.
Section 4.6. Other Officers. All other officers shall respectively
exercise such powers and perform such duties as generally pertain to their
several offices, or as may be conferred upon or assigned to them by the Board,
the Chairman of the Board or the President.
Section 4.7. Bond. Each officer and employee, if so required by the
Board, shall give bond with surety to be approved by the Board, conditioning for
the honest discharge of his duties as such officer or employee. In the
discretion of the Board, such bonds may be individual, schedule or blanket form,
and the premiums may be paid by the Association.
Section 4.8. Officers Acting as Assistant Secretary. Notwithstanding
Section 4.la of this Article IV, any Senior Vice President, Vice President or
Assistant Vice President shall have, by virtue of his office, and by authority
of the Bylaws, the authority from time to time to act as an Assistant Secretary
of the Association, and to such extent, said officers are appointed to the
office of Assistant Secretary.
11
<PAGE> 26
ARTICLE V
Trust Department
Section 5.1. Trust Department. There shall be a department of the
Association known as the Trust Department which shall perform the fiduciary
responsibilities of the Association. Opinions of counsel shall be retained on
file in the Trust Department in connection with all important matters pertaining
to fiduciary activities.
Section 5.2. Trust Investment. Funds held in a fiduciary capacity shall
be invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of the investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
Stock Certificates and Transfers
Section 6.1. Stock Certificates. Ownership of capital stock of the
Association shall be evidenced by certificates of stock signed by the Chairman
or President, and the Secretary, or an Assistant Secretary. Each certificate
shall state upon its face that the stock is transferable only upon the books of
the Association by the holder thereof, or by duly authorized attorney, upon the
surrender of such certificate, and shall meet the requirements of Section 5139,
United States Revised Statutes, as amended.
Section 6.2. Transfers. The stock of this Association shall be
assignable and transferable only on the books of this Association, subject to
the restrictions and provisions of the national banking laws; and a transfer
book shall be provided in which all assignments and transfers of stock
12
<PAGE> 27
shall be made. When stock is transferred, the certificates thereof shall be
returned to the Association, canceled, preserved and new certificates issued.
Section 6.3. Dividends. Dividends shall be paid to the shareholders in
whose names the stock shall stand at the close of business on the day next
preceding the date when the dividends are payable, provided, however, that the
directors may fix another date as a record date for the determination of the
shareholders entitled to receive payment thereof.
ARTICLE VII
Increase of Stock
7.1. Capital Stock. Shares of the capital stock of the Association,
which have been authorized but not issued, may be issued from time to time for
such consideration, not less than the par value thereof, as may be determined by
the Board.
ARTICLE VIII
Corporate Seal
Section 8.1. Seal. The seal, an impression of which appears below, is
the seal of the Association adopted by the Board of Directors:
[Seal]
The Chairman of the Board, the Vice Chairman, the President, Senior
Executive Vice
13
<PAGE> 28
President, Executive Vice President, Senior Vice President, Vice President, each
Assistant Vice President, the Chief Financial Officer, the Secretary, each
Assistant Secretary, each Trust Officer, each Assistant Trust Officer or each
Assistant Cashier, shall have the authority to affix the corporate seal of this
Association and to attest to the same.
14
<PAGE> 29
ARTICLE IX
Miscellaneous Provisions
Section 9.l. Fiscal Year. The fiscal year of the Association shall be
the calendar year.
Section 9.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, the Vice Chairman of
the Board, any Chairman or Vice Chairman, the President, any Vice President or
Assistant Vice President, the Secretary or any Assistant Secretary, the Cashier
or Treasurer or any Assistant Cashier or Assistant Treasurer, or any officer
holding similar or equivalent titles to the above in any regions, divisions or
functional units of the Association, or, if in connection with the exercise of
fiduciary powers of the Association, by any of said officers or by any Trust
Officer or Assistant Trust Officer (or equivalent titles); provided, however,
that where required, any such instrument shall be attested by one of said
officers other than the officer executing such instrument. Any such instruments
may also be executed, acknowledged, verified, delivered, or accepted in behalf
of the Association in such other manner and by such other officers as the Board
of Directors may from time to time direct. The provisions of this Section 9.2
are supplementary to any other provision of these Bylaws.
Section 9.3. Records. The organization papers of this Association, the
articles of
15
<PAGE> 30
association, the bylaws and any amendments thereto, the proceedings of all
regular and special meetings of the shareholders and of the directors, the
returns of the judges of elections, and the reports of the committees of
directors shall be recorded in an appropriate minute book, and the minutes of
each meeting shall be signed by the Secretary or any other officer appointed to
act as secretary of the meeting.
Section 9.4. Banking Hours. This Association and its branch offices
shall be open on such days and during such hours as shall be fixed from time to
time by the Board.
Section 9.5. Voting Shares of Other Corporations. The Chairman, any
Vice Chairman, the President, or any Vice President is authorized to vote,
represent and exercise on behalf of this Association all rights incident to any
and all shares of stock of any other corporation standing in the name of the
Association. The authority granted herein may be exercised by such officers in
person or by proxy or by power of attorney duly executed by said officer.
ARTICLE X
Bylaws
Section 10.1. Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 10.2. Amendments. These Bylaws may be changed or amended at any
regular or special meeting of the Board by the vote of a majority of the
Directors.
16
<PAGE> 1
EXHIBIT 25.2
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) X
---
--------------------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
United States National Banking Association 56-1989961
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King St.
Wilmington, DE 19801
(Address of principal (Zip Code)
executive offices)
</TABLE>
Same as above
(Name, address and telephone number, including
area code, of trustee's agent for service)
Prosperity Capital Trust I
(Exact name of obligor as specified in its charter)
The State of Delaware
(State or other jurisdiction of incorporation or organization)
51-6514258
(I.R.S. employer identification no.)
c/o
Edward L. Truitt, Jr., Vice President
First Union Trust Company, National Association
One Rodney Square
920 King Street, Suite 102
Wilmington, DE 19801
(Address, including zip code, of principal executive offices)
--------------------
<PAGE> 2
TRUST PREFERRED SECURITIES
(Title of the Amended and Restated Declaration of Trust securities)
------------------------------------------------
1. General information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Name Address
- ------------------------------------------------------------------
<S> <C>
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor and underwriters. If the obligor or any underwriter
for the obligor is an affiliate of the trustee, describe each such affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
2
<PAGE> 3
16. List of Exhibits.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union Trust
Company, National Association, as now in effect, which contain
the authority to commence business and a grant of powers to
exercise corporate trust powers.
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the Articles of
Association.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union Trust Company,
National Association, or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939 is included at Page 4 of this Form
T-1 Statement.
7. A copy of the latest report of condition of the trustee
published pursuant to law or to the requirements of its
supervising or examining authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE> 4
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union Trust Company, National Association, a
national banking association organized and existing under the laws of the United
States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington, and State of Delaware, on the 19th
day of October, 1999.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(trustee)
By: /s/ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended,
and in connection with the proposed issuance by Prosperity Capital Trust I of
Trust Preferred Securities, First Union Trust Company, National Association, as
the trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
By: /s/ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
Dated: October 19, 1999
4
<PAGE> 5
Call Date: 12/31/98 FFIEC 032
Page RC-1
Legal Title of Bank: First Union Trust Company, National Association
Address: One Rodney Square, 1st Floor
City, State, Zip: Wilmington, DE 19801
FDIC Certificate #: 34465
CONSOLIDATED REPORT OF CONDITION FOR JUNE 30, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
------------- ------------ -----------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions
(from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1) 0081 41 1.a.
b. Interest-bearing balances (2) 0071 0 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 7 2.b.
3. Federal funds sold and securities purchased under agreements
to resell 1350 0 3.
4. Loans and lease financing receivables
a. Loans and leases, net of unearned income
(from Schedule RC-C) RCFD 2122 258,689 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 0 4.b.
c. LESS: Allocated transfer risk reserve RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 258,689 4.d.
5. Trading assets (from Schedule RC-D) 3545 0 5.
6. Premises and fixed assets (including capitalized leases) 2145 0 6.
7. Other real estate owned (from Schedule RC-M) 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) 213 0 8.
9. Customers' liability to this bank on acceptances outstanding 2155 0 9.
10. Intangible assets (from Schedule RC-M) 2143 0 10.
11. Other assets (from Schedule RC-F) 2160 3,648 11.
12. Total assets (sum of items 1 through 11) 2170 262,385 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE> 6
Call Date: 12/31/98 FFIEC 032
Page RC-1
Legal Title of Bank: First Union Trust Company, National Association
Address: One Rodney Square, 1st Floor
City, State, Zip: Wilmington, DE 19801
FDIC Certificate #: 34465
SCHEDULE RC--CONTINUED
<TABLE>
<CAPTION>
Dollar Amount in Thousands Bil Mil Thou
------------- ------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, part I) RCON 2200 0 13.a.
(1) Noninterest-bearing (1) RCON 6631 0 13.a.(1)
(2) Interest-bearing RCON 6636 0 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs (from Schedule RC-E, part II) RCFN 2200 0 13.b.
(1) Noninterest-bearing RCFN 6631 0 13.b.(1)
(2) Interest-bearing RCFN 6636 0 13.b.(2)
14. Federal funds purchased and securities sold under agreements
to repurchase RCFD 2800 0 14.
15. a. Demand notes issued to the U.S. Treasury RCON 2840 0 15.a.
b. Trading liabilities (from Schedule RC-D) RCFD 3548 0 15.b.
16. Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
a. With a remaining maturity of one year or less RCFD 2332 1,517 16.a.
b. With a remaining maturity of more than one year through
three years RCFD A547 0 16.b.
c. With a remaining maturity of more than three years RCFD A548 0 16.c.
17. Not applicable
18. Bank's liability on acceptances executed and outstanding RCFD 2920 0 18.
19. Subordinated notes and debentures (2) RCFD 3200 0 19.
20. Other liabilities (from Schedule RC-G) RCFD 2930 10,929 20.
21. Total liabilities (sum of items 13 through 20) RCFD 2948 12,446 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus RCFD 3838 0 23.
24. Common stock RCFD 3230 200 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 413,719 25.
26. a. Undivided profits and capital reserves RCFD 3632 (163,980) 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities RCFD 8434 0 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) RCFD 3210 249,939 28.
29. Total liabilities and equity capital (sum of items 21 and 28) RCFD 3300 262,385 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the
bank by independent external auditors as of any date during 1996
Number
RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
6
<PAGE> 7
Charter No. _________
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this association shall be FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
SECOND. The main office of this association shall be in Wilmington,
Delaware. The business of this association will be limited to that of a national
trust bank. This association must obtain the prior written approval of the
Office of the Comptroller of the Currency ("OCC") before amending its Articles
of Association to expand the scope of its activities and services. Transfers of
this association's stock are subject to prior approval of a federal depository
institution regulatory agency. If no other agency approval is required, the
OCC's approval must be obtained before the transfers. In such cases where OCC
approval is required, the OCC will apply the definitions and standards of the
Change in Bank Control Act and the OCC's implementing regulation to ownership
changes in this association.
THIRD. The Board of Directors of this association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this association or a
minimum par market value or equity interest of $1,000 of stock in the bank
holding company controlling this association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
Board of Directors may designate, on the day of each year specified thereby in
the bylaws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this association entitled to vote for election of directors.
Nominations other than those made
<PAGE> 8
by or on behalf of the existing bank management shall be made in writing and be
delivered or mailed to the president of this association and to the OCC,
Washington, D.C., not less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the election of directors, provided, however,
that if less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the president of this association and
to the Comptroller of the Currency not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed.
Such notification shall contain the following information to the extent
known to the notifying shareholder:
o The name and address of each proposed nominee.
o The principal occupation of each proposed nominee.
o The total number of shares of capital stock of this
association that will be voted for each proposed nominee.
o The name and residence address of the notifying shareholder.
o The number of shares of capital stock of this association
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded
by the chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast
for each such nominee.
FIFTH. The authorized amount of capital stock of this association shall be
2,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
by the shareholders at the time the increase is authorized. The Board of
Directors will have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
This association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members president of
this
<PAGE> 9
association, who shall be chairperson of the Board of Directors, unless the
Board of Directors appoints another director to be the chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents and to
appoint a cashier and such other officers and employees as may be required to
transact the business of this association.
The Board of Directors shall have the power to:
o Define the duties of the officers and employees of this
association.
o Fix the salaries to be paid to the officers and employees.
o Dismiss officers and employees.
o Require bonds from officers and employees and to fix the
penalty thereof.
o Regulate the manner in which any increase of the capital of
this association shall be made.
o Manage and administer the business and affairs of this
association.
o Make all bylaws that it may be lawful for the Board of
Directors to make.
o Generally to perform all acts that are legal for a Board of
Directors to perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Wilmington, Delaware,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of the association to any other
location, without the approval of the shareholders.
EIGHTH. The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH. The Board of Directors of this association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least 10 days prior to the
date of the meeting to each shareholder of record at his address as shown upon
the books of this association.
<PAGE> 10
TENTH. Each director and executive officer of this association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of this association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of this association. Liabilities incurred by a
director or executive officer of this association in defending a proceeding
shall be paid by this association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
this association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this association who serves at the
request of this association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of this association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by this association, shall have the right to be indemnified by this association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of this association, or
of the corporation, partnership, joint venture, trust, enterprise, association
or plan being served by such person.
In the case of all persons except the directors and executive officers of
this association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of this
association. In the case of the directors and executive officers of this
association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "association" means First Union Trust Company, National Association and
its direct and indirect wholly-owned subsidiaries.
(b) "director" means an individual who is or was a director of this
association.
(c) "executive officer" means an officer of this association who by
resolution of the Board
<PAGE> 11
of Directors of this association has been determined to be an executive
officer of this association for purposes of Regulation O of the Federal
Reserve Board.
(d) "liability" means the obligation to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses, including counsel fees and
expenses, incurred with respect to a proceeding.
(e) "party" includes an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(f) "proceeding" means any threatened, pending, or completed claim, action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
This association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless this association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with this association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of this association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of this association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any other
rights to which a director, officer, or employee of this association may be
entitled under any statute, agreement, insurance policy, or otherwise.
This association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of this
association, or is or was serving at the request of this association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not this
association would have the power to indemnify such director, officer, or
employee against such liability, excluding insurance coverage
<PAGE> 12
for a formal order assessing civil money penalties against a director, officer
or employee of this association.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to this association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than this association, or (iii) to the extent that a
court of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of
November, 1996.
ORGANIZERS:
Kent S. Hathaway Keith D. Lembo
Robert L. Andersen Stephen J. Antal
Daniel Glassberg
<PAGE> 13
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
CHARTER CERTIFICATE
Whereas, satisfactory evidence has been presented to the Office of the
Comptroller of the Currency that FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, located in WILMINGTON, State of DELAWARE, has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------------
Deputy Comptroller for Multinational Banking
Charter Number 23201
<PAGE> 14
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
TRUST CERTIFICATE
Whereas, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, Charter
Number 23201, located in WILMINGTON, State of DELAWARE, being a National Banking
Association, organized under the statutes of the United States, has made
application for authority to act as fiduciary;
And whereas, applicable provisions of the statutes of the United
States authorize the granting of such authority;
Now, therefore, I hereby certify that the said association is
authorized to act in all fiduciary capacities by such statutes.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------------
Deputy Comptroller for Multinational Banking
<PAGE> 15
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
BYLAWS
AS AMENDED AND RESTATED MAY 27, 1997
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the
shareholders for the election of directors and transaction of whatever other
business may properly come before the meeting, shall be held at the Main Office
of the Association, or such other place as the Board of Directors may designate,
at 10:00 A.M., on the third Tuesday of February in each year, commencing with
the year 1997 or such other time within 90 days as may be set by the Board of
Directors. If, from any cause, an election of directors is not made on the said
day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of the law; and notice thereof shall be given in the manner herein.
Section 1.2. Special Meetings. Except as otherwise specifically
provided by statute, special meetings of the shareholders may be called for any
purpose at any time by the Board of Directors or by any one or more shareholders
owning, in the aggregate, not less than twenty-five percent of the stock of the
Association.
Section 1.3. Notice of Meetings. Notice of Annual and Special meetings
shall mailed, postage prepaid, at least ten days prior to the date thereof
provided for the annual meeting, addressed to each shareholder at his address
appearing on the books of the Association; but any
<PAGE> 16
failure to mail such notice, or any irregularity therein, shall not affect the
validity of such meeting, or of any of the proceedings thereat. A shareholder
may waive any such notice.
Section 1.4. Organization of Meetings. The Chairman shall preside at
all meetings of shareholders. In his absence, the President, or a director
designated by the Chairman shall preside at such meeting.
Section 1.5. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.6. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
2
<PAGE> 17
Section 2.2. Number. The Board shall consist of not less than five nor
more than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full Board or by resolution of the shareholders at any meeting thereof;
provided, however, that a majority of the full Board may not increase the number
of directors to a number which: (a) exceeds by more than two the number of
directors last elected by shareholders where such number was fifteen or less;
and (b) to a number which exceeds by more than four the number of directors last
elected by shareholders where such number was sixteen or more, but in no event
shall the number of directors exceed twenty-five.
Section 2.3. Organization Meeting. A meeting shall be held for the
purpose of organizing the new Board and electing and appointing officers of the
Association for the succeeding year on the day of the Annual Meeting of
Shareholders or as soon thereafter as practicable, and, in any event, within
thirty days thereof. If, at the time fixed for such meeting, there shall not be
a quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. Regular Meetings. The regular meetings of the Board shall
be held on such days and time as the directors may, by resolution, designate;
and written notice of any change thereof shall be sent to each member. When any
regular meeting of the Board falls upon a legal holiday, the meeting shall be
held on such other day as the Board may designate.
Section 2.5. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, or President, or at the request of three or
more directors. Each director
3
<PAGE> 18
shall be given notice of each special meeting, except the organization meeting,
at least one day before it is to be held by facsimile, telephone, telegram,
letter or in person. Any director may waive any such notice.
Section 2.6. Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned without further notice.
Section 2.7. Term of Office and Vacancy. Directors shall hold office
for one year and until their successors are elected and have qualified. No
person shall stand for election as a director of this Association if at the date
of his election he will have passed his seventieth birthday; provided, however,
this prohibition shall not apply to persons who are active officers of this
Association, an affiliate bank, or its parent corporation, or a former chief
executive officer of the Association. No person, who is not an officer or former
officer of this Association, an affiliate bank, or its parent corporation and
who has discontinued the principal position or activity the person held when
initially elected, shall be recommended to the shareholders for reelection;
provided, however, that exceptions may be made because of a change in principal
position or activity which would be compatible with continued service to this
Association. No person elected as a director may exercise any of the powers of
his office until he has taken the oath of office as prescribed by law. When any
vacancy occurs among the directors, the remaining members of the Board, in
accordance with the laws of the United States, may appoint a director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
4
<PAGE> 19
Section 2.8. Nominations. Nominations for election to the Board may be
made by the Executive Committee or by any stockholder of any outstanding class
of capital stock of the Association entitled to vote for the election of
directors.
Section 2.9. Communications Equipment. Any or all directors may
participate in a meeting of the Board by means of conference telephone or any
means of communication by which all persons participating in the meeting are
able to hear each other.
Section 2.10. Action Without Meeting. Any action required or permitted
to be taken by the Board or committee thereof by law, the Association's Articles
of Association, or these Bylaws may be taken without a meeting, if, prior or
subsequent to the action, all members of the Board or committee shall
individually or collectively consent in writing to the action. Each written
consent or consents shall be filed with the minutes of the proceedings of the
Board or committee. Action by written consent shall have the same force and
effect as a unanimous vote of the directors, for all purposes. Any certificate
or other documents which relates to action so taken shall state that the action
was taken by unanimous written consent of the Board or committee without a
meeting.
ARTICLE III
Committees of the Board
Section 3.1. Executive Committee. The Board may by resolution adopted
by a majority of the entire Board designate an Executive Committee consisting of
the Chairman of the Board, the President, and not less than two other directors.
Subject to the national banking laws and the Association's Articles of
Association, the Executive Committee may exercise all the
5
<PAGE> 20
powers of the Board of Directors with respect to the affairs of the Association,
except that the Executive Committee may not:
1. (a) exercise such powers while a quorum of the Board of
Directors is actually convened for the conduct of
business,
(b) exercise any power specifically required to be
exercised by at least a majority of all the
directors,
(c) act on matters committed by the Bylaws or resolution
of the Board of Directors to another committee of the
board, or
(d) amend or repeal any resolution theretofore adopted by
the Board of Directors which by its terms is
amendable or repealable only by the Board;
2. amend the Articles of Association or make, alter or repeal any
Bylaw of the Association;
3. elect or appoint any director, create or fill any vacancies in
the Board of Directors or remove any director, or authorize or
approve any change in the compensation of any officer of the
Association who is also a director of the Association;
4. authorize or approve issuance or sale or contract for sale of
shares of stock of the Association, or determine the
designation and relative rights, preferences and limitations
of a class or series of shares;
5. adopt an agreement of merger or consolidation, or submit to
shareholders any action that requires shareholder approval,
including any recommendation to the
6
<PAGE> 21
shareholders concerning the sale, lease or exchange of all or
substantially all the Association's property and assets, a
dissolution of the Association or a revocation of a previously
approved dissolution; or
6. authorize an expenditure by the Association in excess of $10
million for any one item or group of related items. The
committee shall hold regular meetings at such times as the
members shall agree and whenever called by the chairman of the
committee. A majority of the committee shall constitute a
quorum for the transaction of business. The committee shall
keep a record of its proceedings and shall report these
proceedings to the Board at the regular meetings thereof. The
committee shall serve as the nominating committee for
nominations to the Board.
Section 3.2. Chairman of the Executive Committee. The Board may
designate one of its members to be Chairman of the Executive Committee who shall
preside at the meetings thereof and shall perform such duties as the Board shall
assign to him from time to time.
Section 3.3. Audit Committee. The Board shall appoint a committee of
three or more persons exclusive of the officers of this Association which
committee shall be known as the Audit Committee. It shall be the duty of this
committee at least once in every twelve months to examine the affairs of the
Association, and determine whether it is in a sound and solvent condition and to
recommend to the Board such changes in the manner of doing business, etc., as
may seem to be desirable. The committee may cause such examination to be made in
its behalf and under its supervision by outside accountants and may also use the
services of any other persons either inside
7
<PAGE> 22
or outside the Association to assist in its work. The results of each
examination shall be reported in writing to the Board.
Section 3.4. Audit of Trust Department. The Audit Committee shall, at
least once during each calendar year and within fifteen months of the last such
audit make suitable audits of the Trust Department or cause suitable audits to
be made by auditors responsible only to the Board, and at such time shall
ascertain whether the department has been administered in accordance with law,
Part 9 of the Regulations of the Comptroller of the Currency, and sound
fiduciary principles. In lieu of such periodic audit the Audit Committee, at the
election of the Board, may conduct or cause to be conducted by auditors
responsible only to the Board an adequate continuous audit system adopted by the
Board. A written report of such periodic or continuous audit shall be made to
the Board.
Section 3.5. Other Committees. The Board may appoint from time to time
other committees composed of one or more persons each, for such purposes and
with such powers as the Board may determine. The Chairman of the Board shall
have the power to designate another person to serve on any committee during the
absence or inability of any member thereof so to serve.
Section 3.6. Directors' Emeritus. The Board may designate one or more
persons to serve as Director Emeritus. Such Director Emeritus shall have the
right to attend any and all meetings of the Board, but shall have no vote at
such meetings. A person designated as Director Emeritus may serve in that
capacity for a period of three years.
8
<PAGE> 23
Section 3.7. Alternate Committee Members. The Board may, from time to
time, appoint one or more, but no more than three persons to serve as alternate
members of a committee, each of whom shall be empowered to serve on that
committee in place of a regular committee member in the event of the absence or
disability of that committee member. An alternate committee member shall, when
serving on a committee, have all of the powers of a regular committee member.
Alternate committee members shall be notified of, and requested to serve at, a
particular meeting or meetings, or for particular periods of time, by or at the
direction of the chairman of the committee or the Chairman of the Board.
ARTICLE IV
Officers
Section 4.1. Officers. The officers of the Association may be a
Chairman of the Board, a Vice Chairman of the Board, one or more Chairmen or
Vice Chairmen (who shall not be required to be directors of the Association), a
President, one or more Vice Presidents, a Secretary, a Cashier or Treasurer, and
such other officers, including officers holding similar or equivalent titles to
the above in regions, divisions or functional units of the Association, as may
be appointed by the Board of Directors. The Chairman of the Board and the
President shall be members of the Board of Directors. Any two or more offices
may be held by one person, but no officer shall sign or execute any document in
more than one capacity.
4.2. Term of Office. The officers who are required by the articles of
association or the
9
<PAGE> 24
bylaws to be members of the Board shall hold their respective offices until the
Organization meeting of the Board following the annual meeting of shareholders
or until their respective successors shall have been elected, unless they shall
resign, become disqualified or be removed from office. Each other officer shall
hold office at the pleasure of the Board. Any officer may be removed at any time
by the Board.
Section 4.3. Chairman of the Board. The chairman of the board shall be
designated as Chairman of the Board. He shall preside at all meetings of the
stockholders and directors and he shall be a member of all committees of the
Board except the Audit Committee. He shall have such other powers and perform
such other duties as may be prescribed from time to time by the Board. He shall
be subject only to the direction and control of the Board.
Section 4.4. President. The president shall be the chief executive
officer of the Association and he shall be designated as President and Chief
Executive Officer. In the absence of the Chairman the President shall preside at
all meetings of the Board. The President shall be a member of each committee of
the Board except the Audit Committee. He shall have the powers and perform the
duties conferred or imposed upon the President by the national banking laws, and
he shall have such other powers and perform such other duties as nay from time
to time be imposed upon or assigned to him by the Board.
Section 4.5. Chief Financial Officer. The Chief Financial officer shall
have such title as may be designated by the Board and he shall be responsible
for all monies, funds and valuables of
10
<PAGE> 25
this Association, provide for the keeping of proper records of all transactions
of the Association, report to the Board at each regular meeting the condition of
the Association, submit to the Board, when requested, a detailed statement of
the income and expenses, be responsible for the conduct and efficiency of all
persons employed under him, and perform such other duties as may be from time to
time assigned to him by the Board.
Section 4.6. Other Officers. All other officers shall respectively
exercise such powers and perform such duties as generally pertain to their
several offices, or as may be conferred upon or assigned to them by the Board,
the Chairman of the Board or the President.
Section 4.7. Bond. Each officer and employee, if so required by the
Board, shall give bond with surety to be approved by the Board, conditioning for
the honest discharge of his duties as such officer or employee. In the
discretion of the Board, such bonds may be individual, schedule or blanket form,
and the premiums may be paid by the Association.
Section 4.8. Officers Acting as Assistant Secretary. Notwithstanding
Section 4.la of this Article IV, any Senior Vice President, Vice President or
Assistant Vice President shall have, by virtue of his office, and by authority
of the Bylaws, the authority from time to time to act as an Assistant Secretary
of the Association, and to such extent, said officers are appointed to the
office of Assistant Secretary.
11
<PAGE> 26
ARTICLE V
Trust Department
Section 5.1. Trust Department. There shall be a department of the
Association known as the Trust Department which shall perform the fiduciary
responsibilities of the Association. Opinions of counsel shall be retained on
file in the Trust Department in connection with all important matters pertaining
to fiduciary activities.
Section 5.2. Trust Investment. Funds held in a fiduciary capacity shall
be invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of the investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
Stock Certificates and Transfers
Section 6.1. Stock Certificates. Ownership of capital stock of the
Association shall be evidenced by certificates of stock signed by the Chairman
or President, and the Secretary, or an Assistant Secretary. Each certificate
shall state upon its face that the stock is transferable only upon the books of
the Association by the holder thereof, or by duly authorized attorney, upon the
surrender of such certificate, and shall meet the requirements of Section 5139,
United States Revised Statutes, as amended.
Section 6.2. Transfers. The stock of this Association shall be
assignable and transferable only on the books of this Association, subject to
the restrictions and provisions of the national banking laws; and a transfer
book shall be provided in which all assignments and transfers of stock
12
<PAGE> 27
shall be made. When stock is transferred, the certificates thereof shall be
returned to the Association, canceled, preserved and new certificates issued.
Section 6.3. Dividends. Dividends shall be paid to the shareholders in
whose names the stock shall stand at the close of business on the day next
preceding the date when the dividends are payable, provided, however, that the
directors may fix another date as a record date for the determination of the
shareholders entitled to receive payment thereof.
ARTICLE VII
Increase of Stock
7.1. Capital Stock. Shares of the capital stock of the Association,
which have been authorized but not issued, may be issued from time to time for
such consideration, not less than the par value thereof, as may be determined by
the Board.
ARTICLE VIII
Corporate Seal
Section 8.1. Seal. The seal, an impression of which appears below, is
the seal of the Association adopted by the Board of Directors:
[Seal]
The Chairman of the Board, the Vice Chairman, the President, Senior
Executive Vice
13
<PAGE> 28
President, Executive Vice President, Senior Vice President, Vice President, each
Assistant Vice President, the Chief Financial Officer, the Secretary, each
Assistant Secretary, each Trust Officer, each Assistant Trust Officer or each
Assistant Cashier, shall have the authority to affix the corporate seal of this
Association and to attest to the same.
14
<PAGE> 29
ARTICLE IX
Miscellaneous Provisions
Section 9.l. Fiscal Year. The fiscal year of the Association shall be
the calendar year.
Section 9.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, the Vice Chairman of
the Board, any Chairman or Vice Chairman, the President, any Vice President or
Assistant Vice President, the Secretary or any Assistant Secretary, the Cashier
or Treasurer or any Assistant Cashier or Assistant Treasurer, or any officer
holding similar or equivalent titles to the above in any regions, divisions or
functional units of the Association, or, if in connection with the exercise of
fiduciary powers of the Association, by any of said officers or by any Trust
Officer or Assistant Trust Officer (or equivalent titles); provided, however,
that where required, any such instrument shall be attested by one of said
officers other than the officer executing such instrument. Any such instruments
may also be executed, acknowledged, verified, delivered, or accepted in behalf
of the Association in such other manner and by such other officers as the Board
of Directors may from time to time direct. The provisions of this Section 9.2
are supplementary to any other provision of these Bylaws.
Section 9.3. Records. The organization papers of this Association, the
articles of
15
<PAGE> 30
association, the bylaws and any amendments thereto, the proceedings of all
regular and special meetings of the shareholders and of the directors, the
returns of the judges of elections, and the reports of the committees of
directors shall be recorded in an appropriate minute book, and the minutes of
each meeting shall be signed by the Secretary or any other officer appointed to
act as secretary of the meeting.
Section 9.4. Banking Hours. This Association and its branch offices
shall be open on such days and during such hours as shall be fixed from time to
time by the Board.
Section 9.5. Voting Shares of Other Corporations. The Chairman, any
Vice Chairman, the President, or any Vice President is authorized to vote,
represent and exercise on behalf of this Association all rights incident to any
and all shares of stock of any other corporation standing in the name of the
Association. The authority granted herein may be exercised by such officers in
person or by proxy or by power of attorney duly executed by said officer.
ARTICLE X
Bylaws
Section 10.1. Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 10.2. Amendments. These Bylaws may be changed or amended at any
regular or special meeting of the Board by the vote of a majority of the
Directors.
16
<PAGE> 1
EXHIBIT 25.3
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) X
---
----------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States National Banking Association 56-1989961
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King St.
Wilmington, DE 19801
(Address of principal (Zip Code)
executive offices)
Same as above
-------------
(Name, address and telephone number, including
area code, of trustee's agent for service)
Prosperity Bancshares, Inc.
(Exact name of obligor as specified in its charter)
The State of Texas
(State or other jurisdiction of incorporation or organization)
74-2331986
(I.R.S. employer identification no.)
c/o
David Zalman
Prosperity Bancshares, Inc.
3040 Post Oak Boulevard
Houston, Texas 77056
Fax (409) 543-1906
(Address, including zip code, of principal executive offices)
--------------------
GUARANTEE OF TRUST PREFERRED SECURITIES OF PROSPERITY CAPITAL
<PAGE> 2
TRUST I
(Title of the Amended and Restated Declaration of Trust securities)
------------------------------------------------
1. General information. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject
- -----------------------------------------------------------------
Name Address
- ------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor and underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
2
<PAGE> 3
16. List of Exhibits.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union Trust
Company, National Association, as now in effect, which
contain the authority to commence business and a grant of
powers to exercise corporate trust powers.
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the Articles of
Association.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not
contained in the documents specified in exhibits (1) or (2)
above.
4. A copy of the existing By-laws of First Union Trust Company,
National Association, or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939 is included at Page 4 of this
Form T-1 Statement.
7. A copy of the latest report of condition of the trustee
published pursuant to law or to the requirements of its
supervising or examining authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE> 4
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union Trust Company, National Association, a
national banking association organized and existing under the laws of the
United States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington, and State of Delaware, on the 19th
day of October, 1999.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(trustee)
By: /s/ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended,
and in connection with the proposed issuance by Prosperity Bancshares, Inc. of
Guarantee of Trust Preferred Securities, First Union Trust Company, National
Association, as the trustee herein named, hereby consents that reports of
examinations of said Trustee by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon requests therefor.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
By: /s/ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
Dated: October 19, 1999
4
<PAGE> 5
<TABLE>
<S> <C> <C>
Legal Title of Bank: First Union Trust Company, National Association Call Date: 12/31/98 FFIEC 032
Address: One Rodney Square, 1st Floor Page RC-1
City, State, Zip: Wilmington, DE 19801
FDIC Certificate #: 34465
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR JUNE 30, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1) 0081 41 1.a.
b. Interest-bearing balances (2) 0071 0 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 7 2.b.
3. Federal funds sold and securities purchased under agreements to resell 1350 0 3.
4. Loans and lease financing receivables
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 258,689 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 0 4.b.
c. LESS: Allocated transfer risk reserve RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 258,689 4.d.
5. Trading assets (from Schedule RC-D) 3545 0 5.
6. Premises and fixed assets (including capitalized leases) 2145 0 6.
7. Other real estate owned (from Schedule RC-M) 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 213 0 8.
9. Customers' liability to this bank on acceptances outstanding 2155 0 9.
10. Intangible assets (from Schedule RC-M) 2143 0 10.
11. Other assets (from Schedule RC-F) 2160 3,648 11.
12. Total assets (sum of items 1 through 11) 2170 262,385 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE> 6
<TABLE>
<S> <C> <C>
Legal Title of Bank: First Union Trust Company, National Association Call Date: 12/31/98 FFIEC 032
Address: One Rodney Square, 1st Floor Page RC-1
City, State, Zip: Wilmington, DE 19801
FDIC Certificate #: 34465
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
Dollar Amount in Thousands Bil Mil Thou
------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,
part I) RCON 2200 0 13.a.
(1) Noninterest-bearing (1) RCON 6631 0 13.a.(1)
(2) Interest-bearing RCON 6636 0 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E,
part II) RCFN 2200 0 13.b.
(1) Noninterest-bearing RCFN 6631 0 13.b.(1)
(2) Interest-bearing RCFN 6636 0 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 0 14.
15. a. Demand notes issued to the U.S. Treasury RCON 2840 0 15.a.
b. Trading liabilities (from Schedule RC-D) RCFD 3548 0 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less RCFD 2332 1,517 16.a.
b. With a remaining maturity of more than one year through three years RCFD A547 0 16.b.
c. With a remaining maturity of more than three years RCFD A548 0 16.c.
17. Not applicable
18. Bank's liability on acceptances executed and outstanding RCFD 2920 0 18.
19. Subordinated notes and debentures (2) RCFD 3200 0 19.
20. Other liabilities (from Schedule RC-G) RCFD 2930 10,929 20.
21. Total liabilities (sum of items 13 through 20) RCFD 2948 12,446 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus RCFD 3838 0 23.
24. Common stock RCFD 3230 200 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 413,719 25.
26. a. Undivided profits and capital reserves RCFD 3632 (163,980) 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities RCFD 8434 0 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) RCFD 3210 249,939 28.
29. Total liabilities and equity capital (sum of items 21 and 28) RCFD 3300 262,385 29.
</TABLE>
<TABLE>
<CAPTION>
Memorandum
<S> <C>
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed Number
for the bank by independent external auditors as of any date during 1996 RCFD 6724 N/A M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
6
<PAGE> 7
Charter No. _________
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this association shall be FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
SECOND. The main office of this association shall be in Wilmington,
Delaware. The business of this association will be limited to that of a national
trust bank. This association must obtain the prior written approval of the
Office of the Comptroller of the Currency ("OCC") before amending its Articles
of Association to expand the scope of its activities and services. Transfers of
this association's stock are subject to prior approval of a federal depository
institution regulatory agency. If no other agency approval is required, the
OCC's approval must be obtained before the transfers. In such cases where OCC
approval is required, the OCC will apply the definitions and standards of the
Change in Bank Control Act and the OCC's implementing regulation to ownership
changes in this association.
THIRD. The Board of Directors of this association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this association or a
minimum par market value or equity interest of $1,000 of stock in the bank
holding company controlling this association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
Board of Directors may designate, on the day of each year specified thereby in
the bylaws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this association entitled to vote for election of directors.
Nominations other than those made
<PAGE> 8
by or on behalf of the existing bank management shall be made in writing and be
delivered or mailed to the president of this association and to the OCC,
Washington, D.C., not less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the election of directors, provided, however,
that if less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the president of this association and
to the Comptroller of the Currency not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed.
Such notification shall contain the following information to the extent
known to the notifying shareholder:
o The name and address of each proposed nominee.
o The principal occupation of each proposed nominee.
o The total number of shares of capital stock of this
association that will be voted for each proposed nominee.
o The name and residence address of the notifying shareholder.
o The number of shares of capital stock of this association
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded
by the chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast
for each such nominee.
FIFTH. The authorized amount of capital stock of this association shall be
2,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
by the shareholders at the time the increase is authorized. The Board of
Directors will have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
This association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members president of
this
<PAGE> 9
association, who shall be chairperson of the Board of Directors, unless the
Board of Directors appoints another director to be the chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents and to
appoint a cashier and such other officers and employees as may be required to
transact the business of this association.
The Board of Directors shall have the power to:
o Define the duties of the officers and employees of this
association.
o Fix the salaries to be paid to the officers and employees.
o Dismiss officers and employees.
o Require bonds from officers and employees and to fix the
penalty thereof.
o Regulate the manner in which any increase of the capital of
this association shall be made.
o Manage and administer the business and affairs of this
association.
o Make all bylaws that it may be lawful for the Board of
Directors to make.
o Generally to perform all acts that are legal for a Board of
Directors to perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Wilmington, Delaware,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of the association to any other
location, without the approval of the shareholders.
EIGHTH. The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH. The Board of Directors of this association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least 10 days prior to the
date of the meeting to each shareholder of record at his address as shown upon
the books of this association.
<PAGE> 10
TENTH. Each director and executive officer of this association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of this association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of this association. Liabilities incurred by a
director or executive officer of this association in defending a proceeding
shall be paid by this association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
this association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this association who serves at the
request of this association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of this association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by this association, shall have the right to be indemnified by this association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of this association, or
of the corporation, partnership, joint venture, trust, enterprise, association
or plan being served by such person.
In the case of all persons except the directors and executive officers of
this association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of this
association. In the case of the directors and executive officers of this
association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "association" means First Union Trust Company, National Association and
its direct and indirect wholly-owned subsidiaries.
(b) "director" means an individual who is or was a director of this
association.
(c) "executive officer" means an officer of this association who by
resolution of the Board
<PAGE> 11
of Directors of this association has been determined to be an executive
officer of this association for purposes of Regulation O of the Federal
Reserve Board.
(d) "liability" means the obligation to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses, including counsel fees and
expenses, incurred with respect to a proceeding.
(e) "party" includes an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(f) "proceeding" means any threatened, pending, or completed claim, action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
This association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless this association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with this association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of this association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of this association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any other
rights to which a director, officer, or employee of this association may be
entitled under any statute, agreement, insurance policy, or otherwise.
This association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of this
association, or is or was serving at the request of this association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not this
association would have the power to indemnify such director, officer, or
employee against such liability, excluding insurance coverage
<PAGE> 12
for a formal order assessing civil money penalties against a director, officer
or employee of this association.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to this association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than this association, or (iii) to the extent that a
court of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of
November, 1996.
ORGANIZERS:
Kent S. Hathaway Keith D. Lembo
Robert L. Andersen Stephen J. Antal
Daniel Glassberg
<PAGE> 13
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
CHARTER CERTIFICATE
Whereas, satisfactory evidence has been presented to the Office of the
Comptroller of the Currency that FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, located in WILMINGTON, State of DELAWARE, has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------------
Deputy Comptroller for Multinational Banking
Charter Number 23201
<PAGE> 14
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
TRUST CERTIFICATE
Whereas, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, Charter
Number 23201, located in WILMINGTON, State of DELAWARE, being a National Banking
Association, organized under the statutes of the United States, has made
application for authority to act as fiduciary;
And whereas, applicable provisions of the statutes of the United
States authorize the granting of such authority;
Now, therefore, I hereby certify that the said association is
authorized to act in all fiduciary capacities by such statutes.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------------
Deputy Comptroller for Multinational Banking
<PAGE> 15
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
BYLAWS
AS AMENDED AND RESTATED MAY 27, 1997
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the
shareholders for the election of directors and transaction of whatever other
business may properly come before the meeting, shall be held at the Main Office
of the Association, or such other place as the Board of Directors may designate,
at 10:00 A.M., on the third Tuesday of February in each year, commencing with
the year 1997 or such other time within 90 days as may be set by the Board of
Directors. If, from any cause, an election of directors is not made on the said
day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of the law; and notice thereof shall be given in the manner herein.
Section 1.2. Special Meetings. Except as otherwise specifically
provided by statute, special meetings of the shareholders may be called for any
purpose at any time by the Board of Directors or by any one or more shareholders
owning, in the aggregate, not less than twenty-five percent of the stock of the
Association.
Section 1.3. Notice of Meetings. Notice of Annual and Special meetings
shall mailed, postage prepaid, at least ten days prior to the date thereof
provided for the annual meeting, addressed to each shareholder at his address
appearing on the books of the Association; but any
<PAGE> 16
failure to mail such notice, or any irregularity therein, shall not affect the
validity of such meeting, or of any of the proceedings thereat. A shareholder
may waive any such notice.
Section 1.4. Organization of Meetings. The Chairman shall preside at
all meetings of shareholders. In his absence, the President, or a director
designated by the Chairman shall preside at such meeting.
Section 1.5. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.6. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
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<PAGE> 17
Section 2.2. Number. The Board shall consist of not less than five nor
more than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full Board or by resolution of the shareholders at any meeting thereof;
provided, however, that a majority of the full Board may not increase the number
of directors to a number which: (a) exceeds by more than two the number of
directors last elected by shareholders where such number was fifteen or less;
and (b) to a number which exceeds by more than four the number of directors last
elected by shareholders where such number was sixteen or more, but in no event
shall the number of directors exceed twenty-five.
Section 2.3. Organization Meeting. A meeting shall be held for the
purpose of organizing the new Board and electing and appointing officers of the
Association for the succeeding year on the day of the Annual Meeting of
Shareholders or as soon thereafter as practicable, and, in any event, within
thirty days thereof. If, at the time fixed for such meeting, there shall not be
a quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. Regular Meetings. The regular meetings of the Board shall
be held on such days and time as the directors may, by resolution, designate;
and written notice of any change thereof shall be sent to each member. When any
regular meeting of the Board falls upon a legal holiday, the meeting shall be
held on such other day as the Board may designate.
Section 2.5. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, or President, or at the request of three or
more directors. Each director
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<PAGE> 18
shall be given notice of each special meeting, except the organization meeting,
at least one day before it is to be held by facsimile, telephone, telegram,
letter or in person. Any director may waive any such notice.
Section 2.6. Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned without further notice.
Section 2.7. Term of Office and Vacancy. Directors shall hold office
for one year and until their successors are elected and have qualified. No
person shall stand for election as a director of this Association if at the date
of his election he will have passed his seventieth birthday; provided, however,
this prohibition shall not apply to persons who are active officers of this
Association, an affiliate bank, or its parent corporation, or a former chief
executive officer of the Association. No person, who is not an officer or former
officer of this Association, an affiliate bank, or its parent corporation and
who has discontinued the principal position or activity the person held when
initially elected, shall be recommended to the shareholders for reelection;
provided, however, that exceptions may be made because of a change in principal
position or activity which would be compatible with continued service to this
Association. No person elected as a director may exercise any of the powers of
his office until he has taken the oath of office as prescribed by law. When any
vacancy occurs among the directors, the remaining members of the Board, in
accordance with the laws of the United States, may appoint a director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
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<PAGE> 19
Section 2.8. Nominations. Nominations for election to the Board may be
made by the Executive Committee or by any stockholder of any outstanding class
of capital stock of the Association entitled to vote for the election of
directors.
Section 2.9. Communications Equipment. Any or all directors may
participate in a meeting of the Board by means of conference telephone or any
means of communication by which all persons participating in the meeting are
able to hear each other.
Section 2.10. Action Without Meeting. Any action required or permitted
to be taken by the Board or committee thereof by law, the Association's Articles
of Association, or these Bylaws may be taken without a meeting, if, prior or
subsequent to the action, all members of the Board or committee shall
individually or collectively consent in writing to the action. Each written
consent or consents shall be filed with the minutes of the proceedings of the
Board or committee. Action by written consent shall have the same force and
effect as a unanimous vote of the directors, for all purposes. Any certificate
or other documents which relates to action so taken shall state that the action
was taken by unanimous written consent of the Board or committee without a
meeting.
ARTICLE III
Committees of the Board
Section 3.1. Executive Committee. The Board may by resolution adopted
by a majority of the entire Board designate an Executive Committee consisting of
the Chairman of the Board, the President, and not less than two other directors.
Subject to the national banking laws and the Association's Articles of
Association, the Executive Committee may exercise all the
5
<PAGE> 20
powers of the Board of Directors with respect to the affairs of the Association,
except that the Executive Committee may not:
1. (a) exercise such powers while a quorum of the Board of
Directors is actually convened for the conduct of
business,
(b) exercise any power specifically required to be
exercised by at least a majority of all the
directors,
(c) act on matters committed by the Bylaws or resolution
of the Board of Directors to another committee of the
board, or
(d) amend or repeal any resolution theretofore adopted by
the Board of Directors which by its terms is
amendable or repealable only by the Board;
2. amend the Articles of Association or make, alter or repeal any
Bylaw of the Association;
3. elect or appoint any director, create or fill any vacancies in
the Board of Directors or remove any director, or authorize or
approve any change in the compensation of any officer of the
Association who is also a director of the Association;
4. authorize or approve issuance or sale or contract for sale of
shares of stock of the Association, or determine the
designation and relative rights, preferences and limitations
of a class or series of shares;
5. adopt an agreement of merger or consolidation, or submit to
shareholders any action that requires shareholder approval,
including any recommendation to the
6
<PAGE> 21
shareholders concerning the sale, lease or exchange of all or
substantially all the Association's property and assets, a
dissolution of the Association or a revocation of a previously
approved dissolution; or
6. authorize an expenditure by the Association in excess of $10
million for any one item or group of related items. The
committee shall hold regular meetings at such times as the
members shall agree and whenever called by the chairman of the
committee. A majority of the committee shall constitute a
quorum for the transaction of business. The committee shall
keep a record of its proceedings and shall report these
proceedings to the Board at the regular meetings thereof. The
committee shall serve as the nominating committee for
nominations to the Board.
Section 3.2. Chairman of the Executive Committee. The Board may
designate one of its members to be Chairman of the Executive Committee who shall
preside at the meetings thereof and shall perform such duties as the Board shall
assign to him from time to time.
Section 3.3. Audit Committee. The Board shall appoint a committee of
three or more persons exclusive of the officers of this Association which
committee shall be known as the Audit Committee. It shall be the duty of this
committee at least once in every twelve months to examine the affairs of the
Association, and determine whether it is in a sound and solvent condition and to
recommend to the Board such changes in the manner of doing business, etc., as
may seem to be desirable. The committee may cause such examination to be made in
its behalf and under its supervision by outside accountants and may also use the
services of any other persons either inside
7
<PAGE> 22
or outside the Association to assist in its work. The results of each
examination shall be reported in writing to the Board.
Section 3.4. Audit of Trust Department. The Audit Committee shall, at
least once during each calendar year and within fifteen months of the last such
audit make suitable audits of the Trust Department or cause suitable audits to
be made by auditors responsible only to the Board, and at such time shall
ascertain whether the department has been administered in accordance with law,
Part 9 of the Regulations of the Comptroller of the Currency, and sound
fiduciary principles. In lieu of such periodic audit the Audit Committee, at the
election of the Board, may conduct or cause to be conducted by auditors
responsible only to the Board an adequate continuous audit system adopted by the
Board. A written report of such periodic or continuous audit shall be made to
the Board.
Section 3.5. Other Committees. The Board may appoint from time to time
other committees composed of one or more persons each, for such purposes and
with such powers as the Board may determine. The Chairman of the Board shall
have the power to designate another person to serve on any committee during the
absence or inability of any member thereof so to serve.
Section 3.6. Directors' Emeritus. The Board may designate one or more
persons to serve as Director Emeritus. Such Director Emeritus shall have the
right to attend any and all meetings of the Board, but shall have no vote at
such meetings. A person designated as Director Emeritus may serve in that
capacity for a period of three years.
8
<PAGE> 23
Section 3.7. Alternate Committee Members. The Board may, from time to
time, appoint one or more, but no more than three persons to serve as alternate
members of a committee, each of whom shall be empowered to serve on that
committee in place of a regular committee member in the event of the absence or
disability of that committee member. An alternate committee member shall, when
serving on a committee, have all of the powers of a regular committee member.
Alternate committee members shall be notified of, and requested to serve at, a
particular meeting or meetings, or for particular periods of time, by or at the
direction of the chairman of the committee or the Chairman of the Board.
ARTICLE IV
Officers
Section 4.1. Officers. The officers of the Association may be a
Chairman of the Board, a Vice Chairman of the Board, one or more Chairmen or
Vice Chairmen (who shall not be required to be directors of the Association), a
President, one or more Vice Presidents, a Secretary, a Cashier or Treasurer, and
such other officers, including officers holding similar or equivalent titles to
the above in regions, divisions or functional units of the Association, as may
be appointed by the Board of Directors. The Chairman of the Board and the
President shall be members of the Board of Directors. Any two or more offices
may be held by one person, but no officer shall sign or execute any document in
more than one capacity.
4.2. Term of Office. The officers who are required by the articles of
association or the
9
<PAGE> 24
bylaws to be members of the Board shall hold their respective offices until the
Organization meeting of the Board following the annual meeting of shareholders
or until their respective successors shall have been elected, unless they shall
resign, become disqualified or be removed from office. Each other officer shall
hold office at the pleasure of the Board. Any officer may be removed at any time
by the Board.
Section 4.3. Chairman of the Board. The chairman of the board shall be
designated as Chairman of the Board. He shall preside at all meetings of the
stockholders and directors and he shall be a member of all committees of the
Board except the Audit Committee. He shall have such other powers and perform
such other duties as may be prescribed from time to time by the Board. He shall
be subject only to the direction and control of the Board.
Section 4.4. President. The president shall be the chief executive
officer of the Association and he shall be designated as President and Chief
Executive Officer. In the absence of the Chairman the President shall preside at
all meetings of the Board. The President shall be a member of each committee of
the Board except the Audit Committee. He shall have the powers and perform the
duties conferred or imposed upon the President by the national banking laws, and
he shall have such other powers and perform such other duties as nay from time
to time be imposed upon or assigned to him by the Board.
Section 4.5. Chief Financial Officer. The Chief Financial officer shall
have such title as may be designated by the Board and he shall be responsible
for all monies, funds and valuables of
10
<PAGE> 25
this Association, provide for the keeping of proper records of all transactions
of the Association, report to the Board at each regular meeting the condition of
the Association, submit to the Board, when requested, a detailed statement of
the income and expenses, be responsible for the conduct and efficiency of all
persons employed under him, and perform such other duties as may be from time to
time assigned to him by the Board.
Section 4.6. Other Officers. All other officers shall respectively
exercise such powers and perform such duties as generally pertain to their
several offices, or as may be conferred upon or assigned to them by the Board,
the Chairman of the Board or the President.
Section 4.7. Bond. Each officer and employee, if so required by the
Board, shall give bond with surety to be approved by the Board, conditioning for
the honest discharge of his duties as such officer or employee. In the
discretion of the Board, such bonds may be individual, schedule or blanket form,
and the premiums may be paid by the Association.
Section 4.8. Officers Acting as Assistant Secretary. Notwithstanding
Section 4.la of this Article IV, any Senior Vice President, Vice President or
Assistant Vice President shall have, by virtue of his office, and by authority
of the Bylaws, the authority from time to time to act as an Assistant Secretary
of the Association, and to such extent, said officers are appointed to the
office of Assistant Secretary.
11
<PAGE> 26
ARTICLE V
Trust Department
Section 5.1. Trust Department. There shall be a department of the
Association known as the Trust Department which shall perform the fiduciary
responsibilities of the Association. Opinions of counsel shall be retained on
file in the Trust Department in connection with all important matters pertaining
to fiduciary activities.
Section 5.2. Trust Investment. Funds held in a fiduciary capacity shall
be invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of the investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
Stock Certificates and Transfers
Section 6.1. Stock Certificates. Ownership of capital stock of the
Association shall be evidenced by certificates of stock signed by the Chairman
or President, and the Secretary, or an Assistant Secretary. Each certificate
shall state upon its face that the stock is transferable only upon the books of
the Association by the holder thereof, or by duly authorized attorney, upon the
surrender of such certificate, and shall meet the requirements of Section 5139,
United States Revised Statutes, as amended.
Section 6.2. Transfers. The stock of this Association shall be
assignable and transferable only on the books of this Association, subject to
the restrictions and provisions of the national banking laws; and a transfer
book shall be provided in which all assignments and transfers of stock
12
<PAGE> 27
shall be made. When stock is transferred, the certificates thereof shall be
returned to the Association, canceled, preserved and new certificates issued.
Section 6.3. Dividends. Dividends shall be paid to the shareholders in
whose names the stock shall stand at the close of business on the day next
preceding the date when the dividends are payable, provided, however, that the
directors may fix another date as a record date for the determination of the
shareholders entitled to receive payment thereof.
ARTICLE VII
Increase of Stock
7.1. Capital Stock. Shares of the capital stock of the Association,
which have been authorized but not issued, may be issued from time to time for
such consideration, not less than the par value thereof, as may be determined by
the Board.
ARTICLE VIII
Corporate Seal
Section 8.1. Seal. The seal, an impression of which appears below, is
the seal of the Association adopted by the Board of Directors:
[Seal]
The Chairman of the Board, the Vice Chairman, the President, Senior
Executive Vice
13
<PAGE> 28
President, Executive Vice President, Senior Vice President, Vice President, each
Assistant Vice President, the Chief Financial Officer, the Secretary, each
Assistant Secretary, each Trust Officer, each Assistant Trust Officer or each
Assistant Cashier, shall have the authority to affix the corporate seal of this
Association and to attest to the same.
14
<PAGE> 29
ARTICLE IX
Miscellaneous Provisions
Section 9.l. Fiscal Year. The fiscal year of the Association shall be
the calendar year.
Section 9.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, the Vice Chairman of
the Board, any Chairman or Vice Chairman, the President, any Vice President or
Assistant Vice President, the Secretary or any Assistant Secretary, the Cashier
or Treasurer or any Assistant Cashier or Assistant Treasurer, or any officer
holding similar or equivalent titles to the above in any regions, divisions or
functional units of the Association, or, if in connection with the exercise of
fiduciary powers of the Association, by any of said officers or by any Trust
Officer or Assistant Trust Officer (or equivalent titles); provided, however,
that where required, any such instrument shall be attested by one of said
officers other than the officer executing such instrument. Any such instruments
may also be executed, acknowledged, verified, delivered, or accepted in behalf
of the Association in such other manner and by such other officers as the Board
of Directors may from time to time direct. The provisions of this Section 9.2
are supplementary to any other provision of these Bylaws.
Section 9.3. Records. The organization papers of this Association, the
articles of
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<PAGE> 30
association, the bylaws and any amendments thereto, the proceedings of all
regular and special meetings of the shareholders and of the directors, the
returns of the judges of elections, and the reports of the committees of
directors shall be recorded in an appropriate minute book, and the minutes of
each meeting shall be signed by the Secretary or any other officer appointed to
act as secretary of the meeting.
Section 9.4. Banking Hours. This Association and its branch offices
shall be open on such days and during such hours as shall be fixed from time to
time by the Board.
Section 9.5. Voting Shares of Other Corporations. The Chairman, any
Vice Chairman, the President, or any Vice President is authorized to vote,
represent and exercise on behalf of this Association all rights incident to any
and all shares of stock of any other corporation standing in the name of the
Association. The authority granted herein may be exercised by such officers in
person or by proxy or by power of attorney duly executed by said officer.
ARTICLE X
Bylaws
Section 10.1. Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 10.2. Amendments. These Bylaws may be changed or amended at any
regular or special meeting of the Board by the vote of a majority of the
Directors.
16
